Jason Industries, Inc. (NASDAQ:JASN)
Q2 2016 Earnings Conference Call
August 04, 2016 11:00 AM ET
Chad Paris - Vice President of Investor Relations
Jeffry Quinn - Chairman and Chief Executive Officer
Sarah Lauber - Senior Vice President and Chief Financial Officer
Brian Kobylinski - President and Chief Operating Officer
Adam Farley - Stifel Nicolaus & Company
Zhuoli Li - Drexel Hamilton, LLC
Greetings and welcome to Jason Industries Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr. Chad Paris, Vice President of Investor Relations. Thank you Mr. Paris, you now have the floor.
Good morning and thank you for joining us today for the Jason Industries second quarter 2016 conference call to discuss our earnings results. If you have not received the slide presentation for today’s call, you can access it on our Investor Relations website at investors.jasoninc.com and following the link to our Events & Presentation page.
With me today is Jeffry Quinn, our Chairman and Chief Executive Officer; Sarah Lauber, our Chief Financial Officer; and Brian Kobylinski, our President and Chief Operating Officer.
Before we begin this morning, please be advised that this call will involve forward-looking statements regarding the Company and its businesses as noted on Slide 2 of today’s presentation. The Company’s actual results could differ materially from any forward-looking statements due to several important factors described in the Company’s latest SEC filings. The Company assumes no obligation to update any forward-looking statements made during this call.
Included in this presentation are certain non-GAAP financial measures. Because the Company’s calculations of these measures may differ from similar measures used by other companies, you should be careful when comparing the Company’s non-GAAP financial measures to those of other companies.
A reconciliation of non-GAAP financial measures to GAAP financial measures is included in our earnings press release issued this morning and in the appendix to today’s slide presentation. Today we will follow the agenda on Slide 3 and we will then open up the lines for your question.
We will begin this morning with our Chairman and CEO, Jeffry Quinn. Jeff?
Thank you, Chad, and thanks to all of you for joining us for the call this morning. I want to start by acknowledging I guess what’s the obvious, it was a very disappointing quarter for us. The results we posted just aren’t acceptable to any of us. The team and I believe that directionally we’ve been doing the right things over the last six months to fix this business and position into the future, but we must do more and we are and we will. The issues in the quarter included things that we can’t fully control, but there were some soft and complicated once that we will discuss as we go through the call this morning.
Most importantly, we want to talk about what we’re doing about these issues and our plan to eliminate them. In the quarter, we experienced significant downturns in the topline on both Components and Seating. A downturn in rail volumes and Components was expected, but the magnitude in phasing of the downturn was much more severe than forecasted. Late in the second quarter, the pace of railcar customers delaying or canceling orders accelerated rapidly.
Koby will speak to it in more detail on this business with you, but on average railcar OEMs build forecast for the year 15% to 20% laid in the second quarter and this was an addition to the previously expected 25% to 30% year-over-year drop. We expect this softness in the railcar markets will continue into 2017.
Seating was negatively impacted by an early end to the turf care season as customers began to destock an overall volume softness in our motorcycle and general industrial market. In addition, these topline challenges in Acoustics where we are seeing growth. Profitability was lower than expected due to protection in efficiencies as volumes ramped up during the quarter.
This issue has soften process and we must do better managing change in the manufacturing environment. This is our most significant organizational priority. We have been focused on this. The big issues have proven to be difficult to sort. We must do better in this regard period and to store it.
Sarah will talk about the actual results and Koby will address some details what we are proud to be doing to manage through this situation. After that I will conclude with the review of our key organizational priorities and how they have been impacted by the current progress.
With that, I would like to turn it over to Sarah to walk through the actual results for the quarter.
Thanks Jeff. Good morning everyone. This morning we announced our results for the second quarter. Our financial results are compared to prior year are shown on Slide 6. Our second quarter sales of $185.7 million reflected decrease of 1%. On a constant currency basis, we had acquisition growth of 4% from DRONCO acquisition and organic sales decrease of 4.9% driven by volume declines in Seating and Components that offset our Acoustics new platform growth.
Adjusted EBITDA for the quarter was $18.8 million. Adjusted EBITDA margin of 10.1% decreased 320 basis points over prior year. With lower margins in Seating, Acoustics and Components and consistent margins and by Finishing. Adjusted EBITDA decreased by $6.1 million for prior year driven by the lower volumes in Seating and Components, Delayed Flexing and continued operational inefficiencies in Seating and a combination of lower absorption and higher cost associated with volumes ramping on the new platform launches in two of the Acoustics facility.
In addition, we had transition cost related to our new components facility in Mexico. In the quarter, we realized approximately $2.4 million of SG&A savings from our cost reduction programs announced in the first quarter. However, we experienced higher costs related to supply chain project consulting cost and bad debt from a customer bankruptcy and components. These items offset our cost reduction savings, but are not expected to be part of our run rate going forward.
As a reminder from our last call, we are including the supply chain project consulting cost in our corporate segment and we expect the benefit of this project in the back half of the year within our business regard. Our goal is the supply chain project has been and still is the cash flow neutral in 2016. However, we are a bit more challenged by material savings with the expected lower volumes.
Now, let me get into a little more detail on the businesses. Slide 7 includes the second quarter sales results. Seating sales in the second quarter were $44.7 million, a decrease of $7.2 million. Organic sales decreased 13.7% driven by lower volumes in turf care, heavy weight motorcycles and heavy industry with growth in power sports. Turf care volumes were impacted in the quarter by an early end to the season compared with the prior year.
Finishing sale of $53.2 million increased $6.6 million over the prior year, which includes acquisition growth of $7.5 million. The negative organic growth and Finishing volumes of 1.5% is due to continued weakness in industrial markets, which shows signs of improvement in the quarter, but remain challenged in the U.S.
Acoustics sales of $63.2 million increased $7.1 million over last year with new platform volumes compared with the prior year, including a new platform launch that started to ship in April with volumes ramping throughout the quarter.
Lastly, in Component, sales of $24.6 million decreased $8.4 million and were impacted by the expected lower sales of smart utility meter with volume shifting between quarters, and lower sales as we exit low margin business with the closure of our Buffalo Grove facility.
In addition, we were impacted with lower volumes of our metal railcar products. We saw a significant decrease late in the quarter as railcar OEM customers delayed orders and decreased vehicle build expectations for the year. We also saw continuing weak demand for industrial products including oil and gas, mining, commercial construction, HVAC and off-highway filtration.
Slide 8 shows the segment results for adjusted EBITDA. Seating was $5.6 million or 12.6% of net sales, a decline of $3.7 million through prior year on lower volumes and continued operational inefficiencies. We experienced higher labor costs from Delayed Flexing on volume decreases.
In Finishing, adjusted EBITDA was $7.6 million, an increase of $900,000 from the prior year. Results were favorably impacted by incremental earnings from the DRONCO acquisition and $1.2 million in SG&A savings resulting from our global cost reduction program. These items were partially offset by lower industrial volumes in the U.S.
In Acoustics, adjusted EBITDA was $6.8 million or 10.7% of net sales, a $500,000 increase over the prior year. The earnings and margins were lower due to inefficiencies in two facilities that were experiencing significant volume ramping up during the quarter. We expect improving margins throughout the year as production reaches low volume and we continue to optimize these production volumes.
In Components, adjusted EBITDA was $3.3 million or 13.5% of net sales, a decline of $2.2 million versus prior year driven primarily from lower volumes on higher margin rail products, transition cost related to the new facility in Mexico and $400,000 related to the customer bankruptcy I mentioned earlier. We continue to see favorable material input costs, however this is now being partially offset by corresponding customer pricing.
Lastly, Corporate expenses increased $600,000 which includes approximately $1.2 million related to consulting cost for the supply chain cost reduction project. The expense was somewhat offset by reduced incentive compensation expense. We expect the consulting expenses to continue into the third quarter with savings generated within the businesses related to supply chain negotiated savings.
Our financial position at the end of the second quarter is shown on Slide 9. Our total liquidity of $88.4 million increased $4.7 million from prior quarter. Total debt of $444.5 million increased $3.5 million from prior quarter. At quarter end, our net debt to adjusted EBITDA leverage ratio was 5.6 times, while our credit facility definition for leverage ratio is at 5 times.
Operating cash flow for the first half of 2016 was $20.8 million was $5.9 million in free cash flow an improvement over prior year of $1.7 million. This improvement was achieved through significant reduction of $17.3 million in working capital and $3.2 million of lower capital expenditure. These items more than offset for lower EBITDA, the timing increase on cash interest and dividends and incremental cash restructuring charges.
The teams are very focused on driving free cash flow, making sustainable improvements to required operating working capital and prioritizing capital for the project was the greatest return. This concludes our remarks from the second quarter 2016.
Please turn to Slide 11. I’ll turn the call over to Koby for an operations update.
Thanks, Sarah. We had a disappointing quarter two. Our results were not where we expected them to be and we have lowered our outlook for the full-year. Operating improvements are occurring sequentially, but the positive aggregate impact from our numerous initiatives is being offset by a combination of one-time issues, weaker end market, and the investment necessary to achieve permanent cost reduction.
The bottom line is that net improvements are beginning to materialize just not to the magnitude nor to the speed that we would like. I will cover our operations in a bit, but I’d like to start with what we are seeing in the market and our businesses what shown on Slide 11.
This is a new Slide for us and we created it to provide more visibility to market dynamics and our topline performance. The upper portion illustrates key served markets, their condition and how they impact us. The table at the bottom summarizes our quarterly organic growth. Our most diverse business finishing remained stable and profit industrial marketplace.
Our products are used to prepare clean, contain and finished material predominantly metals. Many of the primary markets have been under pressure and we are offsetting the decline of these heavy use markets like heavy fabrication, oil and gas, and infrastructure by gaining share via targeted growth initiatives in areas of geography, vertical markets and product launches.
Here are three examples. The first relating to geography. We have a line of wide space roller product focused on primary metal manufacturing. Our products had tactical advantages that provide more accurate handling of material and our folks have been targeting new territories.
We received $400,000 worth of orders from two customers, one at Eastern Europe and the other in India first for this line of business. We are also focusing and increasing our activity in vertical markets that have higher growth characteristics. The aerospace market is one example. And we won $500,000 worth of business with one significant OEM and to suppliers.
The third area relates to product launches. We launched DRONCO manufactured abrasive products in the U.S. under the Osborn brand during the latter part of the quarter meeting with strategic national and regional distributors partners. We’re early in our journey here but expect this to be a great addition to our product portfolio as we offer customers more opportunity to bundle their purchases.
Shifting to our Components Group, the swift and significant rail market contraction is creating strong headwinds for us. This was one of the larger changes we experienced during Q2 and it is important to emphasize that the developments hit us late in the quarter. While we expected railcar production to decrease from a record 82,000 freight cars last year to 65,000 cars this year.
Railcar orders and backlog had a favorable mix of car types that were weighted toward our sweet spot, high content covered hopper cars. We maintain direct relationships with our customers who regularly validate those schedules. Despite this diligence we saw order releases get pushed and new orders decline. Reductions in industry forecast now range from 50,000 to 60,000 railcars for the year and covered hoppers haven’t been immune to that reduction.
Our teams who are already working to diversify our customer base and then in fact landed three new customers in the quarter focused on specialty truck and wood platforms. We will continue to increase our efforts to drive this type of adjacent market expansion and overall commercial execution as well as rate sizing our cost structure and the business giving our new reality.
Three of the Seating served markets are softening as well. Overall motorcycle vehicles remain flat, however, mix shift at the entry level models that contain less content per vehicle. Additionally, accessory volumes are down as OEMs managed their inventory levels. Relating to turf care while the overall turf care season was flat. We saw an earlier season compared with 2015 impacting our phasing.
And then finally, there is a 20% reduction and decline in the heavy industry sector challenging that portion of our business as well. Our folks are developing new technologies, products and customers to offset the condition. We have a new platform that we’ll hit in 2017 and have additional products under lifecycle testing and OEMs as we speak.
Finally, Acoustics our revenue will remain positive throughout the balance of 2016 despite a mix market sentiment. Although production has expected to remain stable for the back half of 2016 with approximately 17.9 million light weight vehicles produced to North America. Channel inventory is down, U.S. dealer inventories are now at 61 days down from 79 earlier in the year and below the normal level.
We continue to expand our capabilities driven technology like underbody products and our content per vehicle continues to increase. We are also taking advantage of a competitors exit from the space. Overall, we are gaining market share. However, the most impactful activity relating to Acoustics is managing our operations prove this growth.
So let’s turn to our operationally journey on Slide 2. The majority of our plants are performing, but we continue to have a small number of challenged facilities. Our key performance indicators have shown that our scrap rates were down and deliveries improved sequentially during each month of quarter two. But we have a number of initiatives aimed at improving and fixing these sites.
Overall, we invested in new talent in our operations and plant locations, upgraded skill sets and adding functional confident. These individuals possess decades of auto level OEM experience. In fact, our most recent hire our new Director of Quality comes to us having rather similar function from one of the top order manufacturers.
We created cross functional teams to focus on improvement activities across the enterprise. These tiger teams as we call them are solving problems and working in conjunction with local front lines in each location and report their progress weekly through our senior leadership [indiscernible].
Beyond the people we have made several high impact capital investment this year that will improve our quality and operational results. I was able to see one of these a new picker line during one of my recent visits. This piece of equipment will enable us to reclaim and dramatically reduce fiber scrap. Our estimated savings is $30,000 per month for this one initiative and we have dozens of similar activities in process.
And finally not only are we beginning to see some of these results in our KPI but our customers are noticing as well. We’ve been acknowledging this through notes to our staff and I’ve heard it firsthand during my visits with them, but we have much more to do, but we are definitely moving into that production.
On to costs, we have and will continue to take cost out of our business. Slide 13, provides an update on our global cost reduction program. Our net results remain masked as we experienced lower volumes and continue to invest in the operations for long-term savings, but there are positive signals.
There are really four main categories. The first is SG&A, SG&A restructuring is real and it is meeting our expectations. We will achieve $7 million of SG&A reductions in 2016 and enter 2017 with a $10 million annualized run rate. Our quarter two SG&A headcount for example is down 7.5% since the end of calendar 2015.
Second category related to supply chain and material costs. We hosted our first ever supplier forum in July. We had over a 100 of our suppliers participate and many of our key managers were able to expand as well. It was an impressive event, one where we were able to share our vision, the greater Jason opportunity and need for stronger partnership. Our [cost line] of savings is $4 million to $5 million in growing in fiscal 2016 and well over 20% of this savings positively impacted our results.
The third bucket related to the simplification and profit enhancement. Our businesses are embracing 80/20 as a mindset. I will use our Seating division as an example. We eliminated 10% of our SKUs and kicked off strategic pricing that should deliver $1.3 million worth of annualized profit improvement that will go into effect in the back of this year. We are also altering our structures to better support our most strategic and profitable customers.
The fourth area relates to fixed cost, we continue to work on streamlining and simplifying our footprint to reduce our fixed cost structure. In March, we announced a closure of Components facility in Buffalo Grove, Illinois and began shifting from this facility in quarter two, while the entire project will be completed by the end of quarter three beginning of quarter four.
Our DRONCO facility integration continued with duplicative facilities in Sweden and France, closing during the quarter, and our third facility in the UK that will be completed in quarter three. We have four additional facilities that we will be addressing in the next 18 months.
On the cash front, we continue to focus there as well. We reduced our working capital by $3 million in the quarter and nearly $6 million since the year end. This was a $17 million improvement over the first six months of 2015. And we continue to face series attention for better working capital management.
Capital expenditures are also being closely managed and we are going to spend lower budget only investing in high return short payback project and mission-critical activity. Personally, I have been on tour during my first 100 days at Jason, seeing dozens of customers, facilities, suppliers as well as hundreds of our employees. These connections are critical, but they provide me perspective and help me learn, but also illustrate what is possible with this business. Our disappointing quarter two has frustrated us, but it hasn’t deteriorated our team.
Many of these issues that we are facing were created over a period of time. They won’t be fixed overnight. But I am confident that we will increase the pace of change, improve our results, and yield month-over-month, quarter-over-quarter improvement restoring the credibility with our constituents.
With that, I will turn it back to Sarah to discuss our guidance for the year.
Thanks, Koby. Our second results and current market outlook is driving revised guidance for 2016. Slide 15, discussions on a revised full-year guidance of $715 million to $730 million in net sales and $73 million to $76 million of adjusted EBITDA. The decline in net sales is indicative of continued softness as we experienced in the second quarter in our Seating segment and our expectation on lower rail volumes in the back half of the year.
These volumes significantly impacts adjusted EBITDA expectations due to the margin profile of these product and fixed costs in these businesses. The adjusted EBITDA decline also represents the lower fall through we experienced with our Acoustics growth with expectation for sequential improvement albeit not at our earlier expectations.
From a cash perspective, we will continue to fund our capital project that we will prioritize for the higher return projects within 2016 and expect capital expenditures decline to approximately 3% of net sales. We have the right focus in the first half on free cash flow generation showing year-over-year improvement and maintenance our guidance to deliver $15 million to $25 million for the year with risk that are maybe towards the lower half of the range.
Additionally, we now expect our leverage ratio to be between 5.2 times and 4.8 times by year-end as a result of our lower EBITDA. This guidance reflects the cost reduction announced to date and does not include any unannounced facility rationalizations or further cost reductions. As those [indiscernible] we will be continue to be proactive, manage our costs and light of our volumes and initiate restructuring actions that best optimize us for the future.
With that, I’ll turn the call over to Jeff for closing comments.
Thank you, Sarah. I’d like to revisit the organizational priorities as I discussed in the last two earnings calls. The progress we’ve made on some of those - of these priorities are impacted by the current circumstances. As review those key priorities, the step posted on Slide 17. Improving our operational consistency and reliability remains most significant priorities that we have.
As I mentioned the lack of bottom line improvement in Acoustics is directly related to inconsistency in this regard. As Koby indicated, we are making sequential improvements, the key performance indicators are improving, but it’s been very frustrating for us as these improvements are not yet fully coming through to the bottom line.
The manufacturing issues we’ve been facing as Koby said were not created overnight and obviously we have made those possible overnight, but we are making systematic progress. The manufacturing team is to making progress and continually focused on this under Koby’s leadership.
During the quarter, Craig Ivey who have been serving as our Global Head of Manufacturing on an interim basis completed his assignment and left the Company. Craig Nichols has been named as our new Global Head of Manufacturing and he is functioning as key member of Koby’s business management team. Craig joined Jason in 2015 and work closely to identify the root cause of the issues in our plant and leading our operational improvement effort. Prior to joining Jason, Craig held significant manufacturing roles at Faurecia, IAC/Lear.
Our next priority is continue to invest in our people. I still believe the talent and people issues are the root cause of many ascertains we have experienced. We have made a significant investment in this area to stabilize our work force, enhance our manufacturing talent, strengthening our executive team. We have made progress on the manufacturing side and are systematically addressing the other functional areas.
Our organizational and talent development efforts continue and do remain priority, but given the current demand environment we are prudently reevaluating the timing and staging of this investment. We must also continue to focus on operating on Jason. We have made significant progress in this regard.
This approach is paying different in our supply chain initiative. With Koby on Board, the team is doing well and operating its one management team in a productive manner. Our efforts in this regard will continue, but will not be a significant investment for us as we move forward.
As I have stated, we continue to reduce our cost structure and expand margins. As Koby said in his comments, our cost reduction efforts are progressing. We have realized the projected savings in the SG&A side also our team work and our footprint and business optimization both delivered results, but what we have done is simply not enough.
We must increase our goals and accelerate the implementation of this program in light of the changing end market. To do this, we may need to make additional investments to implement an expanded program. As Sarah mentioned, those investments or the saving from those investments are in our current forecast.
Last quarter I discussed three potential portfolio changes that we are considering. We are moving forward on exiting two business lines in specific geographic areas within our existing segment. We anticipate the completion of these two assets in the back half of the year and while we did not have a specific transaction to announce the date we will provide a further update on our next quarterly call.
On the total business after a thorough analysis, we have decided to refocus and enhance the management of that business positioning for better long-term goal. We believe that continue to own and operate that business with a better value creation strategy and disposing of it at this time.
In addition to these activities given the current circumstances, we continue to evaluate all options for creation of shareholder value. Finally, due to the current circumstances we are increasing the emphasis on all aspects of cash flow management. We have restricted discretionary expenditures. Under Sarah’s leadership, we have enhanced our focus on working capital management and under Koby’s leadership our utilizing our recently improved capital expenditure management process to reevaluate the total CapEx to focus only on high returns, high paid, high payback projects.
In summary, our overall perspective is that we are entering a challenging period. In light of this outlook, we will continue to aggressively focus on the things that we can control. We are very aware of the economic circumstances and the condition and the end markets in which we operate. While the back half of this year and 2017 - challenging for us. Our focus remained on the long-term repositioning of this company.
Our focus and confidence and achieving those long-term goals remains unwavering. As Sarah stated, the financial position of our Company is solid. Our capital allocation priorities have shifted [indiscernible] given the environment. Maintaining and enhancing our liquidity position is our highest priority in this regard. After that we will invest to stabilize the organization find our cost reduction and margin expansion programs and opportunistically fund our CapEx program, the majority of which is the maintenance and cost reduction projects.
Notwithstanding our lower EBITDA outlook that Sarah indicated we are spending by our cash flow guidance for the year. Our cost reduction programs and continuous sequential improvement or our manufacturing issues are resolved in improving cash flow through the rest of the year because we put the work to delever.
Thank you. Now I’ll turn the call back to Chad for question-and-answers.
Thanks, Jeff. This concludes our prepared remarks for the call. Operator, please open up the line for Q&A
Ladies and gentlemen at this time we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Mr. Nathan Jones from Stifel. Please proceed with your question.
Hey, good morning, this is Adam Farley on for Nathan.
Good morning, Adam.
Yes. I will start with the guidance reduction. Could you provide any additional color on the decremental from the produced guide, price deteriorating in any of the businesses or some other issues present?
So, specifically in regard of the fall through to the EBITDA from the sales decline.
Yes. My comments really hits the true drivers about high margin products and we do have fixed costs in those businesses that are really difficult to fund in such a short notice. In addition, so along with that asset is the Acoustics fall through that we are not seeing so there is a little bit more of that coming through in the EBITDA guidance.
Okay. Following up, could you talk a little bit more about the progress in restructuring and if the incrementally worse demand the outlook means, you are going to plan on taking more heads out than initially planned?
Yes, I think we’ve achieved what we set out to do in wave one and clearly wave one was generated based on a certain set of circumstances right now given where we are I would anticipate we are going to be looking at additional plans to impact our profitability so the net answer is yes we will be doing more.
Okay. Great. And then moving towards components, there’s been raising raw material prices as of weight specifically metals. Is there any concern on pricing there?
Right now we’ve got our pricing locked in for period of time I think what you - where that type of a raise in the raw material cost will be something that we’re taking a look at now gets them to 2017.
But we are locked in through the year.
Okay. Great. And then Acoustics, on that platform awards can you give a little more specifics from that, what new platforms you won?
Well, we have got some with Chrysler that we’re rolling out. Part of the interesting thing with some of these ramp ups is. We win a platform and then they pull along with the production of the old platform, so you kind of straddle that’s a little bit of our profit issues that we’ve got there.
So we have that, we definitely with that one are utilizing some of our new technology. And then we are working on a couple that we can’t publicly talk about just yet, but we’re definitely helping one of the major companies through a challenging situation that provides some opportunity for us.
All right. Great. Thank you. That’s all I have for you guys. Thank you.
And our next question comes from the line of Ms. Zhuoli Li from Drexel Hamilton. Please proceed with your question.
Good morning, Quinn.
Good morning, Zhuoli.
My first question is on Seating, can you share more color on the revenue decline and the [posting of] large part of that decline is due to volume reduction and the pricing is intact. And also can you share more color on the competitors landscape?
So I’ll hit a couple of things and then Sarah can come in on the back side - some other pieces that I leave out. I mean the first thing is that the mix of three main markets. The turf care thing we talked about, we had an early start to the season this year that actually began at the very end of fiscal 2015. And so as a result, we saw this whole season shift forward by roughly a month to two months and that impacted us this year.
The motorcycle aspect is really a mix within motorcycles. If you look at what many of the customers are doing within our space that we serve. They are trying to go more international and they’re trying to appeal to more entry level riders to increase their sales and as a result those vehicles while they show up at the same vehicle, when you look at overall numbers. The content per vehicle is much less. Our content per vehicle is anywhere from $45 a seat to $300 a seat and as that thing shifts that has some type of an impact on our topline.
On the heavy industrial stuff, the reality is just in that world has been very difficult. We did win platforms. They are coming out until the next year. So we’ve got a little bit of - we’re going to be bright in the market for the next six to eight months.
Yes. Zhuoli, I’ll just add on the pricing aspect of it. We do have some price pressures in Seating this year of which we known about and was included in our guidance. So we have some price, but Seating is one of the areas that are very focused on looking at our lower margin product and working on price increase to increase the profitability. So we expect to be able to make improvements for that.
And we disclosed that.
And to follow-up on that, did you realize any new issue during the quarter maybe during the quarter you witnessed more headwinds from heavy industry equipment. And is that the main reason behind taking down of $20 million from your revenue guidance this year?
I think it’s the combination of things. Certainly that’s one of the inputs. If you had to look at the reduction and guidance, it’s really on the topline two areas. The Components with rail and what we face there, predominantly rail. There are couple of other things in there. And then the balance would have been Seating from a revenue perspective.
The decrementals, as Sarah hit one. Nathan asked the question. Really we have a mix issue as far as where the revenue is growing is overall less profitable, and our higher profit area like components where we got hit is coming out. So we’ve a little bit of mix to Seating as well
And to shift to Components, I remember in the past few quarters, the rail end market has been growing pretty solid. What changed during this quarter?
Yes. For us it’s been more of our served portion of the market. The overall market has been coming off, but what’s come off has been more tankers related to oil and gas and some of that type of activity where we really have strength in these covered hoppers where the safety grading is the stuff that we produced from our components business. That has been very resilient even with the overall market reduction. Our backlog is strong and orders are strong, but what’s happened is a pretty significant second step down in the overall numbers and it’s crept into the covered hoppers now.
And my next question is on Acoustics, you’ve mentioned you’ve launched the new underbody platform and also have some share gain in that market. Can you share more color on that and how should we expect the growth initiatives in the next few quarters?
Yes. I think right now the run rate in this low-teens type of growth is what we’re really trying to shoot for. We had a pretty big jump a couple of quarters ago. It should moderate, but we’re going to say positive. The really with the newer platforms that we’re looking at there is a lead time associate there. So as we start to less the cost, so if you look at that Slide 11 that we had, once we start lapping those comparable numbers, it will improve a little bit more difficult for us to be demonstrating the same type of growth that we’ve got out there.
Yes. And I’ll just add to that Zhuoli, if you can go back to our original guidance, we had Acoustics platform growth of $25 million to $30 million expected for the year and we are still within that range.
Great. Thank you for color. I have one last question and I’ll jump back in the queue. You’ve mentioned a lot of issue that you have identified and could be improved in the next few quarters. Can you give the top three growth initiatives or your strategic focus and kind of prioritize those three initiatives?
Yes. I can actually - with that question which is a good one, if you think about in each business has above something a little different. If I look at our Finishing business and launching the abrasive line that we picked up with the DRONCO acquisition a year ago into the U.S., it’s focusing on incremental verticals that have higher growth characteristics like the aerospace that we talked about and it continued use of 80/20 and business simplification.
We have some operational issues to fix as well in the business, but overall the diversity of that group is really solid and those are the real - really what I would call a priority there. Components, it’s really two things, market diversification and it’s not going to be easy to replace a very small handful of customers that drive so much volume. We’re having success, but they come in smaller chunk and cost structure take out and rightsizing our cost structure.
If you go to Seating, we’ve got some new seats like our versus seat, where we placed some new platforms, continued launch of that, penetration of some of the other niches like zero-turn radius, mowers [indiscernible] and this business is well as a 80/20 as one of its key drivers.
And Sarah mentioned the pricing that something that we’re going out there with our less profitable customers and simplifying there. On Acoustics really continue to improve our operational issues, continue to improve our quality and driving some of these new technologies like underbody. So when I look at it more of a prioritization type person, those are kind of the top things that come up on top of my head.
Good. Thank you so much.
Thanks, Zhuoli Li.
There are no further questions at this time. I’ll turn the call back over to Chad for any closing remarks.
Thanks, Chris. This concludes our call this morning. We thank you for your interest in Jason and we look forward to reporting on our progress in the third quarter. Thank you.
Ladies and gentlemen, you may disconnect your lines at the time and we thank you for your participation. Have a lovely rest of the day.
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