Q2 2025 Earnings Summary
- The company's short-cycle order trends have not improved and remain under pressure, which could negatively impact near-term growth in these businesses.
- The off-highway market is expected to remain challenged for the rest of the calendar year, indicating a prolonged recovery and potential headwinds for the company’s off-highway OEM businesses.
- The shift towards longer-cycle businesses means that positive orders may take longer than historically to translate into revenue growth, potentially delaying the company's organic growth improvement.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -2% | The decrease was driven by lower demand in the Diversified Industrial Segment, which more than offset continued growth in Aerospace; prior-year acquisitions also provided smaller incremental benefits compared to earlier quarters. |
Diversified Industrial Segment | -7% | Reflects softer demand in several end markets (e.g., off-highway, industrial) and unfavorable currency impacts, outweighing price increases and cost controls; also compares against a strong prior-year period with acquisitions. |
Aerospace Systems Segment | +14% | Benefited from strong aftermarket activity and integrating Meggitt, which expanded the portfolio; higher OEM and defense demand also contributed to growth, continuing trends from prior quarters. |
Commercial Aftermarket | +21% | Driven by increased air traffic, spare parts purchases, and slower OEM production, which shifted more demand into aftermarket services; builds on momentum from previous quarters’ recovery in air travel. |
Operating Income | +40% | Supported by margin expansion (with adjusted margins above 24% in many segments) and cost controls; the Aerospace segment’s higher profitability and acquisition synergies from Meggitt also boosted results compared to the prior year. |
Net Income | +39% | Reflects improved operating performance in both Industrial and Aerospace businesses; favorable aftermarket mix and debt reduction supported earnings growth from the prior period’s already high base. |
Diluted EPS | +39% | Increase was propelled by higher net income, lower interest expense, and continued execution of the Win Strategy focused on productivity; follows strong EPS gains in preceding quarters, demonstrating continued improvements. |
Europe | -5% | Macro challenges and softening industrial demand dampened sales, building on prior quarters’ trend of weaker macro conditions; slower recovery in certain end-use markets also contributed to the decline. |
Latin America | -8% | The dip follows previously stronger quarters, with lower end-user demand in some industrial segments; however, demand in transportation and energy markets remained relatively positive, providing partial offset. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Reported Sales Growth | FY 2025 | 1.5% to 3.5% (midpoint 2%) | -2% to +1% (midpoint -0.5%) | lowered |
Organic Sales Growth | FY 2025 | 1.5% to 4.5% (midpoint 3%) | 2% (midpoint) | lowered |
Organic Growth (Aerospace) | FY 2025 | no prior guidance | 11% | no prior guidance |
Organic Growth (Industrial NA) | FY 2025 | no prior guidance | -2.5% | no prior guidance |
Organic Growth (Industrial Int'l) | FY 2025 | no prior guidance | 0% | no prior guidance |
Divestitures | FY 2025 | 1.5% | 1.5% | no change |
Currency Impact | FY 2025 | +0.5% | -1% | lowered |
Adjusted Segment Operating Margin | FY 2025 | 25.7% | 25.8% | raised |
Tax Rate | FY 2025 | 22.5% | 22% | lowered |
Adjusted EPS | FY 2025 | $26.70 ± $0.35 | $26.70 ± $0.30 | no change |
As-reported EPS | FY 2025 | $23.13 ± $0.35 | $24.76 ± $0.30 | raised |
Free Cash Flow | FY 2025 | $3.0B to $3.3B | $3.0B to $3.3B | no change |
Reported Sales | Q3 2025 | no prior guidance | $4.9B | no prior guidance |
Organic Growth | Q3 2025 | no prior guidance | +1.5% | no prior guidance |
Adjusted Segment Operating Margin | Q3 2025 | no prior guidance | 25.6% | no prior guidance |
Adjusted EPS | Q3 2025 | no prior guidance | $6.65 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Reported Sales | Q2 2025 | $4,800 million | $4,742.59 million | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Aerospace segment growth and strong aftermarket performance | Q1 2025 through Q3 2024: Consistently strong performance, with double-digit growth and record margins driven by aftermarket. | Q2 2025: Sales reached a record $1.5B, up 14% organically, with 20%+ aftermarket growth. Guidance raised to 11% organic growth. | Consistent strength, repeatedly cited as a key growth driver. |
Industrial markets’ gradual recovery (short-cycle vs. longer-cycle) | Q1 2025 through Q3 2024: Emphasis on delayed recovery in short-cycle, steadier demand in longer-cycle. Destocking nearing end in some regions. | Q2 2025: Short-cycle remains under pressure; longer-cycle businesses see positive orders in aerospace, HVAC, and semiconductors. | Recurring theme of uneven recovery; gradual improvement still expected. |
Distribution channel sentiment | Q1 2025 through Q3 2024: Distributors remained optimistic with high quoting activity, cautious on inventory. Destocking mostly played out. | Q2 2025: Very positive and bullish distributor outlook, but restocking not yet occurring. | Shift to bullish sentiment, though actual demand pick-up is still pending. |
North American order weakness and uncertain recovery timing | Q1 2025 through Q3 2024: Multiple quarters of weak orders; timing of recovery uncertain, but positive channel sentiment. | Q2 2025: NA organic sales down 5%. Industrial recovery delayed, five quarters of negative growth. | Persistently weak but expected to turn as historical cycle averages near. |
Margin expansion and operational efficiencies | Q1 2025 through Q3 2024: Repeated strong margin gains through productivity, cost controls, and aftermarket mix. | Q2 2025: 110bps margin expansion (25.6%) driven by the Win Strategy and lean tools. | Continual improvement through disciplined execution; recurring highlight. |
Meggitt acquisition synergies | Q1 2025 through Q4 2024: Noted as supporting aftermarket growth and margin expansion; cited $200M achieved, aiming at $300M total. | Q2 2025: No mention of specific synergies. | No longer mentioned in Q2 2025, previously a key synergy topic. |
$1 trillion mega projects | Q1 2025: Discussed ~$1T in announced mega projects since 2021, some expected to start in 2025. | Q2 2025: No mention of a specific $1T figure. | New topic that surfaced in Q1 but not reiterated in Q2. |
Margin improvements driven by divestitures | Q1 2025: Divestitures added ~20–40bps to margins in NA; part of portfolio optimization. | Q2 2025: Improvements credited to operational gains, not specifically divestitures. | New mention in Q1 but not a major factor in Q2. |
Ongoing off-highway market challenges | Q1 2025 through Q3 2024: High single-digit decline forecast, with soft demand in construction and agriculture. | Q2 2025: Agriculture sector weakness, OEM destocking and production cuts persist. | Continues to be a headwind with no short-term resolution. |
Asia Pacific growth opportunities | Q1 2025 through Q4 2024: Growth momentum improving; India and SEA strong, China mixed. | Q2 2025: Organic growth at +3%; orders improved in longer-cycle business (HVAC, semis). | Steady improvement, viewed as a positive regional driver going forward. |