Columbus McKinnon (CMCO) Q2 2027 earnings review
Columbus McKinnon raises its profit plan, but net debt rises
Buying hoist maker Kito Crosby lifted operating margins for Columbus McKinnon, an industrial lifting and conveyor maker, while financing costs and a cash drain weighed on the bottom line. Operating profit before depreciation and one-offs nearly tripled to $111 million, beating what the prior full-year plan pointed to by our math, and chief executive David Wilson raised the full-year outlook. Yet profit per share excluding one-offs slipped 2% on interest and preferred share dilution, while the business burned $15 million of free cash flow.
| Sales from businesses owned a year ago | +5.3% +12.7% in Q1 (total sales +107% to $539.3M) |
|---|---|
| Adjusted EBITDA margin | 20.6% 15.4% a year ago |
| Profit per share, excluding one-offs | $0.61 -1.6% from a year ago |
| Full-year Adjusted EBITDA outlook | Raised $20M middle of the range: $432.5M |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because strong operating margins and the raised outlook are offset by a stall in debt reduction. Better European orders and early cost savings supported the operating beat, proving the prior plan was cautious. The bad news: the company borrowed more money to cover working capital and interest, lifting net debt by $33 million and leaving bank leverage stuck at 4.9 times.
The question now is whether second-half cash generation can start shrinking the $2.4 billion debt load and the compounding preferred share balance. Bulls see a cautious second-half profit plan and a $556 million order backlog that will turn working capital into cash; skeptics see slowing unit volume and interest expenses eating up nearly half of operating cash profit. Third-quarter free cash flow and debt paydown will tell.
🐂 Bull Case
Combined Business Held a 20% Margin
Buying hoist maker Kito Crosby in February doubled the size of Columbus McKinnon, which makes industrial lifting and conveyor equipment. Chief executive David Wilson said the integration is moving well, with "synergy realization ahead of plan". In the second quarter, Adjusted EBITDA — profit before interest, taxes, depreciation, amortization and one-offs — reached $111.2 million, or 20.6% of sales, up 5.2 percentage points from a year ago.
- Selling expenses: 9.7% of sales, down 1.5 percentage points from a year ago
- General and administrative overhead: 11.5% of sales, down 2.4 percentage points
- Gross margin excluding one-offs: 36.5%, up 1.2 percentage points from a year ago
By our math, the prior full-year plan pointed to about $98 million to $103 million of Adjusted EBITDA per quarter, so the second quarter beat that pace by 11%. Finance chief John Linker raised the full-year Adjusted EBITDA outlook by $20 million at the middle of the range. Even after that raise, the plan implies a 19.4% margin in the second half by our math, leaving room if cost savings keep building.
What to watch: Adjusted gross margin in the third quarter. It slipped 1.6 percentage points from the first quarter to 36.5% as material costs rose, and another drop would show factory cost inflation is eating into the deal's overhead savings.
Orders Topped Sales as European Demand Improved
Weak demand in Europe, the Middle East and Africa (EMEA) had weighed on orders for four straight quarters. This quarter, Wilson said sequential sales growth benefited from "stronger than anticipated demand in both Asia and EMEA", alongside steady activity in the Americas. Total orders reached $562.6 million, matching sales for a 1.0 book-to-bill ratio, which measures whether new orders are replacing shipped products.
Combined orders including Kito Crosby in both periods grew 13% from a year ago across the first half. Because orders outpaced shipments, the order backlog grew by $15.2 million from the first quarter to $556.2 million, whereas a year ago the standalone backlog shrank by $8.5 million in the same season. One quarter of better European demand softens the macro concern, though Kito Crosby supplied $307 million of the quarter's orders.
What to watch: the $291.3 million of current backlog scheduled to ship in the third quarter. Shipping all of it while keeping the total backlog above $550 million would confirm that European and Asian orders are holding up.
🐻 Bear Case
Free Cash Flow Turned Negative and Debt Rose
Deleveraging is the centrepiece of the Kito Crosby thesis, and supporters point to cost savings as the engine that will pay down borrowings. Columbus McKinnon said it remains "committed to allocating capital to pay down debt to de-lever its balance sheet in the near term". In the second quarter, however, the machinery maker burned $15.4 million of free cash flow and borrowed a net $33.8 million by our math.
- Second-quarter operating cash flow: negative $4.6 million, down from positive $25.6 million in the first quarter
- Free cash flow excluding deal cash costs: negative $3.5 million in the second quarter by our math
- Credit Agreement net debt: $2.28 billion, up $32.5 million from the first quarter
- Leverage on guided full-year Adjusted EBITDA: 5.3x by our math, versus the 4.9x bank ratio
The company's 4.9x bank leverage ratio stayed flat only because its credit agreement formula "assumed all cost synergies are achieved in fiscal 2026", crediting $467.8 million of trailing profit that the business has not actually earned yet. Management blamed working capital for the cash drain, as inventory and customer receivables both rose from the first quarter.
What to watch: third-quarter debt paydown against the $148 million twelve-month target set in the first quarter. Having increased total debt by $19.3 million in the first half, the business must generate over $160 million of cash for debt reduction in the next two quarters.
Interest and Preferred Shares Erased Profit Growth
To buy Kito Crosby, the company took on over $2 billion in debt and issued $800 million of convertible preferred shares to investment firm Clayton Dubilier & Rice. Those financing costs are absorbing the deal's operating gains. While Adjusted EBITDA rose 177% from a year ago and Adjusted Net Income rose 74% to $31.1 million, profit per share excluding one-offs fell 1.6% to $0.61.
Interest expense jumped more than fivefold to $48.1 million in the quarter, eating up 43% of Adjusted EBITDA by our math. At the same time, the preferred shares pay a 7% dividend that compounds in additional shares rather than cash during fiscal 2027. That lifted the preferred stock balance on the balance sheet by $14.4 million this quarter to $818.4 million and added 21.8 million shares to the diluted count, a 76% share increase from a year ago.
What to watch: quarterly interest expense and the diluted share count in the second half. Until cash flow turns positive and reduces principal, compounding preferred shares will keep claiming a larger slice of common shareholders' earnings.
Original Business Volume Slowed to One Percent
Headline sales more than doubled because of Kito Crosby, so the clean gauge of demand is Legacy CMCO, which tracks the businesses Columbus McKinnon owned a year ago after stripping out the divested hoist unit. Supporters view U.S. short-cycle demand and price increases as durable growth drivers, while skeptics worry that price hikes are masking weak unit volume.
This quarter tilted toward the skeptics. Underlying sales growth at Legacy CMCO slowed to 5.3%, down from 12.7% in the first quarter and 7.3% in the fourth quarter. Price increases contributed $10.1 million, or 4.4 percentage points of that growth, while actual unit volume added just $2.3 million, or 1.0 percentage point — down from 8.0 percentage points of volume growth in the first quarter.
What to watch: the volume line in next quarter's sales bridge. If legacy volume turns negative, the company will rely entirely on price increases to cover factory cost inflation.
Risks this quarter didn't answer
Three standing accounting and execution risks remained open or unquantified in the second-quarter release.
- Realized cost synergies: management said savings are ahead of its $14 million first-year target, but gave no dollar figure; the quarterly filing or fourth-quarter report must quantify it.
- Tax drag on interest deductions: the company recorded $15.3 million of GAAP tax expense despite a $9.9 million pre-tax loss because limits on interest deductions trigger tax valuation allowances; the 10-Q tax note will detail the cash tax impact.
- Goodwill impairment testing: after a $200 million write-down in the conveyor unit last year, management is reassessing its reporting units during fiscal 2027, with the annual test due in the fourth quarter.
👓 Other Themes
Final Deal Accounting Shifted Non-Cash Charges
Columbus McKinnon completed the final purchase price accounting for the Kito Crosby acquisition during the quarter. In its updated outlook, the company said "based on final purchase price accounting linked to the Kito Crosby Acquisition", full-year intangible amortization will be $5 million lower ($130 million to $135 million) and depreciation $5 million higher ($80 million to $85 million). Because Adjusted EPS adds back amortization but keeps depreciation, the shift slightly trims adjusted profit.
💲 Other KPIs
The reported loss narrowed from $88.7 million in the first quarter, though it remained down from a $4.6 million profit a year ago. The improvement from last quarter happened because non-cash acquisition inventory step-up charges dropped from $55.2 million to $7.4 million, while integration costs eased from $15.3 million to $11.8 million.
Stockpiles rose by $9.2 million from the first quarter's $558.3 million, though they remain below the $609.0 million held at the end of March. Combined with an $11.2 million quarterly rise in customer receivables to $384.4 million, the inventory build tied up cash and contributed to the second quarter's operating cash outflow.
Sales outside the United States more than doubled, rising 117.9% from a year ago and 3.6% from the first quarter. International markets made up 46% of total revenue, up from 43% a year ago and 45% in the first quarter, reflecting Kito Crosby's international footprint and firmer orders in Europe and Asia.
🔮 Guidance
Raised. The middle of the range moved up $30 million to $2.15 billion, or 5.7% growth over last year's combined pro forma sales by our math. After $1.07 billion of sales in the first half, the plan leaves $1.08 billion for the second half — about $540 million per quarter, matching the second quarter's level and implying 3.3% pro forma growth.
Raised. Management lifted the middle of the range by $20 million to $432.5 million, following a $12.5 million raise last quarter. With $222.6 million already earned in the first half, the outlook leaves $209.9 million for the second half by our math, which implies the margin steps down from 20.8% in the first half to 19.4%.
Raised. The middle of the range rose $0.075 to $2.075, after a $0.20 raise in the first quarter. Because the lifting equipment maker earned $1.21 per share in the first half, the full-year plan leaves $0.865 for the second half by our math, or about $0.43 per quarter against $0.61 in the second quarter.
Cut. The company trimmed its full-year capital spending plan by $5 million to a midpoint of $50 million. Having spent $16.5 million in the first six months, the updated forecast still requires $33.5 million of spending in the second half by our math, double the first-half pace.
❓ Key Questions
How will you hit the $148M debt paydown target?
Total debt rose by $19.3 million in the first half to $2.41 billion as second-quarter free cash flow turned negative. Reaching the $148 million twelve-month repayment goal set last quarter requires over $160 million of cash generation in the second half.
How many dollars of cost synergies were realized in Q2?
The release states that Kito Crosby synergy realization is ahead of plan, and the bank leverage table adds back $132.4 million of annualized profit and synergies. Investors need the actual dollar savings captured in the second-quarter income statement against the $14 million full-year target.
Why does the raised outlook imply lower second-half margins?
First-half Adjusted EBITDA margin was 20.8%, and cost synergies are supposed to build through the year. Yet the raised full-year outlook implies a 19.4% margin in the second half by our math, and $0.43 of quarterly Adjusted EPS versus $0.61 in the first two quarters.
What was Kito Crosby's standalone sales growth in Q2?
Management disclosed 7% pro forma sales growth for the first half — which implies about 6.3% in the second quarter by our math — and 5.3% growth for Legacy CMCO. Disclosing Kito Crosby's separate price and volume growth would show whether the acquired business is also slowing.