Earnings Call Transcript - PKOH Q1 2021

Operator, Operator

Good morning, and welcome to the ParkOhio First Quarter 2021 Results Conference Call. Today's conference is also being recorded. If you have any objections, you may disconnect at this time. Before we begin, I want to remind everyone that some statements made during this call may be forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements carry risks and uncertainties that could lead to actual results differing significantly from projections. A list of relevant risks and uncertainties can be found in the earnings press release and in the company's 2020 10-K, filed on March 5, 2021, with the SEC. Additionally, the company may address adjusted EPS and EBITDA, which are not measures of performance under generally accepted accounting principles. For details on reconciliations of EPS to adjusted EPS and net income attributable to ParkOhio common shareholders to EBITDA, please refer to the company's recent earnings release. I would now like to turn the conference over to Mr. Matthew Crawford, Chairman, President, and CEO. Please proceed, Mr. Crawford.

Matthew Crawford, Chairman, President and CEO

Good morning, everyone. I'm joined here this morning by Pat Fogarty, our Chief Financial Officer. It would have been difficult to imagine during the spring of last year the speed of the industrial recovery underway. Our first quarter results demonstrated record levels of business in parts of our company. Improved bottom line performance due to operating leverage, accelerated by our ongoing improvements in our cost structure and an almost $50 million reduction in net debt year-over-year. Our success during the quarter was led by Supply Technologies. The combination of strengthening end markets and new business momentum propelled the business up 12% and March revenue was an all-time record. In addition, despite significant challenges in logistics and supply chain, our team was successful in achieving impressive flow-through at the margin line. Bottom line is that Supply Technologies had a great start to the year. While revenue at Assembly Components was flat, we continue to see the benefits of an increasingly flexible cost structure, which was beneficial during the quarter in responding quickly to changes and challenges in the automotive space. Perhaps the best sign of success in this segment was a steady stream of new business awards across the product portfolio, which will underpin our next increase in revenue and margin. We are well positioned to continue to benefit from the re-engineering of vehicles globally and, in particular, electrification. Engineered Products results were lower than anticipated during the quarter, which is not surprising given the weakness in some of their end markets. But new bookings suggest we have worked through the trough and this traditionally mid-to-late cycle business is on its way back toward historical performance. These results highlight a few things; first, our diversity continues to be our strength; second, our improved and more flexible cost structure has provided not only improved margin flow-through but also has enhanced our ability to react to an increasingly difficult operating environment; lastly, we expect to see progress toward our margin enhancement goals as the business environment stabilizes and we see improvements in our traditionally highest margin segment, Engineered Products. Thank you to all of our associates for leading our business through these challenging times. We're being rewarded for everyone's hard work and we are ready to move forward confidently into a period of sustained growth, improved quality of earnings, and less leverage. With that, I'll turn it over to Pat to review the results.

Patrick Fogarty, Chief Financial Officer

Thank you, Matt. Our first quarter results reflect continued positive sales trends in most of our businesses despite supply chain constraints and weather-related disruptions that affected several of our operations. The positive sales momentum throughout the quarter was most notable in Supply Technologies, where sales were at an all-time high during the month of March. Also, Assembly Components, despite the semiconductor chip shortage, which caused production delays throughout our automotive customer plants, performed well during the quarter and continues to launch more than 30 new programs in various facilities. Although we are not pleased with the results in our Engineered Products segment, which was challenged by low end-market demand from the oil and gas, commercial aerospace, and rail markets, we began to see increasing new capital equipment orders and strengthening backlogs in our forged and machined products group. Also during the quarter, we continued to implement margin improvement initiatives across each business segment, which we believe will drive higher operating margins as revenues increase. Our first quarter consolidated net sales were $360 million compared to $366 million in the first quarter last year and equal to our fourth-quarter 2020 revenues. Consolidated gross margins in the quarter were 14.5% compared to 14.7% a year ago. Excluding charges in the quarter related to plant closure and consolidation activities, margins were essentially the same year-over-year as the cost reductions implemented last year and higher margins in Supply Technologies offset the impact of lower margins in Engineered Products. SG&A expenses were $39.7 million compared to $40.9 million a year ago, a 3% decrease, reflecting the benefit of cost reductions implemented during the past year. On an adjusted basis, operating income was $13.6 million in the first quarter compared to $13.5 million a year ago as a result of improved margins in Supply Technologies and Assembly Components and lower corporate costs, which more than offset the decline in operating income in Engineered Products. Interest expense was $7.4 million in the first quarter compared to $8 million a year ago. The decrease was driven by lower average borrowings and lower interest rates. Our first quarter effective tax rate was in line with our expectations at 26%. First quarter GAAP earnings per share were $0.45 and on an adjusted basis, earnings per share was $0.53 compared to $0.13 a year ago. The impact of the lower effective tax rate benefited the quarter by $0.30 a share year-over-year. On an adjusted basis, our pre-tax income increased 18%. EBITDA as defined was $27.2 million during the first quarter compared to $25.5 million a year ago, an increase of 7%. Our liquidity continued to improve and totaled $264 million as of March 31, up 5% compared to a year ago and up $12 million from year-end. During the first quarter, we generated $10 million of operating cash flows compared to a use of operating cash of $3.9 million a year ago. The significant year-over-year improvement was driven by higher net income and our continuing efforts to manage working capital in response to current market conditions. Capital expenditures during the quarter were $6.6 million, primarily in our Assembly Components segment and related to new equipment purchases to support new business, which will launch during the current year in our aluminum and remolded rubber products businesses. Turning now to our segment results. In Supply Technologies, net sales were $158 million, up 12% from $141 million a year ago. During the quarter, year-over-year and sequential growth occurred in the majority of our key end markets. The significant year-over-year sales increases were driven primarily by the heavy-duty truck, power sports, medical, and defense markets. Average daily sales in our supply chain business were up 14% compared to a year ago and are expected to remain strong throughout the year. In addition to the strong demand seen in our supply chain business, our faster manufacturing business also had a strong quarter, achieving their highest quarterly sales number in recent years. Key to this business is our proprietary self-piercing and clinch products, which are receiving wide acceptance from both domestic and European automotive OEMs. We expect this trend to continue as a result of light-weighting and electrification initiatives being implemented in the automotive industry. Operating income in this segment increased to $12.2 million and operating income margin was 7.7%, both significantly above last year's $9.2 million and 6.5%, respectively. The higher margins in the first quarter were driven by the higher sales levels and the positive impact of cost reduction actions implemented in 2020. Moving to our Assembly Components segment. Sales were $126 million compared to $128 million last year, while sales have substantially recovered from the pandemic lows of just over $50 million in the second quarter of last year, sales in the current year were negatively impacted by the semiconductor chip shortage affecting certain automotive platforms in many of our plants. We estimate that the chip shortage reduced our first quarter sales by $5 million and first quarter operating income by $1 million. We expect the shortage of supply will most likely remain a headwind for our auto-related businesses throughout the year, although it is difficult to project the full-year impact at this time. We estimate that the sales impact in the second quarter will be approximately $10 million based on current customer shutdown schedules. Segment operating income was $6.4 million in the current year compared to $6.3 million a year ago and segment operating margins were 5.1% in the current quarter compared to 4.9% a year ago. On a sequential basis, operating income was lower due to the chip shortage and its impact on production schedules as well as start-up costs on new products being launched in several of our facilities. We continued our margin improvement initiatives during the quarter, including various plant consolidations in this segment. In the first quarter, we expensed $600,000 related to these activities and we expect to incur additional one-time costs of $2.6 million throughout the remainder of the year. In our Engineered Products segment, sales in the first quarter were $76 million compared to $97 million a year ago. The decrease in sales was due to the continued slow recovery in certain end-markets, including oil and gas, aerospace, and defense and rail markets. In our capital equipment business, sales of new equipment and aftermarket parts and services exceeded our expectations during the quarter and helped offset the low demand for our forging-related products. On a positive note, new equipment order activity primarily for induction hardening and melting applications continues to strengthen. First quarter new equipment orders increased 38% compared to fourth quarter levels. In addition, our backlogs in our forged and machined products business increased from year-end levels, and we are optimistic that the pace of recovery will begin to improve. The operating loss in this segment, which totaled $1.3 million in the current year or current quarter, was driven by the lower sales, which impacted profitability. We continue to take actions to improve future profitability in this segment. In the first quarter, we expect $700,000 related to plant consolidation activities, and we expect to incur additional costs of approximately $1 million throughout the remainder of the year. And finally, corporate expenses were $5 million in the quarter compared to $6.3 million last year. The decrease in expenses was due primarily to lower professional fees and employee-related costs. Overall, in spite of the first quarter sales volatility caused by the supply chain constraints and weather-related issues, we exceeded our internal expectations based on the strong results from Supply Technologies and Assembly Components. Although sales levels in our Engineered Products segment continue to lag the overall recovery seen in our other two segments, we are starting to see positive trends in demand. Our previously communicated 2021 financial targets remain unchanged, which include revenue growth of 8% to 12% over 2020 levels, improving adjusted EBITDA margins by 150 to 200 basis points year-over-year, capital expenditures of $28 million to $32 million, and free cash flow conversion greater than 75% of adjusted net income. And finally, effective April 1, we completed the acquisition of NYK Component Solutions, our first acquisition since the pandemic began. NYK, which is headquartered in the U.K., is a leading distributor of electrical components for use primarily in the commercial aerospace marketplace, but also in other industrial applications. NYK's products and services are highly complementary to our existing portfolio of electrical products and provide additional product lines and new customers throughout Europe and North America. We expect annual sales from NYK to exceed $10 million, and the results to be immediately accretive to earnings. Now, I'll turn the call back over to Matt.

Matthew Crawford, Chairman, President and CEO

Great. Thank you very much, Pat. I'll comment briefly on how excited we were to get back in the acquisition game. While a small deal, it's extremely strategic and accretive. I think it is very exciting for our Supply Technology business and also, I think, symbolic of us getting back to our roots in terms of our DNA and our choice to try to grow through acquisition as well as organically. With that, I will turn it over to questions.

Operator, Operator

Our first question today is from Steve Barger of KeyBanc Capital Markets.

Robert Barger, Analyst

Great to see Supply Tech start so strong. Do you think this level of revenue is sustainable in Q2 and in the back half as customers ramp production?

Matthew Crawford, Chairman, President and CEO

I'll start. Yes. Again, I think that I commented briefly on a couple of different things. Certainly, we're seeing a robust environment in most of our end markets, not all; there are a few, most notably, commercial aerospace that continue to lag. But I also commented briefly on the new business; we've been focused, as you know, on new business for the last 18 to 24 months in a renewed and invigorated way. So yes, I do expect the strength to continue.

Robert Barger, Analyst

That's great. Given the top line and the cost reduction initiatives, it seems like we should anticipate Q1 to be the low point for margins in that segment as we progress through the year.

Matthew Crawford, Chairman, President and CEO

Yes, that's a great question. We're very excited about the position of that business. It has certainly faced impacts from various issues such as expedited freight costs, port delays, supply chain challenges, and labor shortages, which have led to uneven volume increases throughout the business. Planning and securing inventory in the appropriate locations at the right time can be challenging. While there are opportunities for improvement on the margin side, some of these inconsistencies may persist. Additionally, like many others, we are experiencing some inflation in the system and will continue to proactively address it. We will leverage our supply base to secure the best possible deals, which will necessitate some pricing adjustments. The visibility may not be as clear as you've suggested, but we believe we are in a solid position.

Robert Barger, Analyst

Understood. For the acquisition, is that based on a specific product line or just the end market exposure it has, and do you see revenue synergy opportunities as you look across your customer base?

Patrick Fogarty, Chief Financial Officer

Yes, Steve, this is Pat. Yes, a couple of things. In 2019, we acquired a very small electrical distributor and we believed at that time would be a launching pad to allow us to provide more electrical products within our customer base. What NYK brings is not only additional product lines, but also new customers and supplier certifications, which is very important to allow us to begin to penetrate further our commercial aerospace customers, where we don't have much electrical component sales currently. So we believe that all of the above will generate significant synergies with our current customer base.

Matthew Crawford, Chairman, President and CEO

Steve, I would also add that one aspect we appreciate about this business, which we're focusing on for acquisitions, is its adjacency and the significant value it offers us in terms of marketing synergies. However, they have their own growth narrative. This business performs well, has strong margins, and can grow independently of us, so we recognize substantial strategic value; this is a business poised for growth.

Robert Barger, Analyst

Got it. I'll ask one more and hop back in line. Matt, it's really good to hear you so focused on cost reduction and driving higher returns over time and I'm not asking you to name names here, but are there any business units that consistently underperform relative to expectations and maybe are working capital-heavy that don't make sense for the portfolio? Is there any opportunity for growth via subtraction?

Matthew Crawford, Chairman, President and CEO

We spent the last couple of years carefully examining our product portfolio, and as previously mentioned, we have focused our capital allocation on businesses that we believe can outperform. Therefore, we will continue to concentrate our capital on acquisitions and organic growth where we see above-average margins and growth. While we have some businesses that may not fit this profile, generally, those businesses significantly contribute to our ability to generate cash, reduce debt, and provide flexibility throughout the business cycle. I wouldn’t say there’s a significant opportunity in that area. We appreciate the businesses we are involved with, although this doesn’t mean there won’t be opportunities as we see revenue growth. But that’s our current perspective.

Marco Rodriguez, Analyst

Could you provide us with a more detailed update on the launch schedules for the components that were delayed last year? How should we approach those product launches as we move into this fiscal year?

Matthew Crawford, Chairman, President and CEO

Yes. I'll describe it at a high level what's happening. First of all, it is very difficult to plan for this business. As you know, a number of the product launches were pushed back and now, not only have they been pushed back, but to the extent they've launched, we are seeing lower volumes. So I do believe that we will continue to see revenues grow even against the headwind of lower volumes, but to articulate a number at this point would be challenging. But I would also say to you, separately, as you think about the business going forward, I commented in the opening comments about the redesigning of the vehicle and electrification. Our business funnel is as strong as it's ever been across our product portfolio; we are seeing tremendous opportunity. So while it's hard to answer your question in the context of the next couple of quarters, again, given some of the restraints in the supply chain that Pat mentioned, we will outperform the market for years to come.

Marco Rodriguez, Analyst

Got it. And then, revolving around the Assembly Components and your commentary on the impacts that you've seen from the chip shortages and what you're expecting here in Q2, another $10 million kind of headwind, I would have to assume you're expecting year-over-year growth, but is there an expectation that you'll see sequential growth in that business as well?

Matthew Crawford, Chairman, President and CEO

Pat, to provide a quicker response to this question, I would say that the current supply chain and automotive environment will make it challenging for many to predict production over the next three to six months. We’ve seen Ford clarify its production schedules recently, and Stellantis is now being more transparent as well. Our information isn't significantly better than yours. However, if we look at the business as a whole over the next 18 months, considering the backlog that didn't materialize as we anticipated and the new business opportunities, I believe we will outperform the market. That said, I'm hesitant to take risks related to new business compensating for production losses in the short term. That remains a genuine possibility, and it would be acceptable. Pat, are you willing to provide a more detailed perspective?

Patrick Fogarty, Chief Financial Officer

No, Marco, it's a fluid situation right now; every day there are different changes happening with customer schedules, making it difficult to comment on that. I stand by what Matt said about our expectation to outperform the market. We have many new launches spanning various product lines and plants, which gives us confidence. Our team is well qualified to handle the launch of multiple products, as they are used to it. We are confident in what they will be able to accomplish.

Matthew Crawford, Chairman, President and CEO

I want to add that regardless of your political views, the current momentum in electrification is beneficial for our company. It gives us a chance to focus on the design phase of new products, particularly our lightweight products related to battery infrastructure. The importance of lightweighting is greater than ever, especially concerning other products we provide in the coolant and fluid delivery areas. As the transition to electrification progresses, we are gaining valuable insights into the applications where we can excel, and this is becoming increasingly exciting.

Marco Rodriguez, Analyst

I understand. That's very helpful. Looking at one of your end markets, the commercial aerospace sector has faced challenges recently, as you noted earlier; it continues to fall behind some of your other industries. I'm curious about your thoughts on this sector and what your expectations are for its recovery and how it might contribute to revenue growth for your company.

Matthew Crawford, Chairman, President and CEO

Marco, we have confidence in our estimates for 2023 and 2024 that suggest a return to historical volumes. However, this doesn’t change the fact that we are long-term investors in this space. We believe it’s not a matter of if, but when. That said, we do not anticipate this will provide a significant boost this year or likely next year.

Marco Rodriguez, Analyst

I understand. I'm curious about the supply chain disruptions you've experienced due to the inflation mentioned in your prepared remarks. I appreciate the details regarding the impact on certain components, but are there any other areas of the business where you noticed significant declines or impacts on your financial results in Q1?

Patrick Fogarty, Chief Financial Officer

Yes. I wouldn't say meaningful, but I would comment that the price increases that we're seeing in certain commodities, we always react very aggressively to try to get ahead of it, as Matt mentioned. Our aluminum business saw tremendous increases in pricing, not only year-over-year but also since year-end, and our arrangements and agreements with our customers is that we catch up to that, but there is a lag. And so, in the first quarter, we were affected by that lag. And so, as prices begin to stabilize, we fully catch up and, of course, we always benefit from that same lag when prices decline. So I would say that is one business that we did incur additional costs at the cost of goods sold line because of that lag.

Matthew Crawford, Chairman, President and CEO

Marco, I want to emphasize that most of our business is tied to raw material metrics, as Pat pointed out, or, for example, in the Engineered Products sector, we typically do not have long-term agreements. This area is project-based or driven by aftermarket sales. Therefore, the majority of our business can adjust pricing as costs increase. In the automotive sector, we do have some long-term agreements that aren't indexed, which we'll need to address. In Supply Tech, there are certain areas with indexing, but much of that business operates as buy-sell, allowing us to adjust pricing relatively easily. The segments of our business that are exposed to these timing issues, as Pat has noted, constitute a small fraction overall. So, most of the impact will likely be temporary. I can say that a moderate level of inflation is beneficial for ParkOhio industries. It enhances our position in the value chain, increases our inventory's worth, and adds value to our supplier knowledge, processes, and workforce. So rest assured, we are hopeful for a reasonable level of sustained inflation, around 2%, as it would be advantageous for us.

Operator, Operator

The next question comes from Sarkis Sherbetchyan of B. Riley Securities.

Sarkis Sherbetchyan, Analyst

So just wanted to touch on the NYK acquisition. I'm not sure if you had a chance to speak to the growth and margin profile of the business in the prepared remarks. I think you mentioned it has a good growth story; it operates well and has good margins. So if you can maybe provide some context around that statement, please.

Matthew Crawford, Chairman, President and CEO

Sure. We mentioned that we expect the business to exceed $10 million in revenue. Their margin profile is greater than the margin profile of the Supply Tech segment. So as that business grows, we expect to expand on those margins. And I think, the other opportunity that I did mention earlier, Sarkis, is the ability of their expertise relative to suppliers; our volume that we're going to bring to the table allows us better pricing on the pricing grid. So it will have impacts on other parts of our Supply Tech business.

Sarkis Sherbetchyan, Analyst

Understood. And when you mentioned better than Supply Tech's segment margin, is that on operating income margins or is that on the books?

Matthew Crawford, Chairman, President and CEO

No. Operating income margins.

Sarkis Sherbetchyan, Analyst

Good. And what was paid to acquire the business? I know it's $10 million in sales, but just trying to get a handle on whether it's also accretive from a financial metrics perspective.

Patrick Fogarty, Chief Financial Officer

Sure, sure. $5.5 million net of the cash that they had on hand.

Sarkis Sherbetchyan, Analyst

Great. And you mentioned kind of retaining the annual guide you provided from the prior call, so I suppose, as we work this incremental $10 million in sales in accretion to the model, it would be over and above the base level fiscal '21 guidance, is that correct?

Matthew Crawford, Chairman, President and CEO

Right. Yes. Sarkis, the $10 million doesn't really impact the range of targets that we've given, and so we wouldn't expect that to have a material impact on the guidance that we've given.

Sarkis Sherbetchyan, Analyst

Okay, that's fair. And just wanted to kind of get a better sense for some of the working capital shifts quarter-on-quarter; I noticed inventories built up here. Is that kind of seasonal? Is that strategic? Just help me understand the magnitude of the build-up.

Patrick Fogarty, Chief Financial Officer

Sure. We saw increases in inventory in Supply Tech primarily to meet anticipated customer demand in the second and third quarters, along with logistics challenges we experienced at the ports. Our priority is to ensure we meet our customers' needs, which is why we are maintaining slightly higher inventory levels than usual. Additionally, the inventory increases in Assembly Components were driven by new volume demands in the second quarter, as well as the earlier mentioned price increases for aluminum, which also contributed to higher inventory levels. Overall, when we assess our net working capital in relation to our annualized sales from this quarter, we are aligned with our historical levels at approximately 25%. There are various factors influencing the fluctuations in working capital categories, but our aim is to gradually reduce the percentage of working capital relative to sales throughout the year.

Matthew Crawford, Chairman, President and CEO

Sarkis, that gives me an opportunity to mention the work done inside the business in the last 4 or 5 months has been heroic in terms of the products that we supply; in many cases, are just in time. As you know, some of them are by the ship; some of them a couple of days are in the supply chain. There are so many people around the business that have done some of the best work of their career in keeping our customers satisfied. So we're going to support them with inventory dollars necessary to make sure that their job's just a little easier.

Sarkis Sherbetchyan, Analyst

No, that's fantastic. And one last one for me, and I'll hop back in the queue. We've been hearing a lot of manufacturing companies in operations having difficulties with labor; just want to get a sense for how your facilities are operating on the factory floor in regards to labor and if there is anything you've started to think about or implement to kind of alleviate any potential pain points?

Matthew Crawford, Chairman, President and CEO

It is the issue of the day. We are doing everything possible to attract and retain talent, improve the onboarding process, make appropriate changes to wage scales, and modify some of our benefit plans. At the same time, we are working to make people's jobs easier. The volatility in marketplace demand is challenging. No one wants to work seven days a week, so we need to invest wisely to help our employees work five days a week and spend time with their families. This is a complex issue that goes beyond just labor costs; it's about positioning people for success and job satisfaction. Our investments are focused on creating a flexible cost structure and enhancing our current operations. We are targeting funding towards areas where we need to boost capacity or improve work conditions. This is essential for establishing a more stable employment base, but it will remain a challenge. During my recent visit to one of our plants, I spoke with the senior team and recognized the HR person's significant responsibilities. Ultimately, we are committed to improving our employees' quality of life and making their jobs easier, while also being prepared to compete on compensation. However, that is not the long-term solution.

Operator, Operator

The next question is from Steve Barger of KeyBanc Capital Markets.

Robert Barger, Analyst

Pat, for assembly, you said there was a $1 million reduction in net income on a $5 million delay on the revenue; should we expect that same percentage negative contribution margin on the $10 million in sales that you called out?

Patrick Fogarty, Chief Financial Officer

Yes.

Robert Barger, Analyst

So does that mean margin is probably flat or down in assembly in Q2 versus the 5.6% in Q1?

Patrick Fogarty, Chief Financial Officer

Yes. I think the expectations are, we'll be able to offset much of that, but right now based on the information that we know on the shutdowns occurring, a $10 million has an impact of roughly 15% to 20% on our gross profit, and we're working hard to be able to move our own cost down to offset that.

Matthew Crawford, Chairman, President and CEO

Steve, I want to take that comment to also highlight our team. We've discussed the restructuring and flexible manufacturing changes we've made. There is a part of the revenue challenge and the shutdowns in the automotive sector that is advantageous for our business. What I mean is that we are continuing to optimize our manufacturing footprint not only for our cost structure but also for what Sarkis and I just talked about concerning creating a sustainable work environment. In a way, these shutdowns present us with opportunities to implement changes that will benefit us for many years ahead. I'm not suggesting that I want this situation, but we will be compensated for some of this because we can expedite certain restructuring actions, and we will see the returns later this year and in the years to come. So, rather than just accepting the situation as unfavorable, we are proactively asking ourselves what we can accomplish this year that we might have postponed until next year. There are several initiatives underway right now.

Robert Barger, Analyst

That's a good perspective. And for the Engineered Products segment specifically, you have the easiest comp at negative 33% from last year; do you think that similar returns to growth this quarter, is that probably not likely, just given the trends that you're seeing in some of those end markets?

Patrick Fogarty, Chief Financial Officer

I think we started to see some of those growth trends in the month of March, Steve. I think we're going to continue to see the business sequentially improve based on the order levels that we're seeing in our new equipment business and in our induction business. So I think that's fair.

Matthew Crawford, Chairman, President and CEO

Yes, Steve, our business is primarily focused on oil and gas. While we are noticing some activity in that sector, we anticipate continued demand for oil and gas in the near future. This business is largely influenced by the equipment group, and as confidence in the economy grows, we expect to see an improvement, particularly in our aftermarket business. We're already witnessing some uplifting trends in new order bookings, as Pat mentioned. There's still a significant journey ahead for us to return to our previous performance levels, but we are making progress. I want to emphasize that we are committed to this area, and we've implemented essential changes in our approach to the business. We have taken steps to reduce costs and create more adaptable manufacturing environments, which is crucial. Additionally, we've invested in the business strategically during this cycle, engaging new leadership to focus on areas that will be promising and transformative for the future.

Robert Barger, Analyst

That's great. Since we're discussing challenging end markets, I'd like to inquire about the rail business. I know it has faced pressure for some time. We're observing sequential increases in rail traffic, and equipment is being released from storage, including railcars and locomotives. Do you have any indication that orders are starting to rise, similar to what you're observing in the oil and gas aftermarket?

Matthew Crawford, Chairman, President and CEO

Yes, it's particularly noticeable in the oil and gas sector. This situation is evolving, and I believe we are beginning to see changes.

Patrick Fogarty, Chief Financial Officer

I'll give you one example of that, Steve. In our forging business in Arkansas, which is primarily providing forged products to the rail industry, the month of March was a very good month from a sales perspective and probably at the highest level of monthly sales that we've seen in 1.5 years and almost 2 years. So I thought that was a good sign for that market. Now, it's a relatively small part of the business, but it was a sign that we could be seeing more upside there.

Matthew Crawford, Chairman, President and CEO

Obviously, we're optimistic that the infrastructure will hit that part too. Whatever they do in infrastructure, it seems like they're in violent agreement about rail and some of the more basic stuff. So we're excited there. I don't know if we're seeing as much activity on the locomotive side, but candidly, that's a smaller part of the business.

Operator, Operator

There are no additional questions at this time. I would like to turn the call back to Matthew Crawford for closing remarks.

Matthew Crawford, Chairman, President and CEO

Great. Thank you for the good questions today, and thank you for giving us some time to talk about the business. Most importantly, thank you to all the ParkOhio people that make this happen. I truly believe we're entering into a very unique time in our history. I'm proud of the way we've allocated capital and I've never been more excited about the future. So thank you very much.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.