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    MSA Safety (MSA)

    MSA Q2 2024: Mid-single-digit growth guidance, Q3 margins to slip

    Reported on May 15, 2025 (After Market Close)
    Pre-Earnings Price$191.78Last close (Jul 25, 2024)
    Post-Earnings Price$193.17Open (Jul 26, 2024)
    Price Change
    $1.39(+0.72%)
    • Robust and diversified demand: Executives highlighted healthy demand across key segments such as Fire Service and Detection with a strong pipeline, which underpins a favorable revenue outlook even amid timing variability.
    • Ongoing manufacturing optimization and margin resilience: The company is more than halfway through reconfiguring its manufacturing footprint to lower costs and improve delivery, supporting healthy incremental margins (targeting 30%–40%) despite economic headwinds.
    • Growing recurring revenue and innovative product adoption: Management noted a recurring revenue base at approximately 15% with initiatives aimed at reaching 20%, bolstered by strong adoption of connected device-platforms (with over 50% take rate by new customers).
    • Volatility in Order Timing and Margins: The Q&A highlighted that order timing can be lumpy and that Q3 margins are expected to be lower compared to Q2, with a reliance on a strong rebound in Q4. This creates uncertainty around achieving consistent profitability in the near term.
    • Incomplete Manufacturing Reconfiguration: The company is "more than halfway" through its manufacturing footprint adjustments, which introduces execution risk. Delays or further issues in completion could negatively impact operational efficiency and cost leverage benefits.
    • Dependence on Funding and External Factors: The discussion mentioned that the release of AFG funds is slower this year, which could delay order conversion in key segments like Fire Service and Detection, creating potential headwinds to revenue growth.
    1. Full Year Guidance
      Q: Full-year growth outlook?
      A: Management emphasized that their pipeline remains robust across diversified segments, expecting mid-single-digit revenue growth for full year 2024—building on last year’s 17% growth—with the second half likely mirroring the first half.

    2. Margin Outlook
      Q: Are incremental margins at high end?
      A: They explained that, despite some quarterly volatility (with Q1 at 70% and Q2 around 29%), their incremental margins are targeting the 30–40% range, with improvements expected later in the year.

    3. Margin Stability
      Q: Will margins dip in Q3?
      A: Management noted a slight dip in Q3 due to seasonal factors and supply chain adjustments, maintaining margins around the mid-48% range before rebounding in Q4.

    4. Recurring Revenue
      Q: What’s the recurring revenue contribution?
      A: They reported recurring revenue currently stands at about 15% of sales, with ongoing initiatives aimed at increasing this to near 20% to secure longer-term cash flow.

    5. Manufacturing Footprint
      Q: How far along is reconfiguration work?
      A: Management confirmed that more than half of their manufacturing reconfiguration is complete, with further progress planned in the second half to improve cost efficiency and delivery.

    6. Revenue Watch Items
      Q: What risks could affect second-half orders?
      A: They cautioned that order timing can be lumpy, noting that factors like delayed AFG funding and shifting market timing might push revenue more into Q4, even though the overall pipeline is strong.

    7. Price Adjustments
      Q: How are inflation impacts managed?
      A: A regional price increase was implemented early in Q2; moving forward, pricing remains normalized and adaptive to inflation and tariff pressures to safeguard margins.

    8. Detection Gains
      Q: What drove Detection performance?
      A: Strong Detection sales resulted from reducing elevated backlogs, effective shipments of both fixed and portable units, and solid demand for both traditional and connected products.

    9. Macro Reaction
      Q: How fast can you pivot if the macro shifts?
      A: Management stressed the ability to react swiftly using a range of strategic levers to protect profitability and margin profiles in response to any macroeconomic changes.

    10. International Mix
      Q: How is the international mix affecting results?
      A: The mix impact is largely neutral, with growth in international Fire Service and Detection balancing out some cyclical challenges in Industrial PPE.

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