Altra Industrial Motion Corp (AIMC) Q1 2021 Earnings Call Transcript

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Altra Industrial Motion Corp (AIMC)
Q1 2021 Earnings Call
Apr 29, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Altra Industrial Motion Q1 2021 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker for today. David Calusdian. Please go ahead.

David Calusdian -- President

Thank you. Good morning, everyone, and welcome to the call. To help you follow management's discussion on this call, we'll be referencing slides that are posted to the altramotion.com website under events and presentations in the Investor Relations section. Please turn to Slide three. During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements are highly -- and currently 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 in the company's other filings with the U.S. Securities 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 operating income margin, non-GAAP adjusted EBITDA margin, non-GAAP organic sales, non-GAAP operating working capital, non-GAAP net debt and non-GAAP free cash flow. These metrics exclude 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. These reconciliations of Altra's non-GAAP measures to the comparable GAAP measures are available in the financial tables of the Q1 2021 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'll now turn the call over to Carl.

Carl R. Christenson -- Chairman & Chief Executive Officer

Thank you, David, and thank you for joining us today to review our Q1 2020 results and please turn to Slide five. We delivered strong first quarter results that exceeded our expectations and approached pre pandemic levels. This is a clear and positive indicator that a broad-based economic recovery is under way. With our highly competitive, diverse portfolio and strong business operations, Altra is in an incredible position to capitalize in the near-term on secular tailwinds in markets like electronics assembly equipment, general factory automation and robotics. As the economy continues to recover, Altra will benefit from mid and later cycle markets, such as mining, metals, ag and heavy machinery, to name a few. The economic recovery is spreading across more and more segments of our business. Incoming orders and bookings momentum has continued to accelerate across our early cycle markets, and we have begun to receive orders for products that are sold into later cycle markets. This gives us confidence to raise our 2021 guidance today and further validates our belief that Altra in the industrial world will be in for a very strong run in 2022 and beyond. I'm extremely proud of the Altra team's ability to continue to deliver exceptional results, provide top-notch customer service and advance our strategic priorities while continuing to ensure one another safety effectively work remotely and strengthen our culture.

Now please turn to Slide six for an overview of Q1 performance highlights. Q1 revenue of $472.1 million was up 8.7% from the prior year as we capitalized on strong demand across most of our end markets. Led by heavy-duty trucks, factory automation and specialty machinery. Our strong top line performance also reflects our ability to manage the supply chain in these very difficult times and leverage our competitive strengths to outperform the competition. We've been able to leverage our proven excellence in supply chain management to minimize production disruptions and maintain reasonable on-time delivery performance. Maintaining strong lead time performance and product availability can be a competitive differentiator and enable share gains, particularly in times like this, when demand exceeds supply. We expect this competitive strength will support further share gains for Altra as supply constraints continue to impact select markets. We also drove excellent operating performance in the first quarter by carefully managing costs and through our focus on applying Altra's world-class business system to drive performance. We further expect that it will be essential to continue to leverage our pricing power to offset material and wage inflation. As a result, we grew non-GAAP adjusted EBITDA margin by 170 basis points, achieved earnings growth that exceeded our expectations and delivered another strong quarter of cash flow. More specifically, Q1 2021 net income was $39.2 million or $0.60 per diluted share. Q1 non-GAAP diluted EPS was $0.86, up 32% from the first quarter of 2020 and up 7.5% from the first quarter of 2019. We generated nearly $27 million in non-GAAP free cash flow in Q1, which allowed us to pay down $20 million of debt and continue to make excellent progress delevering our balance sheet. We exited the quarter with net debt to non-GAAP adjusted EBITDA leverage of 3 times, advancing us toward our goal of reaching historic leverage levels of 2 times to 3 times this year.

Now turning to Slide seven for an update on the strategic initiatives that we have prioritized to drive sustainable shareholder value and realize our promise as a premier industrial company. This includes leveraging our world-class business system to create sustainable competitive advantages by developing industry-leading business practices across all aspects of our business. Even during the pandemic, our teams were committed to driving business improvements, eliminating waste and improving the flow of value to our customers. I'm looking forward to when our teams can fully engage again in face-to-face improvement activities. As demonstrated by our results, we have made tremendous progress with our second and third priorities of expediently delevering and managing costs to improve the balance sheet and drive margin enhancement.

We also remain committed to directing resources to drive top line growth via cross-selling, technology sharing to accelerate innovation and infusing capital to address emerging growth opportunities. As an example, we invested in a new generation of Servo Motors and drives that were introduced last year and are beginning to gain traction in the market. There were several success stories during the quarter that demonstrate our ability to leverage our market position and innovative technologies to take share at new customers and expand geographically. For example, based upon our leading position in engineered breaks for the wind turbine industry, we secured a number of large orders for both onshore and offshore turbines. This included both repeat business and new customer wins, where we took share from a competitor. We also closed our first serial production order with a new customer in India for wind turbine brakes. As another example, we won an order for a linear system for medical blood agitation for medical blood education application. And with this win, we gained share because of our custom engineered design and proven product performance and as we expanded upon at length on the last earnings i.e. Altra Business system and the way we conduct our business. This includes systematically identifying and eliminating waste and reducing emissions across our footprint while providing innovative solutions to help our customers do the same, ensuring we are fostering a safe, diverse and inclusive work environment that stimulates and fully develops the capabilities of our people, and ensuring we have best-in-class governance to remain fully aligned with our shareholders' interest. A robust set of tools and processes inherent in the Altra business system continue to serve as our Compass as we advance forward on our ESG journey. Now turning to Slide eight for market review. Starting this quarter, we are simplifying our market discussions to focus on the core markets and trends that we believe are most relevant to Altra's performance and growth prospects.

As a result, we are no longer providing an exhaustive review of all end markets as we have in the past. For additional context, we are providing an approximation of the percentage of Altra's sales represented by each end market on a trailing 12-month basis. Transportation, which represents approximately 16% of our business was up high single digits in the quarter, with Class eight truck demand in China stronger than anticipated. On balance, we continue to expect the market to be flat to slightly up in 2021 as demand in China returns to more normal levels and demand in North America improves. Longer term, as the number one global supplier, we expect Altra's transportation business to benefit from new technology initiatives, supporting future global safety and emission mandates. Factory automation and specialty machinery, which represents about 11% of our business, was up high single digits as we benefited from strong tailwinds in specialty machinery categories like food and beverage and packaging, robotics, AGV and General Factory automation. Overall, we continue to expect an improved performance in 2021 with particular strength in technology markets and sustainable higher growth rates supported by global digitalization and industrial IoT as well as macro trends and collaborative robots.

Turf and Garden, ag and construction which combined represents approximately 9% of our business, also had a strong quarter, up low double digits. We continue to expect the turf and garden market will slow in 2021 due in part to tough comps and that ag and construction will continue to improve. We remain positive on long-term growth prospects supported by Altra's strong market position and secular tailwinds, such as increased infrastructure spending. Medical equipment, which is about 8% of our sales, was up double digits year-over-year, but down sequentially as the decline in COVID-related sales was only partially offset by a rebound in elective surgeries and hospital capital expenditures. This remains an exciting long-term growth market for us, supported by secular trends like aging population demographics and growth on noninvasive and robotic surgeries. Material handling, which represents about 7% of sales, was up low single digits with AGVs, forklifts and vertical lifting systems, all realizing nice improvements. Although this is a cyclical market, there are several tailwinds that excite us, including strong growth in warehousing, driven by growth in e-commerce as well as advanced technology to improve warehousing efficiency. In addition, we've had some early traction with IoT installation projects in the large crane industry.

Renewable energy, which represents about 6% of sales, was up low single digits year-over-year due to continued strong investment in renewable energy around the globe. We continue to expect 2021 to be flat, barring any new administration policies. Longer term, renewables is an exciting growth play for Altra as global demand for interim usage of renewable energy favors our strong position in both onshore and higher growth, offshore wind. And finally, aerospace and defense, which combined is about 6% of our sales was down single digits due to in large part, challenging comps and project timing. Despite near-term headwinds, we're excited about this market for a few reasons. Altra's A&D business has a very attractive margin profile with a strong competitive position and high barriers to entry. We also continue to expect this market will rebound at some point in 2022 as the commercial aero business resurges coming out of the pandemic and the geopolitical environment supports continued investment in land-based and defense aero. With that, I will turn the call to Christian to provide a detailed review of the quarter and our 2021 guidance.

Christian Storch -- Executive Vice President & Chief Financial Officer

Thank you, Carl, and good morning, everyone. Please turn to Slide nine. Our strong first quarter results were once again highlighted by Altra's careful cost management, strong cash flow generation and significant progress in delevering the balance sheet. In addition, we once again demonstrated the resilience of our balanced portfolio of and a strong market position that has allowed us to capitalize on the economic recovery emerging across many of our businesses. Turning now to a review of our top line performance in the first quarter. Sales were up 8.7% compared with the prior year period. Driven by a very strong performance in March. Organic sales grew 5.4%, with price contributing 70 basis points. Foreign exchange rates had a positive effect of 330 basis points. Excluding the effects of foreign exchange, net sales for the PTT segment were down 1.8%. Bookings momentum has been strong across our PTT businesses which we believe will support further improvements with PTT as we move through the year. Excluding the impact of foreign exchange, net sales for the A&S segment were up 12.4% compared with the same quarter last year. Driven by strong top line performance across several end markets, including medical, transportation and factory automation and specialty machinery. In addition, this segment saw strong growth in China. In these markets, we benefited from both demand improvement and some likely inventory rebuild in the channel.

Taking a closer look at our performance by geography, in Asia and the rest of the world, revenues without the impact of foreign exchange, were up 34%, primarily driven by strong sales in the Class H market in China. In Europe, sales were down 2.2% and without the impact of foreign exchange at Europe's vaccination efforts lag behind the U.S. sales in North America grew less than 1%, due in large part to tough comps. As expected, we saw approximately $3.7 million of pandemic related cost savings returned in the quarter. Despite this, we were able to grow non-GAAP operating margin by 190 basis points reflecting our team's incredible efforts to control costs and manage cash in this environment. Working capital was up approximately $21.4 million sequentially as a result of stronger sales and a modest increase related to strategic purchases that we made in anticipation of supply chain constraints. The provision for income taxes in the first quarter of 2021 on a normalized basis was 19.4% before discrete items, reflecting REC changes related to tax reform and other changes that lowered our tax rate. Non-GAAP adjusted EBITDA exceeded $100 million and came in at $101.6 million for the first quarter or 21.5% of a net sales, up 170 basis points compared with last year. Please turn to Slide 10 for a closer look at our balance sheet, about improvements, cash flow and liquidity.

Our cash-generative business model and the financial resilience of our business continues to serve us very well. Non-GAAP free cash flow for the quarter was $20.6 million, essentially flat from the prior year despite the increase in working capital. As a reminder, the first quarter is typically our lowest cash flow generating quarter. Capital expenditures during the quarter totaled $9.6 million, up from $8.2 million a year ago as we continue to direct investments to growth opportunities, including automation and technology enhancements. We ended the quarter with $249.4 million of cash and another $295.5 million available under the revolving credit facility. In, we paid down an additional $20 million in our term loan bringing our total debt paydown since the -- acquisition to $330 million. We decreased our net leverage to 3 times, and we remain on track to achieve net leverage below 3 times by midyear. Our top capital allocation priorities continue to be to reduce our debt balance, manage leverage and preserve optionality for investing in future growth, while continuing to support our flooring dividend, which was raised to $0.08 per share. Once we achieve our leverage target, we expect to further shift our capital allocation to investing in growth opportunities that align with Altra to -- with attractive secular trends.

Please turn to Slide 11 for an update on our outlook for 2021. We ended Q2 with strong tailwinds and our back and better visibility into economic recovery spreading across both segments of our business. As a result, today, we are increasing our guidance for full year 2021. Our revised guidance assumes that the general economy will continue to recover as we go through the year. We continue to expect approximately $36 million of cost savings realized in 2020 will gradually face back throughout the remainder of 2021, with the full effect of the cost coming back by the second half of the year and therefore, SG&A expenses increased sequentially throughout the year. We also continue to assume that China's demand in the Class eight truck and wind markets will normalize in the second half of 2021. With that as a background, our revised guidance for 2021 is as follows: sales in the range of $1.82 to $1.85 billion, up from our previous range of $1.79 to $1.83 billion. GAAP diluted EPS in the range of $2.08 to $2.21, up from $1.97 to $2.10. Non-GAAP diluted EPS in the range of $3.09 to $3.24, up from $2.95 to $3.15. Non-GAAP adjusted EBITDA in the range of $380 million to $390 million, up from $370 million to $385 million. Capital expenditures in the range of $50 million to $55 million of depreciation and amortization in the range of $122 million to $124 million, a normalized tax rate for the full year of approximately 20% to 22.5% before discrete tax items, and we expect non-GAAP free cash flow in the range of $200 million to $225 million. And with that, I will turn the discussion back to Carl.

Carl R. Christenson -- Chairman & Chief Executive Officer

All right. Thank you, Christian. We're extremely pleased with our strong start to the year. We are growing increasingly confident that we are at the beginning of a broad-based market recovery and that Altra is in a great position to capitalize on improving secular tailwinds as we move through the year. Our focus remains on executing across our strategic priorities to ensure we are optimizing our opportunities as a premier industrial company. This includes leveraging our efficient cash-generative business model and Altra business system to maximize cost and sales synergies, delever the balance sheet, expand our margins and accelerate our top line growth opportunities. We are in an excellent position to deliver on our new 2021 guidance and continue to thrive as the industrial world economic recovery accelerates in 2022 and beyond. I would like to once again thank the Altra team for their hard work and incredible performance. We look forward to keeping our shareholders updated on our progress. And with that, we'll now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] We have a question from the line of Bryan Blair with Oppenheimer.

Bryan Blair -- Oppenheimer -- Analyst

[Nice]. Good morning guys.

Carl R. Christenson -- Chairman & Chief Executive Officer

Good morning Bryan

Bryan Blair -- Oppenheimer -- Analyst

If you're willing to provide a directional guide, what is the order book momentum you have suggest for second quarter growth? And similarly, how should we think about margin progression either annualized or I guess even better on a sequential basis, given some of the unique variables at play year-on-year?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes. So if we look at the second quarter, we like to compare 2021 to 2019, the last full year prior to the pandemic and we think when we compare that to 2019 we think that revenues will be coming in somewhere between 2019 and the first quarter of this year, somewhere in that range, while EPS is probably going to be up 10%, 15% from 2019. SG&A, we see sequentially increasing from the first quarter, $3 million to $4 million. We think gross profit margins will hold despite supply chain challenges and cost pressures from the supply chain. We think that we are able to offset that through price increases that we have taken and will continue to take as we go through the year and then as we look at the second half of the year, we need to take into consideration that the China class truck market will see a significant decline, while North American and European demand will continue to increase and so we'll go back to some sort of seasonality where the second half will be, I don't know if someone wants a $900 million, $910 million, something like that in revenues.

Bryan Blair -- Oppenheimer -- Analyst

Okay, helpful detail there and you mentioned the the trend of Class eight headwind that you called out last quarter, that dynamic excess. I apologize if I missed the updated outlook on medical shipments. We've been expecting somewhat of an air pocket with the wind down of respirator shipments and pause and electric procedure demand with the reopening and at least early stage reset. Of elective procedure related capex. Is your outlook for the back half in medical improved from what it was a quarter ago?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes, it has, Brian. It's improved somewhat. The incoming order rate is better than we thought it would be and I think the investments and the electric surgical part of the business are a little bit better than what we had expected.

Bryan Blair -- Oppenheimer -- Analyst

Okay. Good to hear and great to see continued progress on your balance sheet, looks like you'll be pretty comfortably within leverage range over the very near term. We know your team has been focused on portfolio analysis and prioritizing targets. For when you are ready to get back to the inorganic lever of your growth strategy. I guess my simple question is, are you right now, if the right bolt-ons came along, are you comfortable with your cash flow outlook and the ability to move on a deal or two as we go into the back half?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes. I don't think you would see us do anything significant, a big acquisition, but a smaller bolt-on I think we're getting very comfortable that we've got a pretty good runway here in the industrial world and we've got line of sight on the cash flow to get us well within our range by the end of the year. So we'll be so -- the right deal came along and it was not too big and I think you would see us do something.

Bryan Blair -- Oppenheimer -- Analyst

Okay. Nice one. Thanks again.

Operator

You have a question from the line of John Franzreb with Sidoti.

John Franzreb -- Sidoti -- Analyst

Good morning guys. Carl, curious about your cycle or the recovery. Is that alluded to the SKU handling? Or are you seeing a recovery in the money in the oil and gas business?

Carl R. Christenson -- Chairman & Chief Executive Officer

So I think oil and gas, not yet, I think when I look at the end markets, the the myriad of end markets we look at, the two that are still red. It was a great pleasure to look at the market analysis during the first quarter because almost everything is green now except for aero and oil and gas, really, commercial aero and oil and gas. So those two are still declining. In the mining, we've actually seen some improvement, and we're starting to see a few capex projects and I think some of that's related to electrification, right? So lithium and copper demand is going to be way up with this acceleration in electrification. So I'm optimistic about mining. That's the tenth time I'm calling the bottom in mining.

John Franzreb -- Sidoti -- Analyst

I wasn't going to remind you. So the next question regarding the $40 million of cost expected I think I missed it for the first question, I think what that is? And what's the cadence of the balance how that comes for the balance of the year?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes. So some good news embedded in that. First quarter was $3.7 million that came back. That leaves 36 in to go will be heavy in Q2 and Q3, and then start to decline into the fourth quarter, but we've been able -- and the margins in the first quarter demonstrate that we've been able to, to our cost management to mitigate a meaningful portion of that. But it will still show up in SG&A as SG&A will increase sequentially as we go through the year. I think the increase will not be as significant as we initially feel it when we initiated guidance for the year.

John Franzreb -- Sidoti -- Analyst

Okay and I guess just one question, I could squeeze it in a sequential improvement in the factories on Q1 versus Q4. Was there anything significant to that? Any color that drove that improvement?

Carl R. Christenson -- Chairman & Chief Executive Officer

You're breaking up a little bit in the factory automation space, will be sequentially. Was there anything that sticks out? Yes. There are a few things. I think the AGV business did really well. Robotics did well. Electronic assembly equipment did well. Semi time was off, but that was primarily due to, I think, to comps. So yes, we have some really nice growth in some of the segments in the factory automation space and then in food processing, food and beverage, the packaging equipment were solid, too. So it's broad with some really nice trends in that part of the -- in that part of the business.

John Franzreb -- Sidoti -- Analyst

Okay. Thank you for answering my questions.

Carl R. Christenson -- Chairman & Chief Executive Officer

Thanks John.

Operator

We have a question from the line of Mike Halloran with Vigor.

Mike Halloran -- Vigor -- Analyst

Hey, good morning guys. So a couple of questions here. First, just, Carl, where does the confidence come in from your perspective on the 2022 plus optimism and what are you seeing that makes you particularly excited both from a market perspective as well as maybe what you're doing to add to whatever that market growth looks like?

Carl R. Christenson -- Chairman & Chief Executive Officer

Well, I believe that we're seeing the early cycle markets doing well right now, and there's activity in the later cycle markets is starting to accelerate. And those big capex projects are not in those big capex industries typically run for a few years. So I feel really good that we're just getting into the mid and late cycle part of the business. So barring any government action or some ramp-up of the pandemic, the momentum is there to carry through for a good period of time. And I think there's pent-up demand. I mean, I look back on the last recovery and how slow and monotonous, it was and with a couple of fits and starts that it felt like in 2019 prior to the pandemic, we were starting to get into a phase where some of that pent-up demand was going to get realized and satisfied. So I think that got pushed out a year. I think we're back at that phase. In my mind, we're there's the pent-up demand and there's some really good acceleration there where we. And when I look at the cycles, you look at mining and ag and some of the longer cycle markets, it's been they do for a nice recovery.

Mike Halloran -- Vigor -- Analyst

So when you think about the backdrop from a supply chain, price cost, obviously, you said, at least in the prepared comments, intimated that we're doing very well, all else people, and you think it's a differentiator as your competitors, how you're managing through everything. But maybe some thoughts on pricing environment, how the supply chain is managing, how inflation can you and maybe how that rolls for the P&L this year?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes. The supply chain is really tough right now, right? We buyers that are trying to increase prices, and we've been pretty successful in pushing back. We'll probably see some cost increases in Q2 as we can't push back anymore and so that's a challenge, and it's like the -- game where one region or one commodity you start to have issues with, and you just got to work them down as they pop up. Right now, with the awful situation in a relative to COVID, that's an area of concern. The logistics and freight, the container ships, we see lead times push out 4, six weeks, just as a result of the container backlog and the shipping issues so we just have to keep working and I think the second quarter is probably going to be a little bit worse for us. I think our guidance reflects that a little bit for cost price and then -- but we are pushing through the price increases and the price environment is fairly receptive. I think the whole world is going after price increases and because we do have pricing power and the nature of our business, I think we have a little bit better chance to get the price increases pushed through than maybe some other industries and some other spaces. So I'm confident we'll get the price to offset the cost increases, both wages and material costs, maybe a little lag, as I said before, but we'll get it and I do expect that Q2 will probably be the worst queue from a supply chain standpoint, and we're working it really, really hard to make sure that the impact is minimal.

Christian Storch -- Executive Vice President & Chief Financial Officer

And Mike, if I can add, the guide assumes that we can hold gross profit margins, as Carl said, that we can offset price increases on the commodity side, component side, through price increases. And at the high end of the range, it even assumes a modest margin expansion as we go through the year.

Mike Halloran -- Vigor -- Analyst

Great. Thanks for the help gentlemen. Appreciate it.

Carl R. Christenson -- Chairman & Chief Executive Officer

Thanks Mike.

Operator

[Operator Instructions] We have a question from the line of Jeff Hammond with KeyBanc Capital Markets.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys. I jumped on late. So if I ask something that's already been addressed, we can follow-up. Just talk about what you're seeing in terms of restocking on distribution. I've had a couple of companies kind of say, people are buying ahead of these follow-on price increases? And then just maybe more broadly, why you think PT is lagging in terms of recovery versus what's been more robust and side?

Carl R. Christenson -- Chairman & Chief Executive Officer

Okay. So I think with the strong demand and strong bookings we've had, we do know that some of that is because the supply chains have extended lead times and what that people are buying ahead to make sure that they have what they need. We don't know the exact impact of that, but that's -- there's certainly some of that. Underlying that though, though, is really strong demand. I mean it's not that's not the predominant factor in the demand increase, at least in my opinion. I think we have seen a little bit of restocking in the channel. Those comments were across both the OEM and the distribution part of our business. I think on the distribution side, we've seen some restocking, but most of it's been book-to-bill. We get the sell-through data and so we have not seen, at least on our products, a significant desire to restock and build up inventories. I think our ability to deliver so far has also been pretty good, and they don't have the need to restock. Now we're coming about the price increase. We have seen a few orders that have been trying to get ahead of the price increase and that happens -- that always happens when you announce a price increase.

Typically, it gives 60 to 90 days, and people will ramp up their orders to try to beat that price increase. But we can sort some of that out. So I feel really comfortable, Jeff, that the underlying demand is very solid and on the PTT business lagging, I think there is higher dependence on later -- mid- and later cycle markets in the PTT businesses. And the A&S businesses. So it's just natural, but we would see that lag a little bit. And that's one reason that I feel that we still got some pretty good runway in this recovery that the PTT businesses are just starting to see some of those big projects and some of the things come through, and we're actually starting to get some orders now for some of that later cycle work that will turn into shipments later on. There are also longer lead time longer lead times in some of the PTT businesses as to bigger, heavier duty products.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

What are some of the mid- late cycle markets where you are seeing some of that -- order activity leak in?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes. So I think mining is one. We're seeing some of the order activity. Marine was pretty good. That's the heavy lifting equipment, port cranes and other things. We're starting to see some orders in there. So it's -- as I said earlier, it's a very broad-based. I think there's a couple of markets lagging, oil and gas and maybe power gen, and then the aerospace business. But other than that, we're seeing nice improvements in activity building up in some of those mid and later cycle markets. Even the metals business, with some steel demand and commodity prices going up, we're seeing activity there.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Are you -- do I hear you calling the turn in mining again, Carl?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes, that was my tenth time.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay.

Carl R. Christenson -- Chairman & Chief Executive Officer

Just on side, I'll be right.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Like an economist. Just on these supply chain issues, like you say it's getting worse and you expect it to get worse in 2Q, but kind of help me understand, like, are you seeing any areas where you're starting to see relief and it gets better? And how have you put these kind of growing supply chain issues into the guide? As you look into the second half?

Carl R. Christenson -- Chairman & Chief Executive Officer

Yes. So I think the biggest concern for us right now is India. We have a number of suppliers in India and right now, they're all up and running, but that is a concern and so we've, in some cases, are now of course sourcing componency domestically at a higher price. Logistics continues to be a challenge managing through that and then I would think on the automotive side, the chip shortage on the automotive side and how it's going to impact like -- comments. Those are probably the pockets of biggest concerns?

Christian Storch -- Executive Vice President & Chief Financial Officer

Yes, resins is another one as a result of the surprising how long the bad weather in Texas has impacted the presence.

Carl R. Christenson -- Chairman & Chief Executive Officer

And so the challenges are not just for us in actually getting the components in, but in a lot of cases, is at our customer level that can get other components and therefore are taking production down and that combination is still creating some uncertainty and we got it to the outlook. So far, we've managed this very well. We had very minimal disruption, whether it's at a customer level or at our level, but we don't see signs that it's going to get much better in the near term, actually going to get a little worse, probably Q2 and then hopefully, after that, we'll start.

Christian Storch -- Executive Vice President & Chief Financial Officer

I think the peak in the port of L.A was 60 container ships backlog anchored off port, and they're down to 30 now, their capacity has ramped up significantly. So it looks like some of the logistics issues and as they load them they free of containers. So one issue was trying to get containers to put stuff on to put stuff in because they're all on ship somewhere. So that's starting to ease a little bit.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay. All good colors. Thanks guys.

Christian Storch -- Executive Vice President & Chief Financial Officer

Thanks Jeff

Carl R. Christenson -- Chairman & Chief Executive Officer

Thank you Jeff

Operator

Thank you. There are no additional questions at this time. I will turn it back over to management for closing remarks.

Carl R. Christenson -- Chairman & Chief Executive Officer

Okay. Thank you, operator, and I want to thank everyone for joining us on the call today, and we look forward to engaging with you in the next -- in the months ahead and thank you for your time.

Operator

[Operstor Closing Remarks]

Duration: 45 minutes

Call participants:

David Calusdian -- President

Carl R. Christenson -- Chairman & Chief Executive Officer

Christian Storch -- Executive Vice President & Chief Financial Officer

Bryan Blair -- Oppenheimer -- Analyst

John Franzreb -- Sidoti -- Analyst

Mike Halloran -- Vigor -- Analyst

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

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