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Atmus Filtration Technologies Inc. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Atmus Filtration Technologies I

Filing date:

02/21/2025

TLDR:

Atmus Filtration Technologies Inc. demonstrated revenue growth and improved gross margins in FY2024. Key risks include customer concentration and evolving technology.

ELI5:

Atmus makes filters for trucks and other equipment. They made more money this year, but they rely on a few big customers and need to adapt to new technologies like electric vehicles.

Accession #:

0001921963-25-000029

Published on

Analyst Summary

  • Net Sales increased by 2.5% from 2023 to $1,669.6 million in 2024.
  • Gross Margin increased by 6.8% from 2023 to $462.1 million in 2024.
  • Operating Income increased by 7.2% from 2023 to $266.2 million in 2024.
  • Net Income increased by 8.3% from 2023 to $185.6 million in 2024.
  • Gross Profit Margin increased from 26.6% in 2023 to 27.7% in 2024.
  • Operating Profit Margin increased from 15.3% in 2023 to 15.9% in 2024.
  • Cash flow from operations decreased from $189.0 million in 2023 to $105.4 million in 2024.
  • Current Ratio increased from 1.85 in 2023 to 2.19 in 2024.
  • Quick Ratio increased from 1.18 in 2023 to 1.42 in 2024.
  • Cash Ratio increased from 0.45 in 2023 to 0.53 in 2024.
  • Debt-to-Equity Ratio decreased from 12.5 in 2023 to 4.24 in 2024.
  • Debt-to-Assets Ratio decreased from 0.93 in 2023 to 0.81 in 2024.
  • Interest Coverage Ratio decreased from 9.63 in 2023 to 6.56 in 2024.
  • Asset Turnover decreased from 1.50 in 2023 to 1.40 in 2024.

Opportunities and Risks

  • Customer Concentration: Dependence on a few major customers makes Atmus vulnerable to their business cycles and purchasing decisions.
  • Technological Disruption: The transition to electric vehicles and alternative power sources could erode the market for traditional filtration products.
  • Supply Chain Disruptions: Raw material shortages, transportation delays, and labor issues could impact production and profitability.
  • Competition: The filtration market is highly competitive, requiring continuous innovation and investment to maintain market share.
  • Debt Levels: Substantial indebtedness could limit Atmus’s financial flexibility and ability to respond to industry changes.
  • Expansion into Industrial Filtration: Diversifying into industrial filtration markets could provide new growth avenues and reduce reliance on the automotive sector.
  • Technology Leadership: Leveraging its expertise in filtration technologies to develop solutions for electric vehicles and alternative power sources.
  • Aftermarket Growth: Expanding its product portfolio and distribution channels to capture a larger share of the aftermarket.
  • Global Footprint: Utilizing its global presence to serve diverse markets and mitigate regional economic risks.

Potential Implications

Company Performance

  • Diversify its customer base: Reduce reliance on major customers by expanding relationships with smaller OEMs and aftermarket distributors.
  • Invest in R&D for new technologies: Develop filtration solutions for electric vehicles and alternative power sources to stay ahead of the technology curve.
  • Strengthen its supply chain: Diversify its supplier base and implement robust risk management strategies to mitigate supply chain disruptions.
  • Explore strategic acquisitions: Consider acquisitions in the industrial filtration market to accelerate growth and diversification.

Atmus Filtration Technologies Inc. (ATMU) – 10-K Filing Analysis – FY2024

Executive Summary

This report analyzes Atmus Filtration Technologies Inc.’s 10-K filing for the fiscal year ended December 31, 2024. Atmus, a global leader in filtration products, demonstrated revenue growth and improved gross margins. Key risks include customer concentration, evolving technology, and potential supply chain disruptions. Opportunities exist in expanding into industrial filtration markets and leveraging technology leadership. Overall, the company appears to be performing well, but investors should monitor the identified risks. A “Hold” rating is recommended, pending further assessment of long-term growth strategies and mitigation of customer concentration risk.

Company Overview

Atmus Filtration Technologies Inc. (ATMU) is a global leader in filtration products for on-highway commercial vehicles and off-highway equipment. The company operates primarily under the Fleetguard brand, focusing on both first-fit and aftermarket sales. Atmus was spun off from Cummins Inc. and completed its IPO in May 2023. The company’s strategy revolves around growing market share, accelerating aftermarket growth, transforming its supply chain, and expanding into industrial filtration markets.

Detailed Analysis

Financial Statement Analysis

The following table summarizes key financial data from the 10-K filing:

Metric 2024 (USD Millions) 2023 (USD Millions) 2022 (USD Millions) Change 2024 vs 2023 (%)
Net Sales 1,669.6 1,628.1 1,562.1 2.5%
Gross Margin 462.1 432.7 359.2 6.8%
Operating Income 266.2 248.4 203.9 7.2%
Net Income 185.6 171.3 170.4 8.3%
EBITDA 300.2 273.7 234.3 –
Adjusted EBITDA 329.5 302.3 243.3 –

Key Ratios:

  • Gross Margin: Increased from 26.6% in 2023 to 27.7% in 2024, indicating improved efficiency and pricing strategies.
  • Operating Margin: Increased from 15.3% in 2023 to 15.9% in 2024, reflecting better cost management.

Cash Flow:

  • Cash flow from operations decreased from $189.0 million in 2023 to $105.4 million in 2024, primarily due to increased working capital needs.
  • Capital expenditures remained relatively stable, indicating consistent investment in infrastructure.

Management’s Discussion and Analysis (MD&A) Insights

  • Management highlights growth in net sales and gross margin, attributing it to favorable pricing and volume impacts.
  • The MD&A acknowledges the impact of inflationary pressures and supply chain disruptions, but notes stabilization in the second half of 2024.
  • The company is investing in new technologies and product development to meet evolving customer needs and regulatory requirements.

Red Flags and Uncommon Metrics

  • Customer Concentration: Cummins, PACCAR, and Traton Group account for a significant portion of net sales, posing a risk if these relationships weaken.
  • Reliance on Joint Ventures: A substantial portion of net income is derived from unconsolidated joint ventures, which Atmus does not fully control.
  • Evolving Technology: The shift towards electric vehicles and alternative power sources could reduce demand for traditional filtration products.

Risk and Opportunity Assessment

Risks

  • Customer Concentration: Dependence on a few major customers makes Atmus vulnerable to their business cycles and purchasing decisions.
  • Technological Disruption: The transition to electric vehicles and alternative power sources could erode the market for traditional filtration products.
  • Supply Chain Disruptions: Raw material shortages, transportation delays, and labor issues could impact production and profitability.
  • Competition: The filtration market is highly competitive, requiring continuous innovation and investment to maintain market share.
  • Debt Levels: Substantial indebtedness could limit Atmus’s financial flexibility and ability to respond to industry changes.

Opportunities

  • Expansion into Industrial Filtration: Diversifying into industrial filtration markets could provide new growth avenues and reduce reliance on the automotive sector.
  • Technology Leadership: Leveraging its expertise in filtration technologies to develop solutions for electric vehicles and alternative power sources.
  • Aftermarket Growth: Expanding its product portfolio and distribution channels to capture a larger share of the aftermarket.
  • Global Footprint: Utilizing its global presence to serve diverse markets and mitigate regional economic risks.

Conclusion and Actionable Insights

Atmus Filtration Technologies Inc. demonstrated solid financial performance in FY2024, with revenue growth and improved profitability. However, the company faces significant risks related to customer concentration, technological disruption, and supply chain vulnerabilities. To mitigate these risks and capitalize on growth opportunities, Atmus should:

  • Diversify its customer base: Reduce reliance on major customers by expanding relationships with smaller OEMs and aftermarket distributors.
  • Invest in R&D for new technologies: Develop filtration solutions for electric vehicles and alternative power sources to stay ahead of the technology curve.
  • Strengthen its supply chain: Diversify its supplier base and implement robust risk management strategies to mitigate supply chain disruptions.
  • Explore strategic acquisitions: Consider acquisitions in the industrial filtration market to accelerate growth and diversification.

Overall Assessment: A “Hold” rating is recommended. While Atmus is performing well, the identified risks warrant caution. Investors should monitor the company’s progress in diversifying its customer base, adapting to technological changes, and strengthening its supply chain before considering a “Buy” rating.

Atmus Filtration Technologies Inc. Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Ratio/Metric: Gross Profit / Net Sales = $462.1M / $1,669.6M = 27.7%
    • Trend: 2023 Gross Profit Margin = $432.7M / $1,628.1M = 26.6%. Percentage Change = (27.7% – 26.6%) / 26.6% = 4.1%
    • Industry: The average gross profit margin for the auto parts industry is around 30%. Atmus’s gross profit margin is slightly below the industry average.
  • Operating Profit Margin

    • Ratio/Metric: Operating Income / Net Sales = $266.2M / $1,669.6M = 15.9%
    • Trend: 2023 Operating Profit Margin = $248.4M / $1,628.1M = 15.3%. Percentage Change = (15.9% – 15.3%) / 15.3% = 3.9%
    • Industry: The average operating profit margin for the auto parts industry is around 12%. Atmus’s operating profit margin is above the industry average.
  • Net Profit Margin

    • Ratio/Metric: Net Income / Net Sales = $185.6M / $1,669.6M = 11.1%
    • Trend: 2023 Net Profit Margin = $171.3M / $1,628.1M = 10.5%. Percentage Change = (11.1% – 10.5%) / 10.5% = 5.7%
    • Industry: The average net profit margin for the auto parts industry is around 7%. Atmus’s net profit margin is significantly above the industry average.
  • Return on Assets (ROA)

    • Ratio/Metric: Net Income / Total Assets = $185.6M / $1,190.3M = 15.6%
    • Trend: 2023 ROA = $171.3M / $1,088.6M = 15.7%. Percentage Change = (15.6% – 15.7%) / 15.7% = -0.6%
    • Industry: The average ROA for the auto parts industry is around 6%. Atmus’s ROA is significantly above the industry average.
  • Return on Equity (ROE)

    • Ratio/Metric: Net Income / Total Equity = $185.6M / $227.4M = 81.6%
    • Trend: 2023 ROE = $171.3M / $80.7M = 212.3%. Percentage Change = (81.6% – 212.3%) / 212.3% = -61.5%
    • Industry: The average ROE for the auto parts industry is around 15%. Atmus’s ROE is significantly above the industry average.
  • Earnings Per Share (EPS)

    • Basic EPS: $2.23
    • Diluted EPS: $2.22
    • Trend:
      • Basic EPS: 2023 Basic EPS = $2.06. Percentage Change = ($2.23 – $2.06) / $2.06 = 8.3%
      • Diluted EPS: 2023 Diluted EPS = $2.05. Percentage Change = ($2.22 – $2.05) / $2.05 = 8.3%
    • Industry: The EPS varies widely across the industry. It’s more meaningful to compare Atmus’s EPS to its own historical performance and future projections.

Liquidity

  • Current Ratio

    • Ratio/Metric: Total Current Assets / Total Current Liabilities = $755.0M / $344.9M = 2.19
    • Trend: 2023 Current Ratio = $693.0M / $375.0M = 1.85. Percentage Change = (2.19 – 1.85) / 1.85 = 18.4%
    • Industry: A typical current ratio for the industry is between 1.0 and 2.0. Atmus’s current ratio is within or slightly above this range, indicating good liquidity.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: (Total Current Assets – Inventories) / Total Current Liabilities = ($755.0M – $266.6M) / $344.9M = 1.42
    • Trend: 2023 Quick Ratio = ($693.0M – $250.0M) / $375.0M = 1.18. Percentage Change = (1.42 – 1.18) / 1.18 = 20.3%
    • Industry: A typical quick ratio for the industry is between 0.8 and 1.2. Atmus’s quick ratio is above this range, indicating good short-term liquidity.
  • Cash Ratio

    • Ratio/Metric: (Cash and Cash Equivalents) / Total Current Liabilities = $184.3M / $344.9M = 0.53
    • Trend: 2023 Cash Ratio = $168.0M / $375.0M = 0.45. Percentage Change = (0.53 – 0.45) / 0.45 = 17.8%
    • Industry: A typical cash ratio for the industry is between 0.2 and 0.4. Atmus’s cash ratio is above this range, indicating a strong ability to cover current liabilities with cash.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Total Liabilities / Total Equity = $962.9M / $227.4M = 4.24
    • Trend: 2023 Debt-to-Equity Ratio = $1,007.9M / $80.7M = 12.5. Percentage Change = (4.24 – 12.5) / 12.5 = -66.1%
    • Industry: The average debt-to-equity ratio for the auto parts industry is around 1.0. Atmus’s debt-to-equity ratio is significantly higher than the industry average, indicating higher leverage.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Total Liabilities / Total Assets = $962.9M / $1,190.3M = 0.81
    • Trend: 2023 Debt-to-Assets Ratio = $1,007.9M / $1,088.6M = 0.93. Percentage Change = (0.81 – 0.93) / 0.93 = -12.9%
    • Industry: The average debt-to-assets ratio for the auto parts industry is around 0.4. Atmus’s debt-to-assets ratio is significantly higher than the industry average, indicating higher leverage.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: Operating Income / Interest Expense = $266.2M / $40.6M = 6.56
    • Trend: 2023 Interest Coverage Ratio = $248.4M / $25.8M = 9.63. Percentage Change = (6.56 – 9.63) / 9.63 = -31.9%
    • Industry: A typical interest coverage ratio for the industry is between 5 and 10. Atmus’s interest coverage ratio is within this range, indicating an adequate ability to cover interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Cost of Sales / Average Inventory = $1,207.5M / (($266.6M + $250.0M) / 2) = 4.67
    • Trend: Not enough information to determine trend
    • Industry: The average inventory turnover for the auto parts industry is around 4-6. Atmus’s inventory turnover is within this range, indicating efficient inventory management.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: (Accounts Receivable / Net Sales) * 365 = ($254.2M / $1,669.6M) * 365 = 55.5 days
    • Trend: Not enough information to determine trend
    • Industry: The average DSO for the auto parts industry is around 40-60 days. Atmus’s DSO is within this range, indicating efficient collection of receivables.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: (Accounts Payable / Cost of Sales) * 365 = ($193.1M / $1,207.5M) * 365 = 58.4 days
    • Trend: Not enough information to determine trend
    • Industry: The average DPO for the auto parts industry is around 30-50 days. Atmus’s DPO is higher than this range, indicating that it is taking longer to pay its suppliers.
  • Asset Turnover

    • Ratio/Metric: Net Sales / Total Assets = $1,669.6M / $1,190.3M = 1.40
    • Trend: 2023 Asset Turnover = $1,628.1M / $1,088.6M = 1.50. Percentage Change = (1.40 – 1.50) / 1.50 = -6.7%
    • Industry: The average asset turnover for the auto parts industry is around 1.0. Atmus’s asset turnover is higher than the industry average, indicating efficient use of assets to generate sales.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: Stock Price / EPS = $37.75 / $2.22 = 17.0
    • Trend: Not enough information to determine trend
    • Industry: The average P/E ratio for the auto parts industry is around 15-20. Atmus’s P/E ratio is within this range, indicating that it is fairly valued.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap / Book Value of Equity = (83.403.813 * $37.75) / $227.4M = 13.8
    • Trend: Not enough information to determine trend
    • Industry: The average P/B ratio for the auto parts industry is around 2-3. Atmus’s P/B ratio is significantly higher than the industry average, indicating that it may be overvalued.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: Market Cap / Net Sales = (83.403.813 * $37.75) / $1,669.6M = 1.88
    • Trend: Not enough information to determine trend
    • Industry: The average P/S ratio for the auto parts industry is around 1.0. Atmus’s P/S ratio is higher than the industry average, indicating that it may be overvalued.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA = ((83.403.813 * $37.75) + $592.5M + $22.5M – $184.3M) / $300.2M = 10.0
    • Trend: Not enough information to determine trend
    • Industry: The average EV/EBITDA ratio for the auto parts industry is around 8-12. Atmus’s EV/EBITDA ratio is within this range, indicating that it is fairly valued.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($1,669.6M – $1,628.1M) / $1,628.1M = 2.5%
    • Trend: Not enough information to determine trend
    • Industry: The average revenue growth for the auto parts industry is around 3-5%. Atmus’s revenue growth is slightly below the industry average.
  • Net Income Growth

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($185.6M – $171.3M) / $171.3M = 8.3%
    • Trend: Not enough information to determine trend
    • Industry: The average net income growth for the auto parts industry is around 5-10%. Atmus’s net income growth is within this range.
  • EPS Growth

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($2.22 – $2.05) / $2.05 = 8.3%
    • Trend: Not enough information to determine trend
    • Industry: The average EPS growth for the auto parts industry is around 5-10%. Atmus’s EPS growth is within this range.

Other Relevant Metrics

  • EBITDA (non-GAAP)

    • Calculation: Net Income + Interest Expense + Income Tax Expense + Depreciation and Amortization = $185.6M + $40.6M + $49.2M + $24.8M = $300.2M
    • Significance: EBITDA is a measure of a company’s operating performance. It is used to assess a company’s ability to generate cash flow from its operations.
    • Trend: 2023 EBITDA = $273.7M. Percentage Change = ($300.2M – $273.7M) / $273.7M = 9.7%
    • Critique: EBITDA is a non-GAAP metric, so it should be viewed with caution. It does not include all of the expenses that a company incurs, such as capital expenditures and working capital changes.
  • Adjusted EBITDA (non-GAAP)

    • Calculation: EBITDA + One-time restructuring costs + One-time separation costs = $300.2M + $4.1M + $25.2M = $329.5M
    • Significance: Adjusted EBITDA is a measure of a company’s operating performance that excludes certain non-recurring items. It is used to assess a company’s ability to generate cash flow from its operations.
    • Trend: 2023 Adjusted EBITDA = $302.3M. Percentage Change = ($329.5M – $302.3M) / $302.3M = 9.0%
    • Critique: Adjusted EBITDA is a non-GAAP metric, so it should be viewed with caution. The adjustments made to EBITDA may not be reasonable.
  • Free Cash Flow (non-GAAP)

    • Calculation: Cash provided by operating activities – Capital expenditures = $105.4M – $48.6M = $56.8M
    • Significance: Free cash flow is a measure of a company’s ability to generate cash flow from its operations after paying for capital expenditures.
    • Trend: 2023 Free Cash Flow = $143.2M. Percentage Change = ($56.8M – $143.2M) / $143.2M = -60.3%
    • Critique: Free cash flow is a non-GAAP metric, so it should be viewed with caution. It does not include all of the expenses that a company incurs.
  • Adjusted Free Cash Flow (non-GAAP)

    • Calculation: Free cash flow + One-time restructuring costs + One-time separation capital expenditures + Other one-time separation related = $56.8M + $4.1M + $15.0M + $38.6M = $114.5M
    • Significance: Adjusted free cash flow is a measure of a company’s ability to generate cash flow from its operations after paying for capital expenditures and excluding certain non-recurring items.
    • Trend: 2023 Adjusted Free Cash Flow = $152.4M. Percentage Change = ($114.5M – $152.4M) / $152.4M = -24.9%
    • Critique: Adjusted free cash flow is a non-GAAP metric, so it should be viewed with caution. The adjustments made to free cash flow may not be reasonable.

2. Commentary

Atmus Filtration Technologies demonstrated solid financial performance in 2024, with revenue and net income growth, and profitability metrics exceeding industry averages. The company maintains strong liquidity, as indicated by its current, quick, and cash ratios. However, Atmus exhibits a high debt-to-equity ratio, suggesting a reliance on leverage, and a decrease in free cash flow. While non-GAAP metrics like EBITDA and adjusted free cash flow show positive trends, they should be interpreted cautiously due to their inherent limitations.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️