Q3 2024 Columbus McKinnon Corp Earnings Call
Participants
Kristine Moser; VP Investor Relations and Treasurer; Columbus McKinnon Corp
David Wilson; President, Chief Executive Officer, Director; Columbus McKinnon Corp
Gregory Rustowicz; EVP Finance, CFO, and Treasurer; Columbus McKinnon Corp
Matt Summerville; Analyst; D.A. Davidson
Jon Tanwanteng; Analyst; CJS Securities
Walt Liptak; Analyst; Seaport Global Securities
Steve Ferazani; Analyst; Sidoti & Co
Presentation
Operator
greetings, and welcome to Columbus McKinnon Third Quarter Fiscal Year 2024 financial results. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Christine Moser, Vice President, Investor Relations and Treasurer.
Kristine Moser
Thank you, Rob, and good morning, everyone to Columbus McKinnon's fiscal third quarter 2024 earnings conference call. The earnings release and presentation are available for download on our investor relations website at investorrelations dot SEMCO.com.
On the call with me today are David Wilson, our President and Chief Executive Officer, and Greg restaurants', our Chief Financial Officer. In a moment, David and Greg will walk you through our financial and operating performance for the quarter. But before we begin our remarks, please let me remind you that we have our safe harbor statement on Slide 2. During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs and expectations. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements.
I'd also like to remind you that management will refer to certain non-GAAP financial measures. You can find reconciliations of these measures the most directly comparable GAAP financial measures on the company's Investor Relations website and in its filings with the Securities and Exchange Commission. Please see our earnings release and our filings with the Securities and Exchange Commission for more information.
Today's prepared remarks will be followed by a question and answer session. With that, let me turn it over to David.
David Wilson
Thank you, Christy, and good morning, everyone. The third quarter was another quarter of strong net sales as we leveraged our playbook for growth and gain traction with commercial initiatives. In fact, we delivered over 1 billion of net sales on a trailing 12 month basis for the first time in our history with continued category resilience and healthier supply chain dynamics. We improved operating performance in areas that matter most to our customers and reduced our lead times. This improvement in operational performance enabled us to further reduce our past-due backlog levels and delivered improvements in customer experience. In the third quarter, we drove 10% top line growth which translated to even stronger growth in operating profit as we expanded gross margin benefited from leverage on our growth and remained focused on performance improvement through CMBS and our 80 20 process. Adjusted gross margin expanded by a robust 160 basis points year over year, even as we lapped pricing actions from the prior year. Improvements over time have been driven by progress in capacity planning, material costs, direct labor productivity, factory overhead rates, pricing and the acquisition of Mantra tech. Although we delivered strong margin expansion year over year, it fell a bit short of our own expectations due to a few unique items that Greg will unpack shortly. While those dynamics had an impact in the third quarter, we expect to accelerate year-over-year adjusted gross margin expansion in the fourth quarter, we have line of sight to 200 plus basis points of expansion with potential upside opportunities and remain on track for our 40% gross margin target in 2027. That exceptional operating performance is all thanks to the hard work and strong execution of our 3,500 Columbus McKinnon team members. I couldn't be more proud of how our nimble and innovative team has continued to deliver on behalf of both our customers and our shareholders, more consistent and improving execution by our team, combined with our differentiated business model, has delivered a strong record of performance over time and across a variety of economic environments. While we're growing and generating cash, which provides dry powder to reinvest in our growth framework where we have multiple levers to drive scale. We also remain focused on using our significant cash flow generation, coupled with adjusted EBITDA growth to naturally deleverage our business. Our net leverage ratio now sits at 2.6 times, and we're on track to achieve approximately 2.3 times by the end of the fiscal year. We're off to a solid start in the fourth quarter, powered by the resilience of our differentiated business, growing momentum with our commercial initiatives and strong track record of our execution.
If you'll turn to slide 4, we delivered order growth of 8% in the third quarter, positioning us to deliver on our fourth quarter sales guidance, which Greg will discuss shortly. Orders remained strong across all geographies, and we saw particular strength in Amea as demand remained resilient despite the broader macro economic and geopolitical headwinds underpinning our growth with strength in precision conveyance and lifting, which were up 23% and 7%, respectively, even excluding Monster tech, precision conveyance was up 9%. Overall demand for both our project and short-cycle businesses remained healthy. Project orders grew double digits in Q three, reflecting our customer-centric focus targeted end market growth initiatives and channel diversification efforts. And on a quarter to date basis through last week, short-cycle orders continued to expand and are up 11% versus the same period last year. We are capitalizing on megatrends within the vertical market leading to project wins in areas related to electric and hybrid vehicle advancements, e-commerce and package delivery solutions, Pharmos ship to home trends and increasing demand for prepackaged meals where we are delivering customized solutions for our customers to address their unique needs and exact specifications as we lean into customization, an increasing proportion of our portfolio requires unique equipment and parts, creating recurring revenue streams for our business that will also be a tailwind to gross margin over time. While still early, we see a growing pipeline of project activity this quarter and have already had wins in categories benefiting from megatrends that provide tailwinds to our business such as pharma, automation and logistics. While we are not immune to the macro economic environment, we remain cautiously optimistic about our near term outlook, given the resilience of our customer relationships, the visibility we have into our sales funnel and our efforts to improve our customers' experience through our acquisitions and our commercial growth initiatives we are adding new customers and expanding into new markets, markets that have attractive tailwinds. This has muted impacts from pockets of softness in industrial CapEx spending. Importantly, we remain we remain encouraged by our funnel for both short-cycle and large project orders. As I mentioned earlier, we remain highly focused on improving our operational performance and enhancing our customers' experience. As a result of these efforts, our backlog decreased by 6% from the prior quarter, driven by reductions in past-due backlog, which decreased 26% in the period. Going forward, we expect backlog to further normalize from current levels. While this may impact near term shipment flexibility, we expect to benefit from improved lead times and customer satisfaction levels, which we believe will create tailwinds to order frequency and volume over the mid term.
In addition to customer experience, we continue to make significant progress on all aspects of our transformation, delivering on productivity enhancements and simplifying our business, including foundational progress with the footprint rationalization plan that we mentioned in our last Investor Day. As part of that effort in January, we opened our state-of-the-art manufacturing center of excellence in Monterrey, Mexico, pictured on slide 5, a 165,000 square foot facility that will enable productivity enhancements and growth over time. This investment is directly aligned with our 80 20 process and will cultivate a culture of innovation as we expand our R&D capabilities in the region, we expect to incur approximately 26 million of CapEx associated with this phase of the project. We also expect factory consolidation costs of approximately 2 million related to the closure of our Santiago Mexico facility and our consolidation of that facility into Monterrey in the fourth quarter, we expect to achieve productivity benefits related to this investment over the course of fiscal 25. But we anticipate that those benefits will be offset by overlapping production costs while we ramp production volume in the new factory.
Pulling up.
On slide 6, we're encouraged with the progress we're making and by the potential of our business as we advance our strategic transformation to become the global leader in intelligent motion solutions for material handling. We remain highly focused on executing our strategic plan and achieving both the near and long-term objectives we've established for the business. I remain confident in the long-term trajectory of Columbus McKinnon powered by our differentiated business model, track record of execution and encouraging funnel of opportunities and our acquisition strategy. We are just beginning to scratch the surface in terms of the value our precision Conveyance business can deliver the expansion of our total addressable market through our proven playbook provides a long and attractive runway for growth with a focus on targeted sectors that are benefiting from tailwinds associated with megatrends related to automation and the scarcity of labor resources, the near-shoring of manufacturing capacity, infrastructure and defense spending as well as electrification. Our continued execution, growing momentum and the strength of our business model give us confidence that we will remain on track to meet our long-term financial objectives.
With that, I'll turn it over to Greg to take us through the financial results.
Gregory Rustowicz
And thank you, David. Good morning, everyone. Turning to slide 7, we delivered sales in the third quarter of 254.1 million, up 10.3% from the prior year period or 8.5% on a constant currency basis. This was at the high end of the guidance we provided last quarter, supported by strong execution from the team and continued resilience in demand the Motortech acquisition contributed 15.5 million to net sales, accounting for 6.7% of the net sales increase. Motortech had a very strong quarter, reflecting the timing of several large project deliveries, namely to Airbus and a large German automotive company. In the EV space, we realized pricing gains of $6.5 million or 2.8% which was in line with what we were anticipating as we lapped last year's November price increase, volume decreased by 2.4 million or 1%. This was largely in our precision convenience platform, which was impacted by lower order rates earlier in the fiscal year. As David discussed, the funnel is healthy for this platform, and we saw strong order growth of 23.5% in Q3. Foreign currency translation was a benefit this quarter of $4.1 million or 1.8%. We saw robust growth outside of the U.S. with sales increasing by 30%. This was the result of a combination of both Monster tech revenue and high single digit organic growth in the US, sales decreased 2% on lower volumes, primarily in our precision conveyance platform.
As just referenced on slide 8, we recorded gross margin of 36.9% in the third quarter on an adjusted basis, gross margin was 37.2%, up 160 basis points year over year. As expected, we saw adjusted gross margin declined sequentially by 150 basis points, which includes normal seasonality. While gross margins were the highest we ever had in the third quarter, we came in a little behind our expectations. This was primarily driven by a COVID outbreak in December in our coastal Slough, Germany factory that impacted labor productivity. In addition, at Monster attack, we had higher purchased components for a particular project that carried a lower margin, which we have addressed and should not repeat, Q4 margins will rebound, and we remain on our path to achieve 40% gross margins in fiscal 27 gross profit increased $11.8 million or 14% versus the prior year. This was driven by several factors which you can see in the table. The largest item driving gross profit expansion were contributions from the Monster Tech acquisition, which contributed 6.7 million to gross profit and pricing net of manufacturing cost changes, including material inflation, which added $4.6 million. Monitor tech was accretive to gross margins by 40 basis points this quarter with an overall gross margin of 43%.
Moving to slide 9, our SG&A expense was 59.5 million in the quarter or 23.4% of sales. This was improved 70 basis points from a year ago. The year-over-year increase was largely from the addition of Monster tech to the portfolio and the impact of FX, which added 800,000 to the total. We continue to invest in R&D, which added 1.4 million to the total, but this was more than offset Eyak by an acquisition earn out in the prior year. That did not repeat and lower selling costs as we realigned the business a year ago.
Turning to slide 10, we generated operating income of 26.9 million in the quarter or 10.6% of sales. This represents an increase of $6.7 million or 33% over last year's third quarter. Adjusted operating income was $29.7 million or 11.7% of sales. On an adjusted basis, operating income grew $6.3 million or 27%. This reflects the strong operating leverage we have in the business and demonstrates our long runway for margin expansion over time, excluding the mantra, Tech acquisition, which was additive to our results business, drove 47% adjusted operating leverage.
As you can see on slide 11, we recorded GAAP earnings per diluted share for the quarter of $0.34, down $0.08 versus the prior year. This was due to a 4.6 million non-cash pension settlement expense, which impacted EPS by $0.12 per share. We are in the process of terminating one of our US pension plans. We paid lump sum payments to a certain class of current and former employees who elected the lump sum settlement. The remaining liability will be sold to an insurance company later this calendar year. When we complete that transaction, we expect another non-cash charge of approximately 28 to $29 million that we will record at that point. The pension plan will be off our books. We had a similar termination back in fiscal year 21. We have adjusted this out for purposes of calculating adjusted EPS. Our tax rate on a GAAP basis this quarter was 29% as we repatriated overseas cash to accelerate debt repayment, which resulted in dividend withholding taxes. Year to date, our tax rate was 26. And for the year, we still expect our tax rate to be approximately 25%. Adjusted earnings per diluted share of $0.74 was up $0.02 from the prior year as higher adjusted operating income more than offset the negative impact of higher interest expense in the increased tax rate year over year, which together impacted EPS by about $0.1 per share in the quarter.
On slide 12, our adjusted EBITDA margin this quarter of 16.3% improved by 160 basis points from a year ago. On a trailing 12 month basis, our adjusted EBITDA margin was also 16.3%, a 50 basis point improvement from where we finished fiscal year 23. Our return on invested capital continues to improve and was up 30 basis points for fiscal year 23% to 7%. We expect to realize a low double digit ROIC by fiscal year 27.
Moving to slide 13, quarterly free cash flow was 23.1 million in the period. This includes cash provided by operating activities of $29.1 million and CapEx of 6 million year to date, our free cash flow is $12.3 million, which is an increase of 66% from a year ago, despite the higher CapEx largely tied to our new Monterrey, Mexico facility Q4 historically is a strong cash from operations quarter for us, and we would expect that trend to continue.
Turning to slide 14, our capital structure continues to improve as our net debt leverage ratio was 2.6 times on a financial covenant basis. As we have previously discussed, we have a covenant covenant-light credit agreement. We continue to accelerate our debt reduction plans as we paid down another 15 million of debt this quarter, we are planning to pay down an additional 15 million in Q4, which will bring the total to 55 million of debt this fiscal year, up from the 40 million discussed at the beginning of the fiscal year, we expect to report a net leverage ratio of approximately 2.3 times as we exit fiscal year 24.
Turning to guidance on Slide 15, on the back of solid growth in orders in Q three, we expect to continue to grow net sales between 2% and 6% to between 260 to 270 million in Q4. We also expect roughly $60 million of our SG&A expense 10 million of interest expense, a tax rate of 25% for the full year diluted shares outstanding of 29.1 million. We expect to continue to be highly cash flow generative with free cash flow conversion of approximately 90% for the full fiscal year. This is inclusive of Q4 CapEx of approximately 14 to 19 million, which is elevated due to the opening of our Monterrey facility, we expect to use our cash flow to continue to delever our business. As a result, we expect our net leverage ratio to improve to approximately 2.3 times by the end of the fiscal year.
As I wrap up my review of our financial performance, let me emphasize that our guidance reflects the strength of our results year to date, initial trends in the fourth quarter and our ongoing confidence in our differentiated business model.
Rob, we are now ready to take questions.
Question and Answer Session
Operator
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you'd like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star TV. One moment, please while we poll for questions.
Our first question comes from Matt Summerville with D.A. Davidson. Please proceed with your question.
Matt Summerville
Thanks a couple of questions with respect to Monterrey, the duplicative manufacturing costs and of course, you're going to have are you able to quantify that? Is that included in the guide? Will that be onetime out? And then can you also talk about Monterrey, maybe what you're consolidating into that facility, the ramp-up trajectory looks timing on cost savings, quantification, all that stuff?
David Wilson
Yes, Matt, let me take the first part of that, and I'll address the second question and then I'll hand it off to Greg to address the first of your questions.
So if you go back to our analyst or investor day. And when we talked about our strategy from a footprint simplification standpoint, we outlined a path that include included some improvement to gross margin through the rationalization of our footprint over time. And what we've done is we've put in place the foundation for that work with this brand-new facility that we just erected and we started to consolidate into. And so we have announced the consolidation of our Santiago Mexico facility into that location in Monterrey, and that's underway. And then over time, we'll be addressing the follow-on plans associated with that overall strategy. And obviously, for sensitivity reasons, we're not going to get into more details related to those next steps. But we have a very well-defined plan that we're actively managing and leading the business through and expect that to deliver the benefits that were outlined at that time in our bridge to 40% gross margins.
Gregory Rustowicz
Hi, Matt. This is Greg. So with regards to how we're going to handle the cost for Monterrey, so this quarter, we pro forma it approximately 700, $55,000 as it represented the cost of us, getting a team in place, hiring new people and some facility costs, and we haven't yet produced a single item. So we would expect as we ramp up in Q4. We will also have pro forma costs related to that that would be in excess of what we would the standards we set for the cost of manufacturing. Our product and as we go into fiscal year 20, and we will start to realize benefits from the facility from the consolidation. But we think that in general that it's going to be kind of offset by the fact that we're still scaling up.
Understood.
Matt Summerville
And then, David, can you maybe talk a little bit more provide a little bit more granularity just around some more end market specifics where you see the most strength right now, maybe where you're seeing some weaker spots in both the US and your international business?
David Wilson
Yes, sure.
Thanks, Matt. So we see nice market resilience across all geographies. And I think in the data that we talked about relative to on the performance of the business in Q three, we saw an increase in Europe of 9.5% in orders ex, including Monster tech, 4.5% year over year, excluding mantra tech on a constant FX basis on order rates in our convenience business were up 23.5% globally, including monitor tech, 9%. If you exclude that, our lifting business was up 7%.
So there's been a nice level of resiliency.
We are seeing nice performance as it relates to the EV pipeline, life sciences, food and beverage, as well as defense opportunities.
And as we look to the future.
We're in active discussions with the targeted set of customers that serve the life sciences space on the EV and hybrid vehicle space.
On the e-commerce spaces, we're starting to gain additional traction there.
We're excited about the pipeline of opportunities that exist there. And then food and beverage is starting to gain traction. What I will say is the headwinds seeing probably between June of 2022 and June of 2023 related to the robotics and packaging markets with higher interest rates and some of the slowdown. And in order rates there that were affecting our conveyor business, though those have bottomed that and there's a rebound there that we're able to capitalize on. And we feel good about the progress. Our teams are making as we're targeting markets to support growth in our precision Conveyance business.
Matt Summerville
Got it.
David Wilson
Thanks, guys.
With that.
Thanks, Matt.
Operator
Our next question is from Jon Tanwanteng with CJS Securities. Please proceed with your question.
Jon Tanwanteng
Hi, good morning and thank you for the questions. I just wanted to drill down a little bit on that end market commentary a little bit more if you could. First was US lifting down at all or was it all conveying?
David Wilson
And if it was all convenience, was that simply the lapping of that large e-commerce and robotic customer you mentioned, yes, U.S. lifting was up with orders in the quarter and on a global basis, lifting was up 7%, 7.5%.
But the US lifting business was also up in low single digits.
Jon Tanwanteng
Okay, great. And then you mentioned strength in, I guess, sort of a bottoming in recovery in convenience. Our business. Is that from a returns of any customers that came out? Or was that more broad-based as you address some of the markets?
David Wilson
Yes, it's a little bit of both.
Actually. We've continued to gain traction with a new set of customers that we've engaged in channel diversification initiatives and business development with targeted customers. And so we're pleased with the traction we're gaining around e-commerce, more broadly through both integrators and end users. But we are seeing some of the return of activity with customers that we've worked with for a long time and a continued traction around beta developments that were we're working on with them.
Jon Tanwanteng
Got it. And then finally, you mentioned strength in EV, which seems counter to the sentiment that maybe production is ahead of demand there. I was wondering if you could provide a little more color on what your customers are telling you and kind of how they're planning.
Sure.
David Wilson
Yes.
So we're working with a number of participants in that space. And as we build capacity for our customers, they're focusing on both long game benefits as they position themselves for this as a long-term trend.
But also they're focusing on productivity improvements in their own factories and the advantages we can provide them with whether that be for immediately growing demand or current demand. And there's opportunities for us through the work we do with intelligent motion solutions that help them with their our productivity and cost savings to to sell more. And so we're seeing traction with the work we're doing there.
Jon Tanwanteng
Great. Greg, if I could sneak one in there, what would you expect on a gross margin basis as we head into the fourth quarter?
Both will normally be a seasonal thing and kind of the one-offs that you expect this quarter?
Gregory Rustowicz
Yes. So we think we're going to be in the 200 basis point plus from where we sit today. Sequentially or from last year, sorry. So that puts us at approximately 38% gross margin adjusted gross margin by area.
Great.
And I think we noted in our prepared remarks, commentary, John, that we we see upside potential and we're working on that.
Jon Tanwanteng
But I think that's the best.
Gregory Rustowicz
Thanks.
Operator
Our next question is from Walt Liptak with Seaport Research. Please proceed.
With your question.
Thanks.
Walt Liptak
Good morning, guys, and good quarter of banks. Wanted to ask about a monetary attack and the sales came in a little bit stronger than I was expecting and so I guess the question is, was there something that was pulled forward? What are we thinking now for at sort of the 12 month revenue run rate for Matritech's?
Gregory Rustowicz
Sure.
David Wilson
Sure.
So as Greg indicated in his prepared commentary, we we shipped two large projects to air Airbus and then two to a large German EV manufacturer. And those were planned. We had visibility to that demand into those shipments in the quarter. So they were elevated and that's not a quarterly run rate, if you will, right now for the business. But as we purchased the business, it was a $30 million business and we had communicated that we anticipated we'd grow the business at roughly a 30% rate. And so I think that still remains intact and would anticipate that we're a year later running at more of a 40 million rate on. And as a project focused business, it's natural that that business will have a level of variability quarter to quarter. And so that 15 million does not repeat itself in this coming quarter. But Tom, we continue to see really robust demand for that business. And we're encouraged by the progress we're making with our integration work, the opportunities for that business, not only through their historical channel of delivery or sales to customers, but also through what we've been able to enhance that with the combination of our businesses. So we really feel good about the early innings for that business and the growth trajectory that we think we can achieve over time.
Walt Liptak
Okay.
That sounds great. And maybe a last one for the fourth quarter, I kind of look back at the data. It tends to be a fairly big quarter. And then I wonder if there's something seasonal about the order patterns where you had large project orders in your March quarter that shipped during the year and then what's the funnel looking like?
Gregory Rustowicz
Yes.
I'll take the first part of that, Walt. And so typically from a seasonal perspective, you're absolutely right. Q4 is our strongest quarter and to put it into perspective, Q3 is our seasonally weakest quarter with the with the holiday season. So typically, there's optimism about the new year from our channel and a lot of cases has reduced their inventory levels as of the end of the calendar year. They might be year-end reporting companies. And so it's important that they have their balance sheets or balance sheets where they want them, but now they've got to look to the future and look at what is the expected demand. And so what's what what inventory do they need? You've got new CapEx budgets that have been approved. And so so from a project perspective, we're starting to see activity where orders are going to be coming in related to those projects that we've been working on for quite a while and so on. We would expect those same trends to continue in our fiscal fourth quarter this year.
Yes.
David Wilson
And I'd just add on relative to the funnel.
We're encouraged by the funnel at this point.
While we are we saw orders increase in Europe, as I communicated earlier, where believing that the business resiliency is going to continue there as we've come off a low in our second quarter and have seen orders creep up in Q3, and we expect them to continue to continue to move in the upward direction this quarter. And as I mentioned earlier, we see opportunities for our precision conveyance and lifting businesses that have some sustainable trends. And we're supported by a lot of macroeconomic. So we feel good about the position that we're in. We of course, remain cautiously optimistic, and we're paying attention to how things are developing. But at this point, we see the trends of positive order development continuing.
Walt Liptak
Okay.
All right. Great.
Operator
Thank you.
Our last question will be from Steve Ferazani with Sidoti & Co. Please proceed with your question.
Steve Ferazani
Morning, David, Greg, appreciate all the color on the call. I just wanted to get back into the sales guidance for Q4. When we think about the growth and I think you indicated maybe not as strong from Ultratech in Q4, but if I back out mantra attack, it would seem at minimum, that's the low end of guidance. You're looking at an organic sales decline. Is that accurate year over year?
David Wilson
I think we have an organic sales growth at the midpoint of our guidance on year over year.
And Greg Kinsel, yes, yes, that's right. So we do have an organic sales growth, Steve, year-over-year at the midpoint of guide. And I think that we expect that we'll continue to see positive developments throughout the quarter. We do have a shrinking past-due backlog, as I mentioned before. And so we've been able to address those backlog challenges that we've had. And what that's done is it's driven backlog down and I mentioned in my prepared remarks that as we work with our customers and get them into a more frequent ordering pattern and we become more competitive with our lead times we believe that there's opportunities to gain share, and that helps us to drive demand into the business. But that does have a periodic impact on this quarter. But we feel good about the progress we're making in those initiatives. And so that should trend well as we go into the next year.
Gregory Rustowicz
Yes, because I would just add on it. So at the midpoint, it's kind of mid-single digit growth for the Company.
Okay.
Steve Ferazani
When we think about and I've asked you this in previous quarters now, we've seen four out of five quarters with book-to-bill under one, you can lap monitor tech in May. How comfortable are you that you can get organic net sales growth post lapping mantra, tech, given where you are?
David Wilson
And?
Yes, I mean, we certainly feel good about the quarter that we're in, and we'll be coming back in on the May time frame with our guidance for fiscal 25. But we do we do remain encouraged with the momentum in our on our order funnel remains really healthy.
We're in active discussions with our customers.
I mentioned the channel diversification initiatives, the opportunities to gain share and the self-help work that we're doing.
This isn't all about it.
Our growing macro, it's about opportunities for us to compete in the landscape that we compete within and do that effectively. And so we remain optimistic about the future.
Steve Ferazani
Great.
Thanks for that. Last one, just on some debt paydowns, I know Q4's and you've got sort of guiding for it being the big quarter for cash flow, any reason you wouldn't ramp up the paydowns, which we are we have and we'll continue to do so, Steve.
Gregory Rustowicz
So we started the year with guidance of 40 million, roughly 10 million a quarter of debt paydown, and we've ramped that up. We're going to be at 55 million for the year with what we expect to do in Q4. And if we can do more than that, we will. But I think let's say, you know, what's an interesting fact here is that for the fiscal year, we'll have paid down about half of the purchase price of Motortech, right? We paid roughly 100, $10 million or we're going to pay down 55 million of debt. I think that's a very impressive of none, 67% of debt hedged.
Steve Ferazani
What does that mean as if we get to rate reduction rate cuts in total benefit worth?
Gregory Rustowicz
Yes. So we'll benefit from the rate cuts for sure and some for a third of our debt. And as the capital markets improve, there's always opportunities to even do better. And so we'll look to see what we can do there as well since.
Steve Ferazani
Thanks, David.
David Wilson
Thanks.
You bet.
Gregory Rustowicz
Thanks.
Operator
We have reached the end of the question and answer session. I would now like to turn the call back to David Wilson for closing comments.
David Wilson
Great. Thank you, Rob, and thank you, everyone, for joining us today.
Our team is executing and delivered double digit sales and operating income growth in a dynamic environment. This reflects the significant progress we're making with our transformation and our proven playbook for growth. We're pleased with the momentum that we have entering our fourth quarter, powered by a diversified platform and an improving competitive position.
We remain a strong cash generator, which enables us to reinvest in our business and delever the balance sheet, unlocking further cash flow potential.
We're confident in our ability to deliver long-term profitable growth and enhance shareholder value.
Thanks for your interest in Columbus McKinnon and have a great day.
Operator
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Yes.
