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Altra Industrial Motion Corp (AIMC)
Q3Â 2019 Earnings Call
Oct 24, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you for standing by, and welcome to the Altra Industrial Motion Q3 2019 Earnings Call.
[Operator Instructions] I would now like to hand the conference over to your moderator today, Ms. Ryan Flaim. Thank you. Please go ahead.
Ryan Flaim -- Vice President
Thank you, Cheryl, and good morning everyone and welcome to the call. To help you follow [Phonetic] management's discussion on this call, they will be referencing slides that are posted to the altramotion.com website under Events and Presentations in the Investor Relations section.
Please turn to Slide 3. During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and investors must recognize that events could differ significantly from management's expectations.
Please refer to the risks, uncertainties and other factors described in the Company's quarterly reports on Form 10-Q and Annual Report on Form 10-K, and in the Company's other filings with the US Securities and Exchange Commission. Except as required by applicable law, Altra Industrial Motion Corp. does not intend to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.
On today's call, management will refer to non-GAAP diluted earnings per share, non-GAAP income from operations, non-GAAP net income, non-GAAP adjusted EBITDA, non-GAAP organic sales, non-GAAP operating working capital, non-GAAP net debt and non-GAAP free cash flow. These metrics include certain items discussed in our slide presentation and in our press release under the heading Discussion of non-GAAP Financial Measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of Altra's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the Q3 2019 financial results press release on Altra's website.
Please turn to Slide 4. With me today are Chief Executive Officer, Carl Christenson; and Chief Financial Officer, Christian Storch.
I will now turn the call over to Carl.
Carl R. Christenson -- Chairman and Chief Executive Officer
Thank you, Ryan, and good morning, everyone, and please turn to Slide 5. Our third quarter performance was highlighted by our ability to deliver excellent free cash flow and working capital improvements, as well as strong earnings per share despite macroeconomic pressure on the top line. We continued to experience mixed business conditions with weakness in several markets, while other end markets remained strong.
Q3 sales grew 94% year-over-year to $442.9 million, reflecting the addition of the A&S segment. On a pro forma basis, organic sales declined 3.6% due to softer-than-expected demand from some end markets, most notably the heavy-duty truck market in North America as well as reduced demand in key geographies, such as Germany and China as a result of the trade dispute with China.
At the same time, we are encouraged by our operating margin performance. Despite the sequential revenue decline of 500 basis points, Q3 operating margin was only down 40 basis points, as the benefits of our cost actions and synergies helped mitigate the impact of the top line decline. As we navigate through the current macro headwinds, we are focused on cost containment, while working to ensure that we protect the long-term growth opportunities for our business.
Excluding the effects of foreign exchange, net sales for the PTT segment were down 2.3% while net sales for the A&S segment on a pro forma basis decreased 5.9% this quarter compared with the same quarter last year. The declines were due to a difficult comparison with the third quarter a year ago along with continued weakness in the factory automation and specialty machinery, and transportation markets. The A&S segment comparison is based on management's estimates of unaudited A&S financial results from the same quarter of 2018.
Net income was $25.7 million, or $0.40 per diluted share, compared with $12.3 million or $0.42 per diluted share a year ago -- the year-ago quarter. And non-GAAP EPS was $0.69 per share compared to $0.71 last year. As a result of our cost reduction and synergy initiatives, margins were up year-over-year, but were down slightly on a sequential basis. This included gross profit margin of 35.4% and non-GAAP operating income margin of 16.5%. Non-GAAP adjusted EBITDA was $89.0 million with an adjusted EBITDA margin of 20.1%.
Please turn to Slide 6 to review our end markets. Starting first with a closer look at the more notable market headwinds faced in the quarter, sales into the transportation market were again down low-double digits as a result of the significant and continued decline in the heavy-duty or Class 8 truck market as well as slowing in the automotive market. The heavy-duty truck market has dropped with the slowing economy since the end of last year. We expect our sales into the global Class 8 truck market to be down approximately 20% or $40 million in 2020 when compared with 2019.
Historically, the typical down cycle for heavy-duty trucks has been about 1.5 years to two years, followed by a three to four year up cycle. We will manage cost during the decline and will be well positioned for the upturn. I'd like to note that despite the cyclical market factors pressuring the -- pressuring transportation in the near term, our Class 8 truck business is developing exciting new technology to provide safer braking systems as well as systems that improve fuel efficiency and lower emissions. These technological advances will provide good long-term growth potential. In addition, our Class 8 truck business has had a very significant win in China as demand for one of their customers natural gas engines is ramping up at a much faster rate and greater extent than expected.
Demand in factory automation and specialty machinery was down double digits again in Q3 as we continued to face the same factors that impacted last quarter; tough year-over-year comps, continued weakness in the end markets, destocking and softness in China. It appears that demand has stabilized albeit at a relatively low level. This market should be one of the first to emerge from the downturn. And despite the current market dynamics, this is a market with great long-term secular growth opportunities.
Metals declined by double digits due primarily to ongoing slowing in the automotive industry and fewer capital projects. However, the aftermarket demand continues to be stable. Our core distribution business was down again in Q3 with declines across the board. Some of this was inventory reduction, which we are optimistic will bottom out in the coming quarters. We continue to expect distribution sales to be down balance of the year as the general industrial economy has continued to soften.
Turf and garden was down high-single digits due to weather in the spring and the resulting inventory hangover at our customers and the big box retail outlets. Ag was down mid-single digits due to weather and the effects of the ongoing trade dispute with China. On the positive side, we also continued to experience strong demand in several key markets. We expect the medical market to continue to be a growth engine for us and a bright spot as we look out to next year with expected growth in the mid-single digits.
We reported strong energy -- strong results in the energy market, which was up high-single digits overall in Q3 compared to the same quarter last year. Within the energy market, renewables were up double digits for the quarter, and oil and gas was up slightly quarter-over-quarter. The mining market was up low-single digits quarter-over-quarter, as a result of strong aftermarket parts activity, but was down double digits sequentially as we had experienced a very strong Q2 in this market. And aerospace and defense performed well, up double digits year-over-year again, as we saw strong demand across the board.
From a macro perspective, we have continued to see the overall industrial environment operating more cautiously, which we believe is in part due to uncertainty surrounding the trade war and the secondary impact of tariffs. In our opinion, the global industrial economy is in the midst of a cyclical downturn, which we continue to believe will be relatively short-lived and not especially deep. As a result of the uncertainty, visibility into when the market will turn remains limited. We also anticipate that customers may delay receipt of shipments at the end of the year to manage working capital in a weak environment.
Please turn to Slide 7. As we navigate through the current macro headwinds, we continue to focus on executing on our strategic priorities to position Altra to deliver on our promise as a premier industrial company. Cash management remains a top priority. And in Q3, our efforts yielded a record $71.5 million of free cash flow. On a year-to-date basis, the Company has generated $143.5 million of free cash flow.
We continued to advance our goal of delevering the balance sheet. We paid down $40 million of debt during the quarter. This brings our total debt pay down to $110 million since the close of the A&S merger and keeps us on track to deliver on our goal of paying down a total of $130 million in 2019.
It has been -- it has now been a year since we completed the transformative merger with A&S, and we remain as excited as ever by the opportunities we have with this powerful combination. During that time, we have made excellent progress with the strategic integration of A&S and Altra. We are accelerating the combination of business processes to become a truly integrated company and we are well on our way to having a world-class business system across the entire organization.
We also remain extremely pleased with our progress in capturing synergies and we remain on track to deliver $15 million of synergies in 2019. This is above our target of $10 million to $12 million and keeps us well on our way to deliver a total of $52 million of synergies by year four. While we remain excited about the long-term potential of the new growth markets we have entered, the ongoing strength of several legacy markets, the power of our technology portfolio and a depth of our talent, we continue to take a cautious view on the balance of the year and expectations going into 2020. This is reflected in our revised guidance for 2019 and the preliminary 2020 outlook that Christian will cover after he reviews our financial results in more detail.
With that, I'll turn the call over to Christian. Christian?
Christian Storch -- Vice President and Chief Financial Officer
Thank you, Carl, and good morning everyone. Before I review the details of our third quarter financial results, I would like to note that unless otherwise noted, results for the third quarter 2018 do not include pro forma A&S results.
Please turn to Slide 8. Even though the third quarter sales were affected by the macro factors that Carl mentioned, we delivered solid operational results for the quarter. Highlights of our performance are, third quarter free cash flow of $71 million, free cash flow was $143.5 million year-to-date, operating working capital declined $25 million when compared to the end of the second quarter contributing to the free cash flow generation in the quarter.
Looking at the top line, foreign exchange rates had a negative effect of 175 basis points while price had a strong positive impact of 155 basis points. The sequential revenue decline is partially seasonally driven, while we also experienced a significant deceleration in our Class 8 truck business.
On an unaudited pro forma basis, sales declined 2.6% in North America, and declined 10.6% in Europe and 4.4% in Asia and the rest of the world. Excluding the impact of foreign exchange, sales in Europe were down approximately 5.7% and 3.1% in China.
The provision for income tax in the third quarter of 2019 reflects an estimated annual tax rate of 21.3%. Quarterly earnings per share were positively impacted by around $0.03 per share due to a lower Q3 tax rate. Non-GAAP adjusted EBITDA was $89 million for the third quarter, or 20.1% of net sales.
Please turn to Slide 9. In terms of cash, our priority continues to be paying down debt and delevering the balance sheet following the A&S combination. As planned, we paid down $40 million of debt in the third quarter. And for the fourth quarter, we expect to pay down an additional $40 million on our term loan, bringing the total to $150 million since acquiring the A&S segment.
We exited the quarter with leverage of 3.8 times net debt to adjusted EBITDA on a trailing 12 months basis. A number of our investors might not appreciate the fact that for financial covenant purposes, under our credit agreement, the unsecured senior notes are excluded from that leverage calculation. Consequently, under that calculation, leverage is at 2.7 times. The covenant is scheduled to step down to five times at the end of 2019 and 4.7 times at the end of 2020.
Capital investments totaled $36.9 million year-to-date, with nearly $13 million for the quarter, as we continue to reduce capital expenditures this year from previously planned levels. Depreciation and amortization totaled $96.4 million year-to-date and $32.1 million in the third quarter.
When we began to see the beginnings of the downturn earlier this year, we initiated steps to accelerate synergies and cost reductions, including headcount reductions in all geographies. We now expect to realize in-year [Phonetic] synergies, including cost out actions of $15 million and a year-end exit run rate of $26 million. We expect to add additional pre-tax charges of approximately $3 million to our restructuring efforts in 2019.
Now please turn to Slide 10 for a review of our outlook for 2019. Today, we are revising our guidance for full-year 2019 to reflect our expectations given ongoing market softness. We now expect annual sales in the range of $1.827 billion to $1.837 billion. This reflects an organic growth rate on an unaudited pro forma basis of negative 2.3% for the full year. The midpoint of the range assumes a modest deceleration from our Q3 run rate as we expect the decline of our Class 8 truck business to continue. We continue to expect exchange rate headwinds into the fourth quarter.
As previously indicated, following the A&S combination, we began to exclude acquisition-related amortization, net of tax, from non-GAAP net income and non-GAAP EPS. We now expect non-GAAP adjusted EBITDA in the range of $375 million to $381 million, and we expect net debt to non-GAAP adjusted EBITDA leverage of approximately 3.8 times exiting the year. And we also expect free cash flow of $185 million to $200 million. GAAP diluted EPS is now expected in the range of $1.71 to $1.81 and non-GAAP diluted EPS in the range of $2.77 and $2.83.
We expect depreciation and amortization in the range of $128 million to $130 million and capital expenditures in the range of $50 million to $55 million. Our normal tax rate -- normalized tax rate is expected to be in the range of 23.5% to 24.5% for the full year and approximately 21.3% including discrete items.
Looking ahead at 2020, we expect that market demand will continue to be challenging in several of our key markets. And as a result, we expect 2020 sales in the range of 2% to 4% below 2019 with more significant year-over-year decline in the first half of the year. While we believe that approximately 40% of our portfolio will see low-single-digit growth in 2020, we expect that our Class 8 truck business will be a 220 basis point headwind to our top line. For the rest of the business, we expect low-single-digit year-over-year revenue declines.
With that, I would turn the discussion back to Carl.
Carl R. Christenson -- Chairman and Chief Executive Officer
Thank you, Christian. And please turn to Slide 11. While we take actions to manage through the near-term headwinds, we continue to execute on our strategic priorities that will position Altra to deliver on our promise as a premier industrial company.
The first is to deliver on our $52 million synergy target by leveraging sales collaborations, advancing our supply chain optimization efforts and continuing to integrate our world-class business systems across the combined organization.
Second is to remain focused on cash generation to expediently delever to our target range of two to three times net debt to adjusted EBITDA and strengthen the balance sheet. And third is to deliver a 425 basis point improvement in the non-GAAP adjusted EBITDA margin.
As I emphasized earlier, despite the macro headwinds that have created some near-term challenges, we are extremely excited about the prospects for Altra. This is a great company with great products and extremely talented team. Cash flow from the businesses remains very strong. Our focus on working capital improvements is paying off. And there is a significant opportunity ahead as we continue to realize the benefits of cross-pollinating our best-in-class business processes across the organization. We look forward to keeping you updated as we forge ahead.
With that, I'll turn the turn the call back over to Cheryl to open up the call to your questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Michael Halloran from Baird. Your line is open.
Michael Halloran -- Baird -- Analyst
Hey, good morning guys.
Carl R. Christenson -- Chairman and Chief Executive Officer
Good morning.
Christian Storch -- Vice President and Chief Financial Officer
Good morning.
Michael Halloran -- Baird -- Analyst
So first on the free cash, maybe you can give some updated thoughts on where you think free cash will end up this year. And then also maybe give some preliminary ideas on what kind of cash generation you are thinking about for 2020?
Christian Storch -- Vice President and Chief Financial Officer
So for this year, guide [Phonetic] would imply $185 million to $200 million of free cash flow. We assume we can deliver additional working capital reductions in the fourth quarter. And if that goes through as planned, we have a very good chance to reach the high end of that range.
Michael Halloran -- Baird -- Analyst
And then -- yeah, go ahead.
Christian Storch -- Vice President and Chief Financial Officer
For next year, we will finalize our guidance and report back when we release fourth quarter earnings. We thought at this point it might be helpful just to give some top line guidance and that will go down through the P&L, but I don't think we're prepared yet to give more detail on the guidance as we [Indecipherable].
Michael Halloran -- Baird -- Analyst
Understand, understand. Let me reframe that a little bit then for next year. Maybe you could just talk about the ability to maintain cash generation in a declining revenue environment. So using that $185 million to $200 million kind of as a base, if -- and a decline in revenue, is there the capability of being able to hold that revenue -- cash flow range. Or maybe just talk about puts and takes in that context?
Christian Storch -- Vice President and Chief Financial Officer
Puts and takes will be with declining revenues, there will be decline in operating income and net income associated with that. But on the flip side, we will be able to reduce working capital levels further. And in addition, we're going to keep our capital expenditures probably in a similar range, maybe slightly lower than this year to maintain healthy free cash flow levels.
Michael Halloran -- Baird -- Analyst
I appreciate it. And then, just to make sure I understand the thought process here. I think in the prepared remarks, the midpoint of the guidance assumes some deceleration 3Q to 4Q, largely because of the Class 8 truck side. Could you talk a little bit about what you're seeing in the core trend through the quarter outside of Class 8 truck. Was there deceleration through the quarter? Is there any embedded deceleration in the thoughts from the third quarter level into the fourth quarter? And then maybe a same process with that down 2% to 4% that you've implied for next year, is there a deceleration from the current run rate that's assumed into next year?
Carl R. Christenson -- Chairman and Chief Executive Officer
Yes. Mike, the third quarter is always difficult to look at trends through the quarter because of the things that happen in the -- around the world, like Europe has some areas that almost shut down in August, so it's tough to look. But kind of on an ad hoc basis, I'd say that the trend through the quarter was pretty stable. There were some markets that continued to decline, but others that we saw maybe level off, and maybe even improve a little bit. So I'd say, on balance, it was fairly level.
And then going into the fourth quarter, Christian, you want to?
Christian Storch -- Vice President and Chief Financial Officer
Yes. Going into fourth quarter, we continue to expect a deceleration in Class 8 trucks. But what we're mostly concerned about is performance in December. We anticipate that a number of our customers will have planned shut downs in December or extended planned shutdowns around the holidays that we expect customers to delay shipments into January to manage their working capital at year end. And so therefore December becomes a very unpredictable month for us. And that's why we assumed some modest deceleration sequentially from the third quarter going into the fourth quarter.
Carl R. Christenson -- Chairman and Chief Executive Officer
But we just thought it was worth pointing out that risk in December.
Christian Storch -- Vice President and Chief Financial Officer
Yes.
Michael Halloran -- Baird -- Analyst
That makes a lot of sense. And then the run rate for 2020 then is just kind of using an adjusted fourth quarter is the right proxy, excluding the Class 8 truck side? [Phonetic]
Christian Storch -- Vice President and Chief Financial Officer
Yes. I think with the fourth quarter run rate in Class 8 trucks, we are approaching very close to next year's run rate.
Carl R. Christenson -- Chairman and Chief Executive Officer
Yes. And seasonally we usually see a pick up, the first half is usually better than the second half. So when we look at Q3, Q4 and then jump into the new year, particularly if people do things to manage the balance sheet, you might -- will see a little improvement in Q1, Q2.
Christian Storch -- Vice President and Chief Financial Officer
So the first half comparison will be challenging next year. [Indecipherable] we look at the portfolio, as I said in my remarks, there is a -- 40% of the portfolio will see growth next year, that would include medical business with Portescap. We think that even on the Kollmorgen side, we are very close, maybe we are at the bottom there. And so other than Class 8 trucks, we'll see some modest revenue declines year-over-year in some sections of the portfolio, whether it's oil and gas, and some of the other end markets. But we thought we provide that top line guidance initially to kind of signal, next year is not going to be a disaster. It's going to continue to be a challenging year for the industrial world, but the world is not coming to an end.
Michael Halloran -- Baird -- Analyst
That's super helpful. And then last one. I think you said the exit rate is $26 million on synergies for next year. You're implying kind of $11 million of incremental synergies going into next year. What's the thought process for new synergies that you're going to be working on for next year? And how much do you think that could help at this point for 2020 on top the $11 million?
Christian Storch -- Vice President and Chief Financial Officer
Yes. So we think we're going to add $8 million to the exit run rate by next year. Of which, half of that, call it $4 million, should be realized in-year, that would get us on the $15 million -- of the $11 million plus $4 million, around $15 million in-year synergies next year.
Michael Halloran -- Baird -- Analyst
Great. Thank you, appreciate it.
Carl R. Christenson -- Chairman and Chief Executive Officer
Yes. Thanks, Mike.
Operator
Thank you. Our next question comes from John Franzreb from Sidoti & Company. Your line is open.
John Franzreb -- Sidoti & Company -- Analyst
Yes. Christian, just on the fourth quarter and cost comment on the delay of shipments. Are there certain businesses that are more susceptible in your portfolio to those delays and others?
Christian Storch -- Vice President and Chief Financial Officer
I think from a geographic stand point, Germany is susceptible. There is a great tradition to the close factories between Christmas and New Year. And we think that those shutdowns might take place prior to the Christmas holidays. And that would then mean which businesses are impacted, it's partially CCB, it's partially our gearing business could affect the Kollmorgen business as well. So it's more geographic than I think customer specific.
Carl R. Christenson -- Chairman and Chief Executive Officer
And I think it's almost across the board, John. It's just whoever is trying to manage their balance sheet and incentives. So...
John Franzreb -- Sidoti & Company -- Analyst
Okay. Okay, thanks, Carl. And other than the Class 8 side of the truck -- side of the business, in the first half of next year, what businesses face the toughest comps on a year-over-year basis?
Carl R. Christenson -- Chairman and Chief Executive Officer
I think CCB businesses, they've got some.
Christian Storch -- Vice President and Chief Financial Officer
Yes. So if we look at the PTT side, with CCB particularly, we'll have some tough comps, whether that's -- we had a very strong wind business in the first half of the year, for instance, within CCB. I think also when we look at our ECB business, that will have challenging comps. It's essentially ECB, it's CCB, even though our Thomson business will have some challenging comps.
John Franzreb -- Sidoti & Company -- Analyst
Okay, great. Thanks. And one last question. On the price increases, where they've been most effective within the portfolio?
Christian Storch -- Vice President and Chief Financial Officer
So we're starting -- the price increases have not yet seen the benefit of strategic pricing. We'd expect strategic pricing to make a contribution as we start the first quarter. We have made some great progress there with two of the A&S businesses and they are very close to implementing strategic price increases. And so these are still price increases that are at a much higher level than normal because of the tariffs. And the tariffs have impacted businesses like Kollmorgen and have [Phonetic] impacted our CCB business. I think those are the two main areas where we've seen the impacts of tariffs, but others as well.
Carl R. Christenson -- Chairman and Chief Executive Officer
I think all of our businesses have worked hard this year on pricing [Phonetic]. It's been a really good effort by all the businesses to try to make sure that we cover any input cost increases as well as the tariffs, and it's been generally very well done.
John Franzreb -- Sidoti & Company -- Analyst
Great. Okay, thanks Carl and Christian for taking my questions [Indecipherable].
Christian Storch -- Vice President and Chief Financial Officer
Thank you.
Carl R. Christenson -- Chairman and Chief Executive Officer
Thanks, John.
Operator
Thank you. Our next question comes from Jeff Hammond from KeyBanc Capital Markets. Your line is open.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Hey, good morning guys.
Carl R. Christenson -- Chairman and Chief Executive Officer
Good morning, Jeff.
Christian Storch -- Vice President and Chief Financial Officer
Good morning.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
So it sounds like most of the weakness to date has been kind of China and Germany or broader Europe. Can you just talk about what you're seeing trend wise in North America and where you're seeing maybe things starting to weaken?
Carl R. Christenson -- Chairman and Chief Executive Officer
So I think the metals business is probably one that was doing pretty well that's weakened a little bit. I mean, obviously, the Class 8 trucks is the number one, but we've talked at that I think plenty. So I think metals is the -- there was duties put on our metals coming in and then the exchange rate had the opposite effect. So I think the -- and then the automotive industry turning down a little bit, it has had an impact on that industry.
The ag business was doing well, and turf and garden. But with the weather in the spring and then the trade dispute, that market has weakened, and that's weakened globally, I think, not just in North America. Vertical or our lifting business, which would include fork trucks, cranes and hoists, we've seen that weaken probably a little bit. And then the distribution business has weakened somewhat, which is kind of the general industrial activity out there, an indication that that's slowed down.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Okay. And then on distribution is the view that inventory should be pretty lean by the end of the year or what are your distributors telling you?
Carl R. Christenson -- Chairman and Chief Executive Officer
I think our distributors are telling us that they believe that our inventories are in good shape. Our factory performance has been really good. And so they're turning our inventory to really good clip. But also that performance has enabled them to take a little bit more out. So it hasn't been tremendous reductions in inventory, but it's -- but they have taken a little bit more out. But I would like to think that going into the beginning of next year, we've got [Phonetic] the inventories lined up on our products and we start the year fresh.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Okay. And then just finally on the truck piece. Can you just kind of unpack that down 20% what you see North America versus some of the other parts of the world? Thanks.
Carl R. Christenson -- Chairman and Chief Executive Officer
Sure.
Christian Storch -- Vice President and Chief Financial Officer
So for 2020, our assumptions are that the NAFTA truck market will decline 32%, and this is for us. China will be down 3% for us. Europe will be down 18%. The rest of the world, which was mainly Japan and Korea, will be flat. With NAFTA being 45% of Class 8 truck exposure for us, China 20%, Europe around 16%, rest of the world around 19%, that averages to around 18% to 20%.
We are hoping to potentially outperform that in China. We saw -- we think in the fourth quarter, we'd see some substantial sequential growth in China. As Carl mentioned, the natural gas engine that we're supporting for one of our customers is really taking off much better than the customer and we had expected. So we anticipate sequential growth at [Phonetic] potentially as much as 60% in China. And if that will continue, we might outperform what I just gave you for China.
Carl R. Christenson -- Chairman and Chief Executive Officer
And that will be on that particular model, not for the whole geographic region.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Okay. And then if I could sneak one more in, I think you mentioned renewables or the wind business having a tough comp. Are you seeing any degree of slowing there or is that just a function of tough comps that you made the comment?
Carl R. Christenson -- Chairman and Chief Executive Officer
No. I think it's just the -- not having the visibility. The first part of last year was much stronger than our customers had anticipated or had told us what was going to happen. We're able to perform but consequently they're as big as those machines are and as along as they take the ability to think, they have a little bit more predictability then they do. But -- so we're just being cautious, beginning of last year was very good. This whole year has been super, and so kind of continue.
Christian Storch -- Vice President and Chief Financial Officer
Fourth quarter of '17 was very, very weak. And then we had a very strong first quarter and second quarter as customers caught up to their orders given the lack of orders in the fourth quarter.
Carl R. Christenson -- Chairman and Chief Executive Officer
Yes. So there is no indication that it's going to be down. I mean, we don't see any [Indecipherable] still very robust.
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
Okay, very good. Thanks, guys.
Carl R. Christenson -- Chairman and Chief Executive Officer
Okay, thanks.
Operator
Thank you very much. And that concludes the questions in the queue. I'll now turn the call back to Carl Christenson.
Carl R. Christenson -- Chairman and Chief Executive Officer
Okay. I want to thank you all for joining us today and we look forward to meeting with many of you in the months ahead as we go on the road to discuss the Altra story. On that note, we'll be at the Baird Conference on November 5 in Chicago and hope to see many of you there. Have a great day. Thank you.
Operator
[Operator Closing Remarks]
Duration: 37 minutes
Call participants:
Ryan Flaim -- Vice President
Carl R. Christenson -- Chairman and Chief Executive Officer
Christian Storch -- Vice President and Chief Financial Officer
Michael Halloran -- Baird -- Analyst
John Franzreb -- Sidoti & Company -- Analyst
Jeff Hammond -- KeyBanc Capital Markets -- Analyst
