Good morning, and thank you for joining us on our second quarter 2024 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our second quarter 2024 results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 2 of the presentation, which provides a reminder that our remarks on forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements. Later this quarter, we will be attending the Jefferies Industrial Conference and Morgan Stanley's 12th Annual Laguna Conference. We look forward to meeting with many of you. Before we start, please note all comparisons are against the prior year period unless stated otherwise. Also, please note that we have recast our adjusted EPS figures for 2023 and year-to-date 2024 using a normalized adjusted effective tax rate. Historically, many nonrecurring individual items have influenced our effective tax rate. To minimize quarterly volatility and better reflect our core operations, we have chosen to remove discrete items from our adjusted effective tax rate and recast historical earnings to provide an apples-to-apples comparison. We believe this approach will be beneficial to our investors and analysts, and please see the appendix for more information. So, with that all out of the way, I'll turn it over to Ivo.

Thank you, Rich. Good morning, everyone. We'll start on Slide 3. Today, we reported solid Q2 results delivered through focused execution by our entire team of global Gates associates. In the second quarter, we saw our revenues moderate 4% from the prior year on a core basis. First-fit sales decreased more than anticipated, reflecting the present underlying business conditions. As we anticipated, demand in our industrial end markets remained somewhat soft. However, we experienced incremental demand weakness in agriculture and construction applications. Replacement revenues grew 1% with automotive outpacing industrial. Book-to-bill is slightly below one. We delivered a solid increase in our adjusted EBITDA margin while managing through a softer volume environment. Our adjusted EBITDA margin grew by 170 basis points. Strong gross margin expansion underpinned the improvement. Gross margin benefited from favorable channel mix compared to the prior year period as well as continued progress with our enterprise initiatives. Our net leverage ratio declined to 2.3x, a one half-turn reduction relative to last year's second quarter. During the quarter, we refinanced our term loans and unsecured bonds at attractive rates, extended our earliest maturity to the end of the decade. We are trimming our guidance due to the extended softness in our industrial end markets, particularly On-Highway. Our updated revenue guidance is consistent with our historical seasonality. Brooks will provide more color and comments about our updated issues later in the presentation. Of note, last week, our Board of Directors authorized a new $250 million share repurchase authorization that expires at the end of calendar 2025. The authorization provides us with an efficient tool to return capital to our shareholders opportunistically. Please turn to Slide 4. In the second quarter, we posted revenue of $886 million, a 4% decrease on a core basis. Replacement revenues grew slightly and outperformed first-fit revenues. The industrial end markets primarily drove the decline in first-fit. At the end market level, construction and agriculture were most impactful to the industrial first-fit revenue performance. Adjusted EBITDA was $202 million and represented a margin rate of 22.8%, an increase of 170 basis points. The increase was fueled by a 270 basis point increase in gross margin. The execution of our enterprise initiatives continued to deliver in operating performance. In addition, the higher mix of replacement revenues, which generally carries above-average margin relative to corporate average, supported the increase in gross margin. We also benefited from inventory build related to our anticipation to gradually improving demand trends in the second half as well as support product line expansion with new and existing customers. Adjusted earnings per share was $0.36, which represented a 6% increase. Higher operating income and lower share capital drove the growth. On Slide 5, we will review segment performance. In the Power Transmission segment, our revenues were $542 million, which translated to a 3.5% decrease on a core basis. The replacement channel grew 1% with industrial replacement growing modestly and automotive replacement being about flat. First-fit revenues decreased double digits, impacted by the mid-teens decrease in industrial first-fit. Automotive first-fit was also down due to softer production trends in international markets. The majority of our end markets in Power Transmission decreased low to mid-single digits. Personal Mobility revenues continued to decline, although the rate of change is starting to moderate. Energy and On-Highway revenues posted growth led by solid expansion in our developed geographies, with regards to top-line opportunities. During the quarter, we secured an agreement to extend our market presence with a national replacement channel partner that we anticipate will begin to meaningfully ramp early next year. The new business broadens our market reach for our mission-critical products. Power Transmission adjusted EBITDA margin expanded 110 basis points. The margin improvement was led by contributions from our enterprise initiatives as well as favorable channel mix sales offset by lower volumes. Our Fluid Power segment generated revenues of $344 million. Core revenues decreased 5%. Industrial first-fit declined mid-teens, driven by weaker activity in agriculture and construction. Industrial replacement sales declined at about the same rate as the overall segment. Automotive replacement was a partial offset, increasing low double digits. Similar to Power Transmission, we have reached an agreement to extend our partnership with one of our largest replacement channel partners to drive product conversions to gauge mission-critical components in an important U.S. geography. This is an exciting opportunity that broadens our ability to more efficiently serve our customers. Additionally, in the data center space, we are now specified with multiple customers and are in discussions with several servers and chip manufacturers to support their application needs.

Thank you, Ivo. Let's turn to Slide 6, which shows our core revenue performance by region. In North America, core revenues declined approximately 4%. Industrial channel core revenues fell high single digits primarily due to a double-digit decrease in first-fit. North American industrial replacement revenues increased slightly. Within Industrial, the agriculture and construction markets were our softest end markets, while personal mobility was down double digits. Energy and commercial On-Highway increased modestly. Automotive grew low single digits with replacement revenue growth slightly stronger than first-fit. In EMEA, core revenues fell about 7%. Slower demand trends in the industrial markets weighed on the region's core top-line performance, both industrial first-fit and replacement core revenues fell double digits. Core revenues in automotive were about flat with automotive growth offsetting a decline in first-fit. China core revenues decreased modestly. Automotive experienced a decrease driven by our first-fit applications, automotive replacement increased low single digits. Our industrial revenues increased modestly supported by solid growth in our replacement channel. In South America, core revenues decreased slightly with meaningful declines in the industrial first-fit markets largely neutralized by growth in replacement channels. East Asia grew slightly with automotive growth more than offsetting an overall decline in the industrial markets. On Slide 7, we lay out the key drivers of the year-over-year change in adjusted earnings per share. Operating performance contributed approximately $0.01 of growth and a lower share count represented another $0.01 of growth. Higher taxes were also lower interest expense. Slide 8 has an update on our cash flow performance and balance sheet. Our free cash flow for the second quarter was $67 million, representing free cash flow conversion of 70%. Our trade working capital in dollars increased slightly relative to last year's second quarter, primarily due to inventory build to support the new business and our channel partners, Ivo highlighted earlier, and to protect the service levels for our key customer base. We intend to reduce our inventories in the second half of the year in line with our normal seasonality. Our net leverage ratio finished at 2.3x, which is 1.5 turns lower than the second quarter of 2023. During the second quarter of 2024, we refinanced our term loans and unsecured bonds at an attractive blended rate that lowers our annualized interest expense. In addition, our nearest debt maturity is now 2029. Our trailing 12-month return on invested capital expanded approximately 250 basis points to 23.1% and was primarily fueled by higher margin. We believe our balance sheet is in solid shape, and we intend to remain opportunistic in returning capital to shareholders. Shifting now to our updated 2024 guidance on Slide 9, where we have trimmed our 2024 guidance. We have lowered core revenue expectations to a range of minus 4% to minus 2% from our prior range of minus 3% to plus 1%. At the midpoint, we now expect our core revenues to be down about 3% compared to a midpoint of down 1% previously. The majority of our markets have performed as we had anticipated heading into the second half of the year. However, industrial first-fit demand trends have gotten softer in certain areas most notably in agriculture and construction. In addition, while it's a relatively small end market for us, automotive OEM production trends have softened recently. We are now seeing more extended levels of summer shutdowns from the automotive OEMs. We are reducing our adjusted EBITDA guidance to a range of $740 million to $770 million. The $755 million midpoint is $20 million lower than our prior guidance with the headwind, lower volume and foreign exchange being partially offset by execution on our enterprise initiatives. Our adjusted earnings per share range is now $1.29 per share to $1.35 per share and incorporates our new tax methodology. Our guidance for capital expenditures and free cash flow conversion remains unchanged. For the third quarter, we expect revenues to be in the range of $825 million to $855 million. At the midpoint, we anticipate core revenues to decrease approximately 2% year-over-year. We estimate adjusted EBITDA margin to decrease about 40 basis points year-over-year at the midpoint. On Slide 10, we will walk from our prior adjusted earnings per share guidance to our updated guidance. From left to right, we project about a $0.03 impact from lower operating income with the unfavorable impact of lower sales volumes, partially offset by enterprise initiatives. The costs associated with accelerated new business conversions is approximately $0.02 per share. We expect incremental growth and profitability from this investment to begin in Q1 of 2025. Unfavorable FX approximates about a $0.02 per share headwind. Lower interest expense, higher tax and other items net to about $0.03 of adjusted earnings per share benefit.

Thank you, Brooks. On Slide 11, I will summarize our key messages before we take your questions. First, I am pleased with our operating performance in the first half of 2024. Year-to-date, we have increased our adjusted EBITDA margin by 250 basis points year-over-year while encountering a 4% decrease in core growth. We are making good progress with our enterprise initiatives, particularly in the area of material cost reduction. Our heightened focus over the last couple of years on our resident material science capabilities has paid dividends for us. We fortified our supply chain capabilities and reduced exposure to single-sourced, highly engineered polymers. Also, we accelerated our ability to drive material savings through the re-engineering of critical materials and components and expect more savings to come. Now we are benefiting from our engineering focus in terms of developing new product lines that enable us to enter exciting secular growth markets from driving a change in the way personal mobility devices are designed and built to developing new fluid conveyance technologies that offer more efficient cooling solutions to hyperscale data centers. Our focus is on opportunities to accelerate our organic growth while we are managing through the present macro environment. Given how industrial demand has unfolded this year, we have decided to pull forward our footprint optimization plans outlined during our Capital Markets Day, and initiate a number of these projects in 2024. We anticipate annualized savings associated with these actions will approximate $40 million, with about 40% of the run rate realized by the end of 2025, and the balance of the savings achieved by year-end 2026. We intend to share more specifics on the program's execution plan and impact on our business in the next quarter's call. We believe these actions will improve our manufacturing and logistics efficiencies long-term and enhance our ability to flex our operations to demand changes. In our view, the enterprise initiatives underway and investments being made should position the Company to generate stronger profitability from already solid levels when the next industrial upturn takes hold. Second, our optionality to enhance shareholder value continues to build. Our net leverage ratio is in the low 2s and tracking to the 2x level by year-end. We recently extended our debt maturities and lowered our annualized financing costs. We remain highly focused on balance sheet improvements, which should enable us to more actively pursue inorganic growth initiatives over the midterm. Last week, our Board of Directors approved a new $250 million share repurchase authorization, which replaces $50 million left under our prior authorization. At our current valuation, we believe opportunistically deploying capital towards our shares is an attractive use of our excess capital. Before taking your questions, I want to convey my gratitude to the almost 15,000 global Gates associates for their commitment and dedication to achieving our business priorities and meeting our customers' expectations. With that, I will now turn the call back over to the operator for Q&A.

Your first question comes from the line of Mike Halloran from Baird. Your line is open.

Could you share your thoughts on the end markets where you're experiencing some pressure? Please discuss what you observed during the quarter, whether there are any signs of stabilization at lower levels, and your outlook on when you anticipate these end markets will start to normalize.

Thank you for your question, Mike. I believe that the end markets have been developing in line with our expectations. We were somewhat cautious about the potential for any industrial recovery, but during the quarter, we noticed a deceleration, particularly in the Off-Highway applications in our first-fit business, mainly in agriculture and some commercial construction. This decline became noticeable towards the end of May and continued into June, and it remained weak in July. That’s probably the most significant change we've observed. Other OEMs have been reducing car builds and have extended their summer shutdowns longer than we have seen in recent years. These are the key changes we've noted. I do not expect this trend to reverse in the second half, which is why we've proactively adjusted our outlook to reflect the expected environment in industrial first-fit. In terms of changes from previous expectations, we believe mobility has reached its lowest point in Q2, although we still expect to see negative core growth in the second half. However, the underlying market conditions are improving, and we think the destocking phase has concluded, leading us to anticipate growth resuming by 2025. This aligns with our earlier predictions. Additionally, the industrial replacement performance in China was slightly better than we had anticipated, but it is not significant enough to impact our overall market outlook.

Great. That was really helpful. And then on the margin line, if you look at the commentary for the third quarter, margins down a little bit year-over-year. I'm guessing that has have to do with the demand environment and you're still very confident in the changes in the normalization you're seeing on the internal efforts. So maybe if you look to the third quarter and the back part of the year, you can talk a little bit about confidence in that trend and what you're seeing internally. And if there's any change in how you're thinking about some of those internal things in the short term?

Thank you for your question, Mike. We feel positive about our enterprise initiatives and their impact on improving gross margins. While we anticipate some challenges with EBITDA margins due to SG&A being relatively flat in the face of lower volumes, we believe we can uphold our gross margin expectations even as we adjust inventory and address certain conversion costs associated with new business wins. We expect these enterprise initiatives to help us manage through Q3 and Q4. Our efforts are yielding material savings, particularly on the material line, and we are confident in our gross margin standing for the second half of the year.

So, no change in the internal confidence the change initiatives that you're driving currently, and this is just demand related, correct?

That is correct. I want to emphasize that we're performing very well with our enterprise initiatives, as reflected in our gross margin and EBITDA margin results from the first half. With the market trends beginning to recover, we feel we're starting from an exceptionally strong position, better than we have been in the past. I am highly confident, given that we were over 40% engaged in a challenging market environment in Q2. I believe we are very well-positioned to achieve our goals, as committed at the recent CMD.

Your next question comes from the line of Jeff Hammond from KeyBanc Capital Markets. Your line is open.

Maybe you could just unpack the wins you talked about with the major partner in each segment. Is that the same partnership and just how is it getting broadened out and how much of an impact if it's material, do you see it impacting '25, I think you said?

Yes, absolutely. Thank you for your question, Jeff. So, I would say that on the Fluid Power side, that is with one of our largest existing customers. We are just broadening out where we serve and how we serve them. And it's in one of the large critical geographies that we're going to become a prime supplier to them. And on the Power Transmission side, that's actually a new customer acquisition that we historically did not do business with. And as this ramps up kind of over the next 18 months, it's going to be reasonably material; we anticipate that it will add 100 to 150 basis points of revenue to Gates Corporation. So, it's two meaningful design wins, and we felt that it was worthwhile to go and pull forward some of the activities and get them into Q4 so that we can start seeing the benefits from '25 onwards.

Okay. That's great news. And then I think you said you're seeing some forward weakness on first-fit auto. Maybe just speak to the replacement trend and if you think there's any offsets as maybe people defer in new purchases?

Yes. Look, I mean, we just see more extended shutdowns. So, I'm not going to call for what the production output is going to be on the other OEM side on a forward basis, that has been more or less playing the way that we've anticipated. We just did not see that they're going to take an extended shutdown in July. As to the replacement side of our business, the market dynamic is very positive there. The car fleet is getting older around the globe. It's growing at kind of that low single-digit rate. People still have a high degree of employment. So, they are driving a large amount of miles. So, the underlying market dynamics, just even without the attributes associated with lower purchasing of new vehicles is very, very positive. And we believe that we are well positioned to continue to execute well in AR. And as you saw a great driver of our growth over the last four, five, six quarters. And we anticipate that it's going to continue well in the future.

Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is open.

When you consider the current situation compared to April, what do you think is the most significant shift in your perspective? It seems that oil production order fulfillment is noticeably weaker than before. Do you think the biggest change is in the Off-Highway sector, or is it more extensive than that?

Thank you for the question, Nigel. The issue we've encountered is primarily with the Off-Highway sector, particularly in agriculture. The agriculture market has weakened significantly more than we expected, although we were already cautious in our initial guidance. We are observing extended plant shutdowns and considerable reductions in the production of new equipment by agricultural original equipment manufacturers. As a result, we felt it necessary to adjust our forward guidance to account for this substantial decline in output. Additionally, we did not foresee a rapid recovery in general industrial demand; we expected a more stabilizing trend. While there are fluctuations, overall, Off-Highway conditions have worsened due to prolonged shutdowns among other OEMs that we did not anticipate. Despite reducing our revenue outlook, we still expect that at the midpoint, even with a low mid-single-digit year-on-year volume decline for the full year, we will grow our adjusted EBITDA by 100 basis points. This would mark the second consecutive year of achieving that growth, thanks to our strong execution of enterprise initiatives and our commitment to showcasing the earning potential of our business.

That's great information. Thank you, Ivo. Are we observing replacement demand across your portfolio, including industrial and automotive, still holding up well? I want to confirm if there are any changes in conditions you’re noticing. Additionally, regarding pricing, are we seeing any areas of price weakness with the slightly weaker outlook?

Look, the rest of the business is more or less performing very much in line with what we anticipated. And again. I remind everybody, we did not really anticipate a second half recovery; we just did not anticipate it would be decelerating. And so absent the industrial OEM applications, it is playing itself out more or less how we have anticipated in our original guidance. And I'll let Brooks answer the pricing question.

From an inflation standpoint, the situation is somewhat mixed, remaining fairly stable overall. There has been a slight improvement in utilities, while freight has deteriorated a bit, and labor costs are still persistent. However, thanks to our usual pricing measures and the additional strategic pricing initiatives we have implemented, we expect the pricing environment to remain stable to slightly positive as we progress. Therefore, we do not anticipate any challenges in that regard.

Your next question comes from the line of Julian Mitchell from Barclays. Your line is open.

I understand that the adjustments to the '24 guidance are evident from companies like AGCO. However, I'm more curious about your outlook for 2025. What do you anticipate regarding the pace of recovery in some of the struggling areas such as auto, first-fit, Off-Highway first-fit, or general industrial? One of the reasons I ask is because you've expedited a savings program totaling around $40 million, with about $15 million to $20 million expected next year. Does this indicate that you don't foresee a significant cyclical recovery as you look ahead into next year?

Yes. Look, I'm not going to get to the specific of '25. And clearly, we're having some lack of clarity even on some of the shorter trends that are happening. But the way that I think about it, Julian is, we have seen a reasonably extended deceleration in manufacturing activity over the past couple of years. I mean, it's been pretty prolonged when we all look at the PMI REIT, the manufacturing PMI REITs, and they have been quite extended 19 to 20 months range, which is highly unusual. And if you kind of think about that, you would anticipate that you are add on near the bottom of the cycle. And while I'm not clearly here to predict what's going to happen vis-à-vis the industrial activity, we do believe that we are probably somewhere near bottoming out. My anticipation on the industrial first-fit, particularly on ag, is that you will see some degree of more prolonged weakness. And frankly, we have had a number of restructuring programs on the books ready to be executed, and we are taking the opportunity to do that right now. We have represented, I think, a pretty good outline of the structural opportunities that we believe exist for us vis-à-vis footprint optimization at the Capital Market Day update. And we clearly had that playbook ready to go and pull forward, and that's what we are doing presently. And we're not taking really capacity out. We're just optimizing how we will service our customers, trying to get to occasions that have better access to direct labor, optimize our efficiency of distribution and deliver rather meaningful improvement to our operating profitability when these projects are executed.

That's helpful. For my follow-up, I wanted to explore the margin aspect further. EBITDA margins are projected to decline by about 100 basis points year-on-year in the second half, following a more than 200 basis point increase in the first half, even though the revenue trajectory year-on-year seems relatively unchanged. Is there anything else besides the mentioned SG&A investments affecting this, such as changes in mix or price-cost dynamics? Additionally, regarding the free cash conversion being in the teens in the first half, how confident are we in achieving a step-up to 90 for the year?

Yes. To break it down, there are three main factors affecting the margins. First, foreign exchange has become a larger challenge as we progress through the second quarter, and it is expected to be a more significant challenge in the latter half of 2024 than we initially thought. Second, we plan to reduce inventory in the second half of the year. We had increased our inventory in anticipation of business opportunities and to meet customer needs, but now we aim to align our inventory levels by year-end, which will impact production and fixed cost absorption. The third factor is related to new business wins, which come with additional costs, including merchandising and change-out expenses, and this will also present a year-over-year challenge. Regarding SG&A, it primarily comes down to the volume versus SG&A issue. I do not expect SG&A to change significantly year-over-year, but with lower volumes, it will slightly impact margins from a percentage standpoint. On the cash conversion front, we are not far from our goals, with 70% cash conversion in the second quarter. Traditionally, we have had strong cash conversion rates, and while last year set a high bar, we believe we can achieve our goal of 90% cash conversion in the second half, considering the seasonal nature of cash flows and the inventory reduction I mentioned.

Your next question comes from the line of Deane Dray from RBC Capital Markets. Your line is open.

Ivo, I may have missed this as I joined a bit late. Could you explain the reasoning behind moving up the timing of the repositioning and restructuring actions? It usually indicates a good sign to proceed if you have a plan in place. Also, can you share any insights regarding the changes you will be implementing?

Thank you for your question, Dean. We've shared during the March Capital Market Day that we have a solid plan ready for execution. We are prepared to advance our optimization activities, and those programs are currently being implemented. We have been working on these initiatives for approximately two quarters, so we are not significantly pulling them forward. Some of these programs are longer-term and quite complex, involving equipment orders and similar tasks. This is why we anticipate completing the project by 2026. From this perspective, we are in a good position. Regarding the 80/20 question, you can view the 80/20 as a separate set of programs that enable us to optimize our manufacturing processes, scheduling, and output. This approach allows us to become significantly more efficient as we move forward. These processes are complementary, rather than one leading the other, and we are making progress on both fronts.

Good to hear. And then just a couple of updates. I know it's still a small piece of the business. Anything new on the data center front and the water pumps and any new developments on chain-to-belt?

Yes. Thank you. On the data centers, look, this is really quite an interesting space from our vantage point. First of all, very, very early on, lots of changes. People are still trying to figure out, what is the most efficient technology to deliver cooling to this very, very expensive apparatus that is being deployed in this environment. And presently, we're actually in process of launching some really interesting new fluid conveyance technology that specifically targets this application, but also leads itself to be deployed across a pretty broad set of other industrial fluid conveyance applications. It's very exciting what we are able to do. The specifications there are rather difficult, right? You have to be metal-free. You have to be halogen-free in your construction, which is not a trivial set of things to accomplish in the space that we participate. We've been able to develop a new technology that is based on engineering new polymers that give us the opportunity to eliminate natural trials and deliver real differentiation in this space. So, it's quite exciting. We are presently working with a significant number of server manufacturers and chip makers to get specified in the space as their preferred partners. We have very close coordination with our partner in CoolIT. We are extending our abilities to offer other solutions beyond the cooling pumps, and we have been able to get specified with a large manufacturer that we anticipate we will be ramping up some incremental volume towards the latter part of this year and probably into next year. So, a lot's happening. A lot is changing there. We are right in the middle of dealing with the major players in cooling. I think that our solution is targeting very efficient and good price point answering in that marketplace, but we also believe that this is going to be a game that's going to be played over several years as these folks are truly understanding the extent of the power, how to remove the power from the servers and these chips and how to protect that equipment. So, it's a very, very exciting stuff. Coming back to the second part of your question, I'll start with personal mobility in particular. Personal mobility has been impacted by pretty significant destock. Put that aside for a second, that plays itself out. And as I indicated in my prepared remarks, that is playing itself out the way to be paid. And then, we believe that kind of on the onset of '25, we will start seeing a reacceleration of our growth. We continue to get very strong print position with the manufacturers of these various two-wheel applications. There are no it is scooters, it's electrified or unelectrified. We're getting very strong print position across the bike market segment, both with electrified application and non-electrified applications. We're now starting to penetrate more broadly in North America, starting to enter more mid-sized bikes, and that's really exciting for us. So, we have a very high degree of confidence that the business is going to start reaccelerating and continue to deliver that growth that we anticipated kind of from '25 onwards. So, that's a really nice secular opportunity for us as well. And then on the industrial side, we are doing very well with robotics in Asia, with some food processing equipment in Asia, and we continue to work on a broader set of conversions in the United States. And we are making some investments in the front end. We believe that it is critical for us to be a real major player with the OEMs, both in the U.S. and in Europe and investment is being made as we speak. So very positive developments on our end. Some of them, again, will play themselves out kind of over that '25 onwards. But we have a very good set of confidence that this is an area of opportunity, both of these opportunities, and continues for the next 10 to 20 years.

Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.

Can you provide more details about the situation by region, specifically in China? China has returned to a year-over-year decline, which you mentioned is primarily due to first-fit, although there has been a double-digit improvement in industrial replacement. Can you help clarify what is happening there? Does the improvement in industrial replacement suggest that first-fit is likely to follow suit?

Thank you for your question, Andy. It's been interesting to observe the unevenness in the market. This trend isn't limited to China; it's a global phenomenon. We've seen a recovery in March and April, followed by some reversing trends, leading to a very unpredictable environment. Specifically regarding China, it remains quite uneven. In Q2, our performance in China saw some decline. The forecast for auto production in China suggests a decline in the high single digits for the second half of the year, and we expect this might worsen slightly. However, we did notice a rebound in the industrial replacement segment, although it wasn't enough to make up for the challenges in construction and agriculture, which are smaller segments for us. The industrial sector performed below expectations. On a positive note, our agricultural replacement remains strong, with favorable market dynamics. We anticipate that the performance of the agricultural segment won't change much in the near future. While China may not serve as the major growth engine it once has, its economy has matured and is experiencing cycles similar to others. As they begin to implement measures to stimulate their economy, we hope for improved conditions in the future.

Ivo, I wanted to follow up on your comments that maybe we're sort of bouncing along the bottom in terms of industrial. Maybe you could talk about inventories in the greater industrial channels and what your channel partners are saying. I'm sure you would say that ag and construction probably still doesn't look great in terms of inventory. But what about the other industrial markets? What are you seeing there in terms of channel inventories in conversations?

Andy, you gave me your answer; that's exactly what I would say. We believe that the agricultural and commercial construction inventories are likely to be somewhat affected by the slowdown that you're observing. However, we feel that the other inventories are relatively reasonable. We don't anticipate any further destocking, considering these markets have been fluctuating around the bottom for a lengthy period, and people have been reasonably proactive in destocking for quite some time. So, apart from the agricultural sector, we think that inventories are in a good position.

Your next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open.

Clay on for Jerry. Just one quick one, and apologies if I missed it, but on the previously outlined 2% benefit from material cost reductions. How much of that have we been able to realize so far? What's the timeline to realizing those benefits moving forward?

I don't believe that we have clarified what exactly is the extent in terms of percent of improvement. I would just say that we continue to execute well on material cost savings, and we anticipate any changes to our ability to go and continue as we move into the future.

That concludes our question-and-answer session. I will now turn the call back over to Rich Kwas for closing remarks.

Thanks, everybody, for participating. If you have any follow-up questions, feel free to reach out. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.