Atmus Delivers Solid Performance Amid Challenging Market Conditions

Atmus, a global leader in filtration products, has reported its financial results for the first quarter of 2025, showcasing resilience in the face of a softening market environment. Despite headwinds from tariffs, supply chain disruptions, and currency fluctuations, the company maintained profitability and continued to invest in its future.

Overview of Financial Performance

For the three months ended March 31, 2025, Atmus reported net sales of $416.5 million, a 2.4% decrease compared to the same period in 2024. This decline was primarily driven by unfavorable currency impacts of $11.4 million and lower sales volumes of $3.5 million, partially offset by $4.8 million in favorable pricing.

Gross margin for the quarter was $110.5 million, a 1.2% decrease from the prior year period. Gross margin as a percentage of net sales increased slightly to 26.5%, up from 26.2% in the first quarter of 2024. This improvement was due to the company’s ability to offset cost pressures through pricing actions and operational efficiencies.

Selling, general, and administrative (SG&A) expenses increased by 6.0% to $45.9 million, primarily driven by higher people-related and consulting expenses. Research, development, and engineering expenses decreased by 9.9% to $9.1 million, reflecting the company’s focus on cost management.

Equity, royalty, and interest income from investees declined by 11.5% to $9.2 million, mainly due to lower earnings from the company’s joint ventures in India. Interest expense decreased by 20.0% to $8.4 million, as Atmus continued to pay down its outstanding debt.

Overall, Atmus reported net income of $44.7 million for the first quarter of 2025, a 1.8% decrease compared to the same period in the prior year. Diluted earnings per share were $0.54, down slightly from $0.54 in the first quarter of 2024.

Navigating Challenging Market Conditions

The first quarter of 2025 was marked by a softening in market demand across Atmus’ key end markets, including on-highway commercial vehicles and off-highway equipment. This was largely attributable to the economic uncertainties stemming from the recent U.S. government tariff announcement and retaliatory measures from other countries.

Despite these headwinds, the company was able to maintain its profitability through a combination of pricing actions, cost management, and operational efficiency improvements. Atmus’ management team remained vigilant in monitoring and addressing supply chain challenges, which have largely stabilized with minimal disruptions.

The company also continued to face pressure from rising commodity prices, labor costs, and inflation, as well as the unfavorable impact of a stronger U.S. dollar on its consolidated results. Atmus proactively implemented measures to mitigate these factors, including negotiating with suppliers and optimizing its global manufacturing and distribution footprint.

Separation from Cummins and Standalone Costs

In April 2022, Cummins Inc. announced its intention to separate its filtration business, which became Atmus, into a standalone publicly traded company. The separation was completed in May 2023 through an initial public offering, with Cummins retaining an 80.5% ownership stake in Atmus.

During the first quarter of 2025, Atmus incurred approximately $9.3 million in one-time expenses related to the separation, including costs associated with establishing its own standalone functions, such as information technology, distribution centers, manufacturing, and human resources. The company expects to incur an additional $10 million to $15 million in one-time separation-related expenses in 2025, as well as $5 million to $10 million in capital expenditures.

These standalone costs are necessary for Atmus to operate as an independent public company, but they have had a temporary impact on the company’s profitability. Atmus’ management team is committed to managing these costs effectively and ensuring a smooth transition to its new status as a standalone entity.

Strengths and Opportunities

Atmus’ strong market position, global footprint, and comprehensive product offering continue to be key strengths. The company’s Fleetguard brand is well-recognized for its superior asset protection and emission-reducing capabilities, which are in high demand as commercial vehicle and equipment manufacturers strive to meet increasingly stringent environmental regulations.

Atmus’ diversified customer base, with a mix of OEM and aftermarket sales, provides a stable and recurring revenue stream. The company estimates that approximately 86% of its net sales in 2024 were generated in the aftermarket, where its products are installed as replacement or repair parts.

Looking ahead, Atmus sees opportunities to further differentiate itself through continued investment in research and development, as well as strategic acquisitions and partnerships that can enhance its technology leadership and expand its global reach. The company’s strong balance sheet and access to capital, through its $1 billion credit facility, provide the financial flexibility to pursue these growth initiatives.

Weaknesses and Risks

One of Atmus’ key weaknesses is its significant customer concentration, with Cummins, PACCAR, and the Traton Group accounting for a substantial portion of its sales. The loss of a top OEM relationship or changes in the preferences of its aftermarket end-users could have a material impact on the company’s performance.

Atmus also derives a significant portion of its earnings from investees that it does not directly control, such as its joint ventures. This can expose the company to risks beyond its direct management, including market conditions in specific regions or industries.

The company’s operations are subject to various regulatory and compliance requirements, both domestically and internationally. Changes in trade policies, environmental regulations, and tax laws could have a significant impact on Atmus’ business and financial results.

Additionally, the company faces intense competition in the markets it serves, which could pressure its pricing and margins. Evolving customer needs and the development of new technologies also pose risks, as Atmus must continually innovate to maintain its competitive edge.

Outlook and Future Prospects

Despite the current market challenges, Atmus remains cautiously optimistic about its long-term prospects. The company’s management team is focused on navigating the near-term uncertainties while positioning the business for sustainable growth.

Key priorities for Atmus in 2025 and beyond include:

• Continuing to optimize its global supply chain and manufacturing operations to enhance efficiency and responsiveness
• Investing in research and development to drive product innovation and maintain its technology leadership
• Exploring strategic acquisitions and partnerships that can expand its geographic reach and product portfolio
• Maintaining a strong balance sheet and disciplined capital allocation to support both organic and inorganic growth initiatives
• Effectively managing the transition to a standalone public company and the associated one-time costs

Atmus’ diverse product offerings, global footprint, and strong brand recognition position the company well to navigate the current market challenges and capitalize on long-term growth opportunities. As the company continues to execute on its strategic priorities, investors can expect Atmus to emerge as an even stronger and more resilient industry leader.