Park-Ohio Hldgs Q3 2026 Earnings Call Transcript

Park-Ohio Hldgs (NASDAQ:PKOH) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Park-Ohio Hldgs reported strong third-quarter results with record consolidated revenues of $459 million, a 15% year-over-year increase, and a notable 54% rise in operating income.

The company is leaning into high-growth areas such as aerospace and defense, semiconductor, and electrification, which has amplified their results. It also plans to continue productivity improvement initiatives, including automation and digital transformation.

Park-Ohio raised its full-year net sales outlook to $1.75 billion to $1.77 billion and adjusted earnings per share guidance to $3.35 to $3.50 per diluted share, while maintaining its EBITDA margin outlook of 8.5% to 9% of sales.

Operational highlights include record sales in the Supply Technologies and Engineered Products segments, with significant contributions from semiconductor, electrical, and aerospace and defense markets.

Management expressed confidence in the momentum continuing into 2027, supported by strong bookings and backlogs, particularly in the Engineered Products segment, and ongoing strategic investments in global service centers.

Full Transcript

OPERATOR

Good morning and welcome to Park-Ohio Hldgs Third Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, the company will conduct a question-and-answer session. Today’s conference is also being recorded. If you have any objections, you may disconnect at this time. Before we get started, I want to remind everyone that certain statements made on today’s call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release as well as in the company’s 2025 10-K, which was filed on March 5, 2026 with the SEC.

Additionally, the company may discuss adjusted EPS, adjusted operating income and EBITDA as defined. These metrics are not measures of performance under generally accepted accounting principles. For reconciliation of EPS to adjusted EPS, operating income to adjusted operating income and net income attributable to Park-Ohio Hldgs common shareholders to EBITDA as defined, please refer to the company’s recent earnings release. I will now turn the conference over to Mr. Matthew Crawford, chairman, president and CEO. Please proceed, Mr. Crawford.

Matthew V Crawford (Chief Executive Officer)

Thank you, Brock. Good morning and welcome to everyone. Our third quarter continues to demonstrate the improved growth and earnings profile of our business. While we have always benefited from a strong and diverse list of global industrial customers, our ability over the last five years to lean into high growth areas like aerospace and defense, semiconductor, power management and electrification have amplified our results. In addition, many of our traditional markets are also benefiting from strengthening demand due to growth in infrastructure spending and onshoring. In fact, as backlogs increase and visibility improves, we not only feel we will have a better-than-expected fourth quarter of this year, but that our growth will continue into 2027. We will also continue to work aggressively on our productivity improvement initiatives throughout our business, which includes footprint optimization, automation and digital transformation tools.

These initiatives will not only be critical to improved near-term margin enhancement and operating leverage, but also vital in our goal to bring superior value to our customers and underpin long-term success. Thank you to all of our Park-Ohio associates. Your effort and teamwork continue to be the critical, critical ingredient in our progress. Now I’ll turn the call over to Pat to cover the third quarter results.

Patrick W Fogarty (Chief Financial Officer)

Thanks, Matt. Our third quarter results were strong, exceeded our expectations, and were highlighted by record consolidated revenues of $459 million, which increased 15% year over year, and a year-over-year increase in gross margin of 120 basis points, increased operating income of 54%, and increased adjusted earnings per share of 60%. Additionally, record revenues in both our Supply Technologies and Engineered Products segments and continued sales growth in our Assembly Components segment were a result of strong demand across most of our key end markets, including semiconductor, electrical, steel, aerospace and defense, AI data center, heavy-duty truck, oil and gas, and power sports. And finally, the third quarter was highlighted by strong results in the Engineered Products segment due to continued sales growth of new capital equipment, stable aftermarket demand, and sales growth in our forged and machined products business.

Based on our record sales in the first nine months of the year, continued strong end market demand in Supply Technologies, strong backlogs in Engineered Products, and ongoing operational improvements across several businesses, we are raising our full year sales and adjusted earnings per share outlook as follows. We are increasing our net sales outlook to $1.75 billion to $1.77 billion. We are also increasing our adjusted earnings per share guidance to $3.35 to $3.50 per diluted share.

We are maintaining our EBITDA margin outlook to range from 8.5% to 9% of sales and our full-year free cash flow outlook to range from $20 to $30 million. Turning now to the details of our third quarter results, consolidated sales in the quarter were $459 million compared to $399 million a year ago, an increase of 15%. In addition, consolidated sales grew sequentially by 4% compared to last quarter. Sales in each business segment increased year over year and also increased sequentially, resulting from strong demand from most key end markets. Our year-over-year gross margin improvement of 120 basis points and increased operating income of 54% were driven by the margin flow-through from the record sales levels and profit enhancement initiatives implemented across several of our businesses.

SG&A expenses in the quarter were approximately $54 million, or 11.8% of sales, compared to 11.7% of sales a year ago. The year-over-year increase was driven primarily by general inflation, increases in personnel costs, and support for the higher sales levels. Third quarter interest expense was $12.2 million, lower than $12.5 million last year, due primarily to lower interest rates on our revolving credit facility during the quarter. Our effective income tax rate was approximately 19% in the quarter, which is lower than the U.S. statutory rate due primarily to federal research and development tax credit benefits estimated for the year.

We expect our full-year effective income tax rate to range between 18% and 20%. GAAP earnings per share for the quarter were $0.97 per diluted share, an increase of 149% from $0.39 per diluted share last year. On an adjusted basis, diluted earnings per share increased 60% to $1.04 per share compared to $0.65 in the third quarter of last year. During the quarter, cash flow from operations was $16 million and our free cash flow was $7 million. Capital spending in the quarter totaled $8 million, which included investments in information systems, automation equipment which will drive improved plant floor efficiencies, and growth capital.

We expect our full-year capex to be approximately $35 to $40 million. We expect free cash flow in the fourth quarter to be strong and range between $35 to $45 million, driven by lower working capital at year-end, and our full-year free cash flow to range between $20 and $30 million. Our liquidity continues to be strong and totaled approximately $195 million at the end of the quarter, which consisted of $59 million of cash on hand and $136 million of unused borrowing capacity under our various banking arrangements.

Turning now to our segment results, in Supply Technologies, net sales increased 21% and totaled a record $225 million during the quarter compared to $186 million in the third quarter of last year. The record sales, which eclipsed our previous record of $209 million set last quarter, were driven by strong customer demand in most key end markets including semiconductor, AI data center, heavy-duty truck, power sports, and aerospace and defense. Our supply chain management business continues to benefit from increasing demand in semiconductor, electrical, and AI data center sectors, which in total increased 44% year over year.

In response to the growing demand trends in these interrelated end markets, we are expanding certain global service centers in support of key customers and the expected demand for our supply chain management services over the next several years. In addition, aerospace and defense demand continues to be strong in this segment, resulting in third quarter sales growth of 26% year over year. Segment operating income in the third quarter was $21 million, an increase of 23% year over year, and operating margins were 9.5% compared to 9.4% a year ago.

During the quarter, we commenced operations at our new highly efficient state-of-the-art North American distribution center. We are confident that this facility will be a best-in-class service center operation with automated sorting and kitting and additional value-added services for our customers. We will continue to ramp up operations at this facility over the next several months and expect to see margin benefits of this strategic investment beginning in 2027.

Our fastener manufacturing business performed in the quarter as sales grew 8% year over year. Global customer demand for our proprietary self-piercing and clinch products continues to grow, with third quarter sales of these products improving 12% over last year. This increase is being driven by the expanding use of lightweight materials used in the production of EV and hybrid vehicles. In our Assembly Components segment, sales for the quarter totaled $104 million compared to $97 million a year ago, an increase of 7% year over year, driven by new product sales launched last year in fluid transfer and molded rubber products and higher customer demand from various automotive platforms. Segment operating income totaled $5.6 million compared to $4.7 million last year, driven by the higher sales in the quarter and the benefits of restructuring actions taken in the prior year.

During the quarter, we continue to focus on margin improvement in this segment through revenue growth from new programs as well as profit enhancement initiatives. Several operating initiatives, such as facility rationalization, reducing raw material costs through increasing our rubber mixing capacity, and plant floor automation investments, are expected to have a positive impact on operating margins in 2027. In our Engineered Products segment, sales were a record $130 million, up 12% compared to last year. The increase in sales was driven primarily by higher sales of new capital equipment used for thermal processing and power management, continued strong demand for our aftermarket parts and services, and higher sales in our forged and machined products group, which are up 33% year over year driven by aerospace and defense demand. New equipment bookings totaled $53 million in the quarter, and year to date new bookings total $206 million compared to $190 million for the same period last year, an increase of 8%.

Our equipment backlog at the end of the third quarter increased 18% to $242 million compared to $205 million at December 31st of last year. The increase in new capital equipment sales in the quarter was driven by strong customer demand in several key end markets, including electrical steel processing, aerospace and defense, oil and gas, agriculture, AI data center, and semiconductor end markets. Both our industrial equipment and forging businesses continue to experience strong demand from both defense and AI data center-related sectors.

We provide several products in support of these growing end markets, including transformer systems, induction furnaces for electrical steel processing, generators for emergency power, various induction equipment used by data center cooling systems, forgings for industrial turbines and for a wide variety of military applications, and forging presses used to produce munitions for military use. We expect segment margin will continue to improve based on increased sales of new equipment and forged products, the impact of implemented plant floor improvements in several locations, and a focus on higher-margin products in each region.

During the quarter, segment operating income improved significantly to $9 million compared to $3 million a year ago. The improved operating income resulted from the higher sales in the quarter and improved operating performance across most locations. And finally, as part of our ongoing portfolio optimization strategy, we announced earlier this year that we have engaged an investment banking firm to assist us with a formal review of strategic alternatives for our Southwest Steel Processing business, including a potential sale or other transaction. SSP is included in our Engineered Products segment. This review reflects our continued focus on aligning capital and resources toward higher-growth, higher-margin opportunities across our portfolio.

We expect the process to be completed toward the end of this year. Our revised outlook includes the full-year impact of Southwest Steel Processing, which is expected to generate approximately $15 million in revenue and a loss of approximately $0.46 per diluted share. The outcome of our strategic review with respect to this business represents potential upside to our current outlook. Now I’ll turn the call back over to Matt.

Matthew V Crawford (Chief Executive Officer)

Thank you, Pat. As you can tell, we’re pleased with the momentum that has been building both in revenue and in profits throughout the year. As you can also perhaps tell, we’re increasingly confident that that momentum will continue into 2027. With that, I’ll turn over for questions.

OPERATOR

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question today comes from John Franzreb of Sidoti and Company.

Please proceed with your question.

John Franzreb (Analyst at Sidoti and Company)

Thank you. Good morning, Matt and Pat, and thanks for taking the questions. I’d like to start with the quarter in and of itself—really nice improvement in the margin profile, both on gross and operating. I’m wondering if you can kind of break out how much of that was volume leverage versus productivity improvement versus mix.

Matthew V Crawford (Chief Executive Officer)

I’ll give Pat a second to think about that. I’ll start by saying both. No, I mean, quite frankly, we are seeing the operating leverage in a number of the businesses where the demand is perhaps even greater than we expected. And we’re seeing it at levels that are appropriate. We’re never happy, but at appropriate levels. But that is not to dismiss the hard work going on. And really the sort of discrete productivity investments that we’re making in the business, which again, we’re beginning to see, but we’ll see more meaningfully going into next year, whether that be the work we’ve done at Southwest Steel, a business that we’re obviously looking at strategic alternatives for right now, but also across the board. And some of the investments we’ve made, whether they be at Canton Drop Forge for an investment in our powerhouse or whether it be in automation tools and so forth.

So, you know, we’re sort of midstream on those things, but we expect them to yield more benefits in 2027. But the answer to your question is we’re seeing success on both sides.

Patrick W Fogarty (Chief Financial Officer)

Yeah, John, I’ll add and answer your question. By segment in Supply Technologies, I would say the improved margin profile and increase in operating income is volume driven. When I jump into Assembly Components, our sales were up marginally and the improvement in operating income was really a result of productivity improvements and investments that we have made in rubber mixing capacity as well as automation. In that particular segment, jumping into Engineered Products. Engineered Products, that’s where we’re really seeing both productivity improvements and operating leverage from increased sales. Most notably in the quarter, we saw improved results in our forged and machined products business, which were up 33% year over year in revenue. We have done a lot of work in improving plant floor metrics, improving uptime in our aerospace and defense forging plant.

That is at the early stages of improvement, and we would expect that to continue to improve over the next several quarters.

Matthew V Crawford (Chief Executive Officer)

John, you hit on something that’s really important to us. We’ve grown this business quite a bit over the years. It is critical in our growth plan that we see operating leverage and increased margins. So we are seeing that across the business for the reasons that Pat talked about. But the point is that is critical to our growth path,

John Franzreb (Analyst at Sidoti and Company)

Certainly. And just a question on the guidance here. Two consecutive quarters of nice increases on the revenue line, but it hasn’t really moved the needle on the free cash flow. I’m curious as to why that’s the case.

Patrick W Fogarty (Chief Financial Officer)

The free cash flow, John, is ultimately a function of the revenue growth and the increase in the working capital needed to support that growth. As you can see from my prepared remarks, our capital spending is in line with prior guidance that is really in the current year at a higher level than we expect due to investments that we’re making in information systems and in plant floor productivity tools. So really it’s more of a working capital. I mentioned in my script that we expect our free cash flow in the fourth quarter to be significant and we expect us to harvest working capital in the fourth quarter, which is consistent with the prior year.

So which is why we kept our free cash flow guidance at 20 to 30 million dollars.

Matthew V Crawford (Chief Executive Officer)

You know, John, I think when we look at this quarter to quarter, we continue to feel as though there’s opportunity on our free cash flow. We expect to see a lot of that in the fourth quarter, but just backing up to see the forest from the trees. We are investing in growth and we’re investing in setting the table for improved profitability metrics going forward. So believe me, we get frustrated too. But if you back up and look at what we’re investing in and why we’re investing, it’s going to the right places.

John Franzreb (Analyst at Sidoti and Company)

And just on that topic, I guess one more question. I’ll get back in the queue on a new distribution facility. Can you just kind of recap, you know, what your expectations are as potential margin benefit for the segment in the quarter and maybe the timing of realizing those benefits in 2027.

Matthew V Crawford (Chief Executive Officer)

You know, let me just back up and talk at a high level. The work that Supply Technologies is doing is comprehensive in evaluating how to lower their long-term cost to serve their customers. We grew heavily through acquisition, John. This is an opportunity not just to think tactically how to reduce costs around rent and so forth. This is tactically about automation. This is about cost to serve, this is about freight. This is a reimagining of how we serve our customers.

So it will leak into our business. I’ll let Pat do the timing piece of it. But the reality of it is there is tremendous opportunity on all those fronts. And so where we’ll get the biggest bang for our buck, quite candidly, is as the business grows. That’s the opportunity for us is over the next, call it, you know, three years as the business grows and how we assimilate that growth so that, that’s the opportunity. Having said that, there is near-term ROI on this investment that will begin to leak in starting in 2027.

Patrick W Fogarty (Chief Financial Officer)

We’ll see the margin improvement begin to appear in the second half of 2027, John. And when we think about the size of this facility, it’s approximately 350,000 square feet of space. A number of locations will contribute the business into that space. And that’s happening over time. You know, to comment on exactly how many basis points margin improvements, I’m going to stay away from that other than I would say in any investment that we make, the IRR and the return has to be significant.

And so we’ve had a really nice run over the last two years in terms of operating income improvement in that segment. And in the quarter we were at 9.5%. So can I see that segment operating at north of 10% operating income? Absolutely. But we’re not going to end there. So we continue to see great momentum in terms of improved profitability in this segment. And this North American distribution center is only going to add to that.

Matthew V Crawford (Chief Executive Officer)

Yeah, you know, John, we spent a lot of time talking about that because again, from our perspective it is a strategic rethink of how we serve our customers. But to be honest with you, it’s not the only place in the world we’re expanding in a thoughtful way in how we service our customers. Our team just got back from Northern Ireland. Our team has been in Singapore quite a bit lately. Those are areas that we’re expanding as well. So it’s nice to talk about, you know, Dayton, Ohio and what’s happening there.

But this is a much more comprehensive rethink in how we go to market.

John Franzreb (Analyst at Sidoti and Company)

Great. Thank you, gentlemen. I appreciate the color. I’ll get back into queue.

OPERATOR

The next question is from Steve Barger of KeyBanc Capital Markets. Please proceed with your question.

Jacob (Analyst at KeyBanc Capital Markets)

Hey, good morning, this is Jacob on for Steve. Thanks for taking our questions. The first one from us is a specific question on Supply Tech. Based on the sell-through you’re seeing there, do you think that the industry cycle is widening out and does this seem like a durable ramp? How is the customer forecast confidence level sounding at this time?

Matthew V Crawford (Chief Executive Officer)

I’m sorry, are you asking broadly or any particular industry? I didn’t catch the beginning of that.

Jacob (Analyst at KeyBanc Capital Markets)

In Supply Tech.

Matthew V Crawford (Chief Executive Officer)

Okay. Just sort of broadly speaking globally.

Jacob (Analyst at KeyBanc Capital Markets)

Yeah, yeah, yeah.

Matthew V Crawford (Chief Executive Officer)

Well, I think they are indicative of our opening comments about the entire business. I think that the strategic positioning of that business a number of years ago into aerospace and defense has paid dividends. I think also the exposure to the right customers in the right places around semiconductor and what I’ll call AI-related power management, cooling, switch gears, things like that, we have made the investments in the right locations in the right places with the right customers to benefit from that.

But as I also mentioned, I think we are seeing, and if you looked at the ISM numbers recently, it reflects some of the strength across the board, particularly in North America, but even more globally. But our business, as diverse as it is, reflects some of that strength and we are seeing it in places that are affected like Class five through eight trucks. We are seeing it in places even more consumer facing like snowmobiles and side by side. So, you know, I do think there’s been a broadening out and I think that it’s been the kind of the story of the year, which has been, yes, the areas we’ve been strategic in and invested in.

I talked about expanding in Singapore, I talked about expanding in Northern Ireland. These have been discrete strategic initiatives, but it’s been buoyed more so, and maybe the surprise has been the stabilization of some of the other markets and growth.

Jacob (Analyst at KeyBanc Capital Markets)

That’s pretty helpful. Thanks. And I guess related to the breadth and the green shoots and the broadening that you just talked about, I mean, I’m not asking for formal guidance of course, because I know you’ll get more granular next call. But any insight you could provide into like the magnitude of growth that you’re seeing right now for 2027, maybe. What’s your backlog telling you? What are your customer conversations telling you? What could 2027 look like?

Patrick W Fogarty (Chief Financial Officer)

Jacob, this is Pat. You know we’re not going to comment specifically on our growth rates expected for 2027, but I will add to Matt’s comments earlier and that is we do expect growth in each of our segments. We have seen continued strong bookings in our capital equipment business which will buoy the results for 2027. Quite frankly, in our forging business, we’re sold out for 2027. We’re sold out in terms of our capital equipment capacity on forging press manufacturing, and we continue to see strong bookings.

We expect our backlogs at the end of 2026 to be about 10% ahead of where they were at the end of 2025. So that coupled with the momentum and strength that we’re seeing in Supply Technologies will basically give us the confidence that we will grow in 2027.

Matthew V Crawford (Chief Executive Officer)

Jacob I want to add because I talked in my quote in the press release about a supply constrained economy. We’ve been doing this a long time and most of the cycles we see are sort of led by the consumer or overall demand in the marketplace. What is unique for us in this cycle, and it bears a little bit on what happened this week in Washington, is many of our customers are supply constrained. So whether or not the AI initiative, cool. Whether or not the war ends in Iran, whether or not any of these things that may be driving our business a little bit at the margin right now, our customers can’t keep up regardless.

So I think to the extent that that demand modifies at all, it really probably won’t reflect heavily into our business. For a while there was no way talking to our customers and I had the opportunity to talk to one of them who feeds into the AI space, most notably and recognizably. They can’t find the labor to keep up at half the build rates their customers want to move. So I do think that there are some legs in some of these areas where supply just fundamentally outs, or excuse me, demand fundamentally outstrips demand by a multiple. So I think that, again, there’s going to be some noise, I am sure post election, for example, but in a number of these industries there’s reinvestment infrastructure as well, power management. You know, there’s a reason these backlogs exist because we are in a business-to-business reinvestment cycle just to try and catch up.

So that’s sort of my sense of, or that’s what I mean when I say some of these end markets are supply constrained.

Jacob (Analyst at KeyBanc Capital Markets)

That’s really great to hear The positivity there. Appreciate you taking our questions.

OPERATOR

The next question is from Dave Storms of Stonegate. Please proceed with your question.

Dave Storms (Analyst at Stonegate)

Morning and thank you for taking my questions. Matt, I just wanted to go back. Morning. Wanted to go back to your comment about being exposed to the right customer, specifically in semi and AI. Can you help us maybe understand how much of the demand there is coming from current customer and maybe current customer expansion as opposed to new customer? Just trying to set out what that demand picture still looks like.

Matthew V Crawford (Chief Executive Officer)

Yeah, I mean we’ve talked a little bit about our growth strategy, particularly at Supply Technologies in the past. Our best, our fastest and best growth opportunities are often with our current customers. Right. Many of our great customers started as, you know, companies we did one plant and 200 parts with and fast forward 10 years and we’re doing, you know, five plants and 3,000 part numbers. So I think our growth intentionally will always be weighted towards growing those relationships.

Not only because I think we provide greater value in that context, but it creates a better relationship long term. So I would say broadly, without being specific, we intentionally will always be weighted a little bit towards growing with our current customers. That’s the sign of a healthy customer relationship. So that would be my answer. Having said that, of course we’re active in growing in those spaces and we often sell and go to market by looking at the industry we’re in, some of the brand names we service and using that credibility to go to other people in that ecosystem. So I am certainly not suggesting we don’t do that. We do it all the time. Those relationships tend to grow slowly like the ones I’ve described. So I think in terms of our numbers, we’re always probably going to be a little more weighted towards our current customer and product growth or service growth or facility growth would be my thoughts on that.

Dave Storms (Analyst at Stonegate)

Understood. Very fair, my pop. You highlighted in the press release that North America has been particularly strong. But now in your prepared remarks, you know, you’ve also spent some time talking about Singapore, Northern Ireland. Just curious as to how you see conditions developing internationally and maybe how you’re balancing the push and pull between domestic demand and international demand.

Matthew V Crawford (Chief Executive Officer)

Well, a lot of our customers, right, are global customers. So they’re balancing their own initiatives in this front. I would say many of the things that are driving the North American market are driving the rest of the world in different ways. Right. There’s no doubt that the build out on the tech side is a global phenomenon. It’s not just in the US. These are issues that are fundamental in how governments around the world are thinking about AI, how they’re thinking about defense.

Some of the traditional industries will always be a little choppy. Right. I mean certainly if you’re making cars in Germany right now, you got some question marks of what your future looks like. But many of the businesses that are driving our growth, power management, even some infrastructure stuff, steel has been a little choppy lately, but has been on a very good run when you talk about silica steel and high strength steel. So these sort of infrastructure and technology related and defense related industries I think are particularly good in the US.

But I think around the world they’re trying to solve for these issues. So that’s why it’s a little bit stronger in North America. But I think the same conversations are being had everywhere. I mean you really could mirror the conversations

Dave Storms (Analyst at Stonegate)

And maybe just to double click on that. So are you seeing that the North American conversations are maybe six months ahead of where the international conversations are and there’s going to be a catch up or how should we think about that?

Matthew V Crawford (Chief Executive Officer)

No, I wouldn’t say that. I just think the scale of the US economy is so darn big. It’s sort of. And of course we are majority of a US industrial supplier. So no, I would not say it’s just the scale gets more attention. So I would not necessarily say the conversations are less important, but just the scale is different.

Dave Storms (Analyst at Stonegate)

Understood. Very fair. If I could sneak one more.

Matthew V Crawford (Chief Executive Officer)

Go ahead. Yes.

Patrick W Fogarty (Chief Financial Officer)

So Dave, I was going to add that, you know, when we looked at our sales in the quarter by region, we saw year over year growth in each region. Okay. The rate of growth in the various regions is different and that’s very common. As we look into where the trends are heading, we would expect continued growth in each of the regions and it’s the rate of change in each region is how we look at it. But clearly Asia has not been as fast of growing part of our business as Europe and North America.

We do see that catching up a little bit.

Matthew V Crawford (Chief Executive Officer)

Yeah. It’s hard to beat the American entrepreneurial spirit and their capital markets, they tend to move pretty quickly. So perhaps we’re a bit ahead, but the conversations are the same.

Dave Storms (Analyst at Stonegate)

Understood. That’s fantastic commentary. I appreciate that. If I could just maybe sneak one more in here on guidance. Looking at the implied numbers for Q4, revenue and EBITDA look seasonally normal, broadly consistent with seasonality. Is there maybe anything unusual in terms of Q4 that we should be looking out for in terms of timing being pulled forward, pushback, business mix? Anything there that we should put on our radar?

Patrick W Fogarty (Chief Financial Officer)

Nothing unusual, Dave. It’s really a function of holiday schedules and shutdown schedules with our customer base. That always makes the fourth quarter a little choppy. But we expect continued year over year growth.

Dave Storms (Analyst at Stonegate)

Understood. Thank you for taking my questions and good luck in the next quarter.

Matthew V Crawford (Chief Executive Officer)

Thank you.

OPERATOR

The next question is from John Franzreb of Sidoti and Company. Please proceed with your question.

John Franzreb (Analyst at Sidoti and Company)

Yeah, just to thinking about the free cash flow and the balance sheet. I’m curious to give us some updated thoughts on debt repayments and how you think that’s playing out, if it’s going to do that at all.

Matthew V Crawford (Chief Executive Officer)

Yeah. Let me just before Pat talks numbers. John, I appreciate the question. I have to reiterate again, deleveraging is part of one of our priorities in capital allocation. We haven’t always thought that way, but we are currently. That does not mean we are going to forego important investments into the business, but it does mean as though that is a priority. So I just, I got to say that before Pat goes into why, because it’s a little bit of a shift in strategy and capital allocation for us over the last few years,

Patrick W Fogarty (Chief Financial Officer)

John. Year over year. Based on our current free cash flow guidance, you would expect that our debt pay down would be approximately 10 to 15 million dollars for the full year in the fourth quarter. It’ll be significant. We expect to reduce our net debt in the fourth quarter by 30 to 40 million dollars. So that’ll take our net debt leverage to about 3.8 times, obviously still higher than we’d like. And we continue to drive that net debt leverage down to our goal of less than three times.

Matthew V Crawford (Chief Executive Officer)

John, I’ve often said when that is an important goal in our capital allocation and our balance sheet strategy. You know, having said that, we are super excited in the investments that we’re making and we’re keenly focused on growing the right way. So it’s not our only goal, but it’s an important one.

John Franzreb (Analyst at Sidoti and Company)

I understand you have to balance the two out. I get it. You are somewhat levered, so it would certainly help in my opinion. That said, an oddity question, if you will. The loss from Southwest. It looks like you narrowed it in your most recent presentation. I know you’re looking at strategic alternatives, but I’m curious if those losses are productivity gains or is that business starting to rebound? Because I think I’m hearing some whispers that 2027’s looking a lot better than 2026 for that end market.

Patrick W Fogarty (Chief Financial Officer)

Yeah, volumes are improving, John. You know, as we look at the railcar build market, we do expect 2027 to be better, much better. They’re talking about 35,000 railcar builds. In addition to the new car builds that we penetrate, we also have activity happening in the aftermarket space. And so that’s been helpful in the third quarter and we expect that to continue in the fourth quarter. So although we narrowed the loss due to Southwest Steel, it was pretty insignificant in terms of how much we narrowed that loss of 46 cents per diluted share for the year.

John Franzreb (Analyst at Sidoti and Company)

Heck, I’m just looking for green shoots. Thanks for taking my follow up, guys. I appreciate it.

Matthew V Crawford (Chief Executive Officer)

Thanks, John.

OPERATOR

There are no further questions at this time. I would like to turn the floor back over to Matthew Crawford for closing comments.

Matthew V Crawford (Chief Executive Officer)

Great. Thank you for your time today and your questions. We appreciate your support and look forward to ending the year strong. Thank you very much,

OPERATOR

Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines and have a wonderful day.

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