CMCO Q2 Deep Dive: Tariffs Pressure Margins as Backlog Reaches New High

Material handling equipment manufacturer Columbus McKinnon (NASDAQ:CMCO) reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales fell by 1.6% year on year to $235.9 million. Its non-GAAP profit of $0.50 per share was 7% above analysts’ consensus estimates.

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StockStory’s Take

Columbus McKinnon’s second quarter saw a negative market reaction, as investors responded to a year-on-year sales decline and a sharp drop in operating margin. Management attributed these results mainly to persistent tariff pressures, a challenging macroeconomic environment, and unfavorable product mix. CEO David Wilson highlighted that short-cycle orders were down due to the implementation of tariff surcharges and broader policy uncertainty, particularly impacting the company’s U.S. and European operations. Wilson was cautious in his assessment, noting, “Tariffs were a headwind to operating profit and margins with a $4.2 million impact to gross profit.”

Looking forward, Columbus McKinnon’s guidance is shaped by ongoing tariff mitigation efforts, expected stabilization of short-cycle demand, and a record project backlog. Management believes that margin recovery will be gradual, with cost neutrality from tariffs targeted by the second half of the year and full margin neutrality anticipated in the following year. Wilson stated, “We are targeting the achievement of tariff cost neutrality by the second half… as our mitigation actions, including price adjustments, take greater effect.” The pending Kito Crosby acquisition is also expected to expand capabilities and support the company’s Intelligent Motion strategy.

Key Insights from Management’s Remarks

Management focused on the interplay between tariff impacts, backlog expansion, and the company’s ability to offset margin pressure through cost control and targeted price increases.

• Tariff headwinds and mitigation: Tariffs remained a significant drag on margins, with management estimating a $4.2 million gross profit impact and projecting a $10 million headwind for the first half of the year. The company is implementing price increases and supply chain adjustments to offset these costs.
• Backlog expansion from project orders: The backlog grew 23% year-over-year to $360 million, driven by strong project-related order growth, especially in sectors like battery production, e-commerce, and aerospace. Management emphasized that about 70-80% of this backlog is actionable within the next year.
• Short-cycle softness and channel dynamics: Short-cycle orders declined due to customer adjustments to new surcharges and macro uncertainty, notably in the U.S. and Germany. Management expects stabilization over time as the market digests policy changes.
• Product mix and margin pressure: Lower volumes of higher-margin products, such as automation and linear motion solutions, combined with higher shipments of lower-margin offerings, contributed to margin contraction in the quarter.
• Preparation for Kito Crosby acquisition: The team is preparing for the integration of Kito Crosby, anticipating regulatory approval by year-end. Management expects the acquisition to scale the business, enable synergies, and accelerate strategic initiatives, though near-term leverage is projected to rise modestly post-close.

Drivers of Future Performance

Columbus McKinnon sees tariff mitigation, the timing of project deliveries, and the integration of Kito Crosby as key themes shaping its outlook for the coming quarters.

• Tariff cost recovery efforts: Management is focused on achieving tariff cost neutrality by the second half of the year through price increases and supply chain changes, but full margin recovery is expected to extend into the following year due to backlog mix.
• Backlog conversion and project timing: The company expects that 70-80% of its record backlog will be delivered within the next year, with large projects in battery, e-commerce, and rail expected to support revenue and offset short-cycle volatility.
• Kito Crosby integration and leverage: The upcoming Kito Crosby acquisition is anticipated to expand the company’s reach and product portfolio, though management acknowledged that net leverage will temporarily increase to about 5x EBITDA at close, reflecting both deal and tariff impacts.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) the pace of tariff mitigation and whether price increases can restore profitability, (2) the conversion of the record backlog into revenue, particularly in key end markets like battery and e-commerce, and (3) the successful integration and synergy realization from the Kito Crosby acquisition. Execution on cost discipline and stabilization of short-cycle demand will also be critical markers for future performance.

Columbus McKinnon currently trades at $13.58, down from $16.83 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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