Atmus (ATMU) Q3 2026 Earnings Call: Revenue and EPS Guidance Raised

Key Takeaways

• Atmus Filtration Technologies reported Q3 2026 sales of $510 million, up 14% year over year, driven by the Koch Filter acquisition and organic growth in Power Solutions.
• Adjusted EBITDA increased to $104 million, while adjusted EBITDA margin remained unchanged at 20.4%. Adjusted EPS rose to $0.77 from $0.69.
• Adjusted free cash flow reached $88 million for the quarter and $189 million year to date, up $61 million from the comparable 2025 period.
• Management raised full-year revenue guidance to $2.01 billion-$2.03 billion and adjusted EPS guidance to $2.90-$3.05. Adjusted EBITDA margin guidance was maintained at 19.75%-20.25%.
• Atmus repaid $100 million of debt since its previous earnings call, reducing estimated net debt to adjusted EBITDA to 1.7x. The board also approved a new $300 million share repurchase program.
• Management expects strong U.S. heavy- and medium-duty first-fit demand to continue through the first half of 2027, while aftermarket activity remains broadly flat and EPA 2027 regulations create uncertainty.

Core Financial Results

Third-quarter sales included a $9 million reduction associated with IEEPA tariff refunds that Atmus expects to return to customers. Excluding those refunds and foreign-exchange benefits, organic sales grew 5%.

Power Solutions adjusted EBITDA was $96 million, representing a 20.5% margin. Industrial Solutions generated adjusted EBITDA of $8 million and a 19.6% margin.

Business and Operating Performance

Power Solutions benefited from a cyclical recovery in U.S. heavy- and medium-duty first-fit markets. Management said the company has no supply constraints limiting its ability to support customers during the upturn. Pressure on diesel pickup demand is expected to affect fourth-quarter volumes, but the company expects strength in heavy- and medium-duty markets to more than offset that weakness.

Aftermarket conditions remained mixed. North American activity was broadly flat, although Atmus said it continued to gain share. Latin America showed stronger market conditions and company outperformance, while Europe, India and other markets faced pressure partly related to the Middle East conflict and rising input costs.

The integration of Koch Filter is complete. Atmus has opened a new HEPA filter clean room and testing capability at its Louisville manufacturing site, supporting expansion into higher-efficiency products for markets including health care. Management expects these products to carry stronger margins and said the business has received its first order.

The company also approved a new Florida facility planned for 2027 to expand Koch Filter’s presence in the U.S. HVAC market. Atmus continues to evaluate bolt-on acquisitions in industrial air filtration and potential anchor investments in industrial water and liquid filtration.

Management Guidance

At the midpoint, total revenue guidance represents approximately 15% growth from 2025. Management expects Power Solutions revenue growth of approximately 5.5% at the midpoint.

For the fourth quarter, management expects continued year-over-year growth in heavy- and medium-duty first-fit markets and a relatively flat aftermarket. Seasonal reductions in manufacturing hours and lower absorption are expected to weigh on margins compared with year-to-date levels.

Risks and Watchpoints

• Final EPA 2027 regulatory outcomes remain uncertain, affecting customer production plans and the timing of first-fit demand.
• Input costs increased during the second half of 2026. Management intends to take pricing actions as needed to remain price-cost positive and protect margins.
• Freight rates have improved, but management has not yet seen a corresponding inflection in North American freight activity.
• Europe and India are experiencing more difficult conditions, including higher input costs linked to the Middle East conflict.
• Diesel pickup demand is expected to face pressure during the remainder of 2026.
• Fourth-quarter margins may be affected by seasonal reductions in production hours and manufacturing absorption.

Analyst Q&A Highlights

First-fit outlook: Management expects strong first-fit demand to continue through the end of 2026 and into the first half of 2027. The outlook remains dependent on EPA 2027 rules, customer responses and broader macroeconomic conditions.

Capital allocation: Atmus returned $25 million to shareholders during the quarter, including $20 million of share repurchases and $5 million of dividends. With leverage at approximately 1.7x, management said the majority of future cash flow could be directed toward repurchases, subject to M&A opportunities and potential additional debt repayment.

Pricing and inflation: Management expects Atmus to remain price-cost positive for 2026. Full-year pricing is expected to contribute approximately 1%, while future pricing actions will depend on the input-cost environment.

Aftermarket demand: North America remains relatively flat, with no clear freight-activity inflection. Atmus said it is outperforming the market, while Latin America offers stronger growth and Europe and parts of Asia remain more challenging.

Koch Filter expansion: The new HEPA capabilities target faster-growing, higher-efficiency applications and are expected to support stronger-margin products. The planned Florida facility is intended to accelerate geographic expansion, although the company did not quantify the investment or capacity increase.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Hello, everyone. Thank you for joining us, and welcome to the Atmus Filtration Technologies Third Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead.

Todd Chirillo

Thank you, Percy. Good morning, everyone, and welcome to the Atmus Filtration Technologies Third Quarter 2026 Earnings Call. On the call today, we have Steph Disher, Chief Executive Officer; and Jack Kienzler, Chief Financial Officer.

Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on this call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmus.com.

Now I'll turn the call over to Steph.

Stephanie Disher

Thank you, Todd, and good morning, everyone. Today, I will review our third quarter results and share details of our progress executing our 4-pillar growth strategy. I'll also provide updates to our outlook for 2026. Jack will then speak to our financial results and segment performance. We have consistently delivered strong performance this year amidst mixed market conditions.

Our team has delivered year-to-date revenue growth of 15%. This is a reflection of our disciplined delivery of our growth strategy. Our expansion into industrial filtration markets has contributed 9% and our consistent focus on building a strong growth engine within our Power Solutions segment has resulted in organic growth of 3%. The balance is related to foreign exchange tailwinds. I am pleased to see organic growth momentum building in Power Solutions through the year and into the third quarter, where we delivered our strongest volume growth year-over-year. We have continued to deliver strong profitability and the cash generation capability of our business is now being realized. We have generated $189 million of adjusted free cash flow through September 30, an increase of $61 million from the same period last year. This strong free cash flow generation enables us to take a balanced and disciplined approach to capital allocation.

Our first priority is to invest in growth, both organically and inorganically. Next, we focus on strong liquidity to protect against volatility and uncertainty, maintaining investment-grade debt levels through the cycle. Lastly, we provide returns to shareholders through our dividend program and further utilize share repurchases variably relative to M&A activity. We have been actively executing this strategy. During the third quarter, we returned $25 million of cash to shareholders through share buybacks and dividends. We have paid down $100 million of debt since our last earnings call and have achieved our stated objective of reducing leverage following a significant acquisition. Additionally, our Board of Directors recently approved a new $300 million share repurchase program, which replaces our previous authorization. Given the strength of our balance sheet and strong cash generation capability of the business, moving forward, we expect to increase share repurchases. We continue to seek M&A opportunities and will balance share repurchases against these opportunities as appropriate.

Now let me highlight our third quarter financial results. Sales were $510 million compared to $448 million during the same period last year, an increase of 14%, driven by the acquisition of Koch Filter and organic sales performance of 3% in Power Solutions, excluding foreign exchange. Sales were reduced by $9 million related to IEEPA tariff refunds that we expect to return to customers. Excluding these refunds and foreign exchange benefits, organic sales grew 5%. Adjusted EBITDA was $104 million or 20.4% compared to $92 million or 20.4% last year. Adjusted earnings per share was $0.77 in the third quarter of 2026, and adjusted free cash flow was $88 million.

Now let's turn to our 4-pillar growth strategy. Our first pillar is to grow share in first-fit. With the strong upturn in the U.S. first-fit market and long-standing partnerships with market leaders, we are growing our installed customer base. This provides us with both near- and long-term growth opportunities. As the market expands, we continue to grow our long-term partnerships along with pursuing new opportunities with leading global and regional OEMs across a broad range of applications. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are prioritizing investments in faster growth regions, and markets to broaden the availability of our industry-leading Fleetguard and Koch Filter brands.

Our customers recognize the value and advanced filtration capabilities the Fleetguard brand delivers. A recent independent survey ranked Fleetguard as the #1 preferred brand across all filter types, including fuel, air and lube in the United States and Canada. We are proud of this recognition and the faith our customers have in us to protect what is important. Our third pillar is focused on transforming our supply chain. We have built a resilient and flexible supply chain that allows us to navigate challenges in an ever-changing operating environment. We control our distribution network and have consistently achieved top quartile performance in delivery. This capability enables global availability of our products when and where our customers need us.

Furthermore, we continue to prioritize investments for capacity and automation to expand our capabilities and position the business for growth. Our fourth pillar is to expand into industrial filtration markets. We have completed the integration of Koch Filter, and are now focused on investing for growth. We recently opened a new HEPA filter clean room with test capabilities at the Louisville manufacturing site. This investment allows us to unlock growth in the high-efficiency product category with applications in fast-growing markets such as health care. Additionally, we are investing to expand Koch Filter's capabilities and expect to open a new facility in Florida next year to accelerate growth.

In addition to organic growth, we continue to review a robust pipeline of inorganic opportunities with a focus on industrial air to build a platform of scale by leveraging Koch Filter and creating value through targeted bolt-on acquisitions. While our primary focus is industrial air, we remain opportunistic in evaluating industrial water and liquid filtration assets with the goal of identifying an anchor investment that can serve as the foundation as we build out our industrial platform over time.

Now let's turn to our outlook for 2026, starting with the Power Solutions segment. In the aftermarket, we continue to see strength in freight rates, indicating improved economics for freight carriers. However, the overall level of freight activity has yet to reach an inflection point, and we expect the market to remain relatively flat year-over-year. In contrast, the U.S. both heavy and medium-duty markets are experiencing a strong cyclical recovery. We saw the benefits of the recovery begin in the second quarter. This momentum has continued through the third quarter, and we expect these markets to remain strong. We now expect some pressure on diesel pickup truck demand, which will impact volumes for the remainder of the year. This is more than offset by the strength in the heavy and medium-duty markets.

Our investment for growth is expected to deliver market share gains in both aftermarket and first-fit as we expand distribution capabilities, maintain world-class on-shelf availability and win with new and existing customers. For Power Solutions, overall, we expect volume growth in the range of 2% to 3%. Additionally, net pricing is expected to add approximately 1% growth with 1.5% of base pricing actions to be partially offset by 0.5% of lower tariff pricing and refunds. Foreign exchange is expected to be a tailwind of approximately 2%. In total, we are raising our expectation for Power Solutions revenue to be in a range of $1.85 billion to $1.87 billion, which represents growth of approximately 5.5% at the midpoint. In our Industrial Solutions segment, we expect favorable market conditions and strong performance to continue, and are raising total revenue to be in a range of $160 million to $165 million.

Taken together, we are raising total company revenue expectations to be in the range of $2.01 billion to $2.03 billion, an increase of 15% from 2025 at the midpoint. We are maintaining our full year adjusted EBITDA margin guidance, which is expected to be in the range of 19.75% to 20.25%. Lastly, we are raising adjusted EPS expectations to be in a range of $2.90 to $3.05. I want to thank Atmusonians around the world for focusing on delivering for our customers and protecting what is important. Our disciplined execution and strong cash flow generation enables us to continue investing for growth through the execution of our 4-pillar growth strategy.

Now I will turn the call over to Jack.

Jack Kienzler

Thank you, Steph, and good morning, everyone. The Atmus team delivered strong financial performance by supporting our customers through the upturn in the U.S. first-fit markets while also navigating variable market conditions in the rest of the world.

Sales in the third quarter were $510 million compared to $448 million during the same period last year, an increase of 14%. Power Solutions delivered sales of $468 million compared to $448 million in the prior year, an increase of 5%. The increase was primarily due to higher volumes of 5%, pricing of 1% and favorable foreign exchange of 1%. This was partially offset by 2% of pricing due to IEEPA tariff refund that we received and expect to refund to customers in the fourth quarter. Returning refunded tariffs to customers is consistent with our stated objective to be price/cost neutral on tariffs. We do not expect to receive any additional material refunds. Industrial Solutions sales were $42 million, resulting from the acquisition of Koch Filter. Gross margin for the third quarter was $154 million or 30.3% compared to $129 million or 28.9% in the third quarter of 2025. The increase was due to incremental margin from the acquisition of Koch Filter, higher volume and favorable manufacturing costs, partially offset by higher material costs.

Selling, administrative and research expenses for the third quarter were $64 million compared to $56 million in the prior year. The increase was primarily due to incremental costs associated with the acquisition of Koch Filter, higher incentive compensation and other people-related costs. Joint venture income was $7 million in the third quarter compared to $8 million in the prior year. Strong performance in China offset weaker profitability in India, which has been impacted by rising input costs driven by the Middle East conflict. Other expense was $3 million compared to $2 million in the third quarter of 2025. The increase in other expense was primarily due to a nonrecurring $3 million settlement with the supplier, partially offset by higher interest income and lower foreign exchange losses. Excluded from adjusted results are onetime costs related to the integration of Koch Filter, which for the full year is expected to be approximately $3 million.

We also exclude intangible asset amortization resulting from the Koch Filter acquisition, which is expected to be approximately $12 million for 2026. Total enterprise adjusted EBITDA in the third quarter was $104 million or 20.4% compared to $92 million or 20.4% in the prior period. Segment adjusted EBITDA for Power Solutions was $96 million or 20.5% compared to $92 million or 20.4% last year. Industrial Solutions segment adjusted EBITDA was $8 million or 19.6%. Adjusted earnings per share was $0.77 compared to $0.69 last year. Adjusted free cash flow was $88 million this quarter compared to $72 million in the prior year.

Now let's turn to capital deployment. The combination of continued strong cash flow and adjusted EBITDA performance has resulted in an estimated net debt to adjusted EBITDA ratio of 1.7x for the trailing 12 months ended September 30. During the quarter, we returned $25 million to shareholders, consisting of $20 million in share repurchases and $5 million of dividends. Furthermore, we have repaid $50 million of gross debt in the third quarter and another $50 million in early October. As Steph highlighted, we have achieved our stated objective of reducing leverage and enhancing flexibility for growth following a significant acquisition. This provides us with flexibility to invest in both organic and inorganic growth opportunities.

In closing, I want to thank our global team for their relentless focus on our customers, and I am confident the team will successfully deliver a strong finish to 2026. Now we will take your questions.

Operator

[Operator Instructions] Your first question comes from the line of Tami Zakaria with JPMorgan India.

Question-and-Answer Session

Tami Zakaria

Very nice quarter. A question for you on first-fit. The back half of this year is turning out to be quite strong. How are you thinking about first-fit demand into next year? Are you preparing for some sort of a slowdown after a very strong finish? Or how are you thinking about or planning for at least the first couple of quarters of next year?

Stephanie Disher

Thank you for your question. Look, we're really pleased with the performance this quarter. And as you highlight, we're starting to see momentum through the year. We saw first-fit start to improve through the second quarter, and we've also seen that during the third quarter and expecting that to continue in a strong way through the end of the year of 2026. There is a lot of uncertainty around the first-fit market, particularly with the upcoming 2027 regulations, which is still open and finalization of that expected inside this year. So many of our customers are working through that landscape. I would say we are well placed. While there has been some discussion about some supply constraints on the top end of first-fit demand, we don't have any supply constraints. We're able to support our customers through this upturn. And right now, we expect it to continue through the first half of 2027. Obviously, watching this closely as we see the demand response to 2027 regulations, the broader macro environment. But as we look through it now, we kind of see it through the end of the year very strong and get into the first half of 2027.

Tami Zakaria

Understood. That's very helpful color. And other question is on share repurchases. It seems like that's going to step up. So as we look to the next year or so, should we expect all of the free cash flow minus the dividend, all of it goes toward repo if there is no M&A? Or are you going to still try to pay down some debt and then use the rest for repo?

Stephanie Disher

Yes. Thanks, Tami. I would really highlight the strong cash performance of the business. If you look at it, we've seen about $61 million improvement in free cash flow year-to-date over last year. And we're really starting to see the capability of the business in terms of cash flow generation, particularly given we don't have the extra costs associated with separation that we were incurring last year in 2025.

We also have managed to move our debt levels to a good level, and we've got a strong balance sheet. Jack talked to it being 1.7x at the end of the third quarter. And we believe our debt level is at or around the right level. It doesn't mean we won't repay some debt going forward. But it does free up for the majority of our cash flow to be directed towards share repurchases. That, of course, is contingent on us continuing to pursue our M&A opportunities. We are very clear that investing for growth is our first priority, and we continue to review a robust pipeline of M&A. And if and when we have something to communicate there, we will.

Operator

Your next question comes from the line of Andrew Obin with Bank of America.

David Ridley-Lane

This is David Ridley-Lane on for Andrew Obin. Tremendous gross margin performance this quarter. Congratulations. I wanted to check in on how you're thinking about price cost. It is a more inflationary market and maybe any early thoughts on sort of your future price actions that you're looking at ahead?

Stephanie Disher

David, I'll ask Jack to take that one.

Jack Kienzler

David, thanks for the question. A few moving pieces in there. So I might just highlight a few in pieces so that we can decouple those moving pieces. So the first one, let me maybe talk to tariffs and kind of isolate the impact of that so that you can understand what's going on beyond the tariffs. So as we noted in our prepared remarks, we did receive the tariffs that we had -- the tariff refunds that we had been expecting to receive here in the third quarter, and we've correspondingly booked the impact into our financial statements of the receipt of those refunds.

As you can see, we are expecting to pass those refunds on to our customers. The impact on the top line of that was about $9 million. So that's a reduction in revenue. And then we booked a corresponding reduction in cost of sales. It's worth noting there's an immaterial amount of tariff refunds that are sitting in gross margin, about $1.5 million that largely offsets previously incurred administrative expenses. But overall, I think you should think about the tariff impacts. Obviously, we'll continue to navigate ongoing dynamics that emerge from a tariff perspective, but I expect the impact I just walked through to be isolated to the third quarter. And then obviously, we'll issue those refunds on to our customers here in the fourth quarter.

We believe the treatment of that is consistent with our strategy of being price/cost neutral, and that will continue to be our principle as it relates to tariffs moving forward. If you exclude the impact of tariffs, overall, we will be price/cost positive for the year. Certainly, we have seen a rising input cost environment as we've moved through the year, and that's beginning to step up here in the second half. And so we are monitoring that closely. We did take some modest pricing in the middle of the year, although some of that washed out when you think about the lapping of tariffs from the prior year. And so relatively muted impact there as you think about the quarter itself. Overall, pricing for the full year, as we highlighted in our comments, will be about 1%. And again, we will be price/cost positive.

As we look into next year, we'll see what happens in terms of the input cost environment and if those continue to increase, and obviously, we'll take corresponding pricing actions to make sure that we're price/cost positive and preserve our margins as we navigate that environment.

Operator

Your next question comes from the line of Quinn Fredrickson with Baird.

Quinn Fredrickson

I was wondering if you could expand on your comments on how you're seeing the market shaping up for the aftermarket, perhaps looking out beyond the fourth quarter into '27. Obviously, a lot going on with higher diesel prices, perhaps some capacity coming out at the smaller end of the market. So I would just like to hear your thoughts on the underlying market as well as your share gain performance.

Stephanie Disher

Thanks for the question. So aftermarket is the majority of our business, and we've been talking about it being pretty flat for the last few years. Actually, since we IPO-ed, it's been those conditions. And arguably, we've been in a freight recession and we're looking forward to a brighter market is what I would say. We still haven't seen that inflection point arrive. If we think about sort of the breakdown of our aftermarket, the big market is really, first and foremost, North America, and then we come into Latin America and then Europe and Asia Pacific after that. And so if I just kind of take those in order and talk about what we're seeing.

In North America, we're still seeing robust aftermarket. We've seen us continuing to gain share and outperform the market, but it's relatively flat year-over-year is how we're viewing it. We're not seeing green shoots or an inflection in North America at this point. I do think -- as I said, we've seen some improvement in freight rates, but still not seeing that turn into freight activity or a significant upturn. I would say throughout the rest of the world, it's more challenging conditions. The impact of the Middle East conflict flowing on to Europe and even into India, I would say we have seen that. And we're seeing some bright spots in Latin America, both our performance, we are outperforming there, and we're also seeing stronger market conditions in a market that's growing faster. So a mixed landscape is the best way to describe it. North America being our biggest market, relatively flat from a market perspective, and we are outperforming. And then the rest of the world is somewhat challenged, impacted in part by the ongoing conflict in the Middle East.

Quinn Fredrickson

Got it. That's helpful. Jack, I just wanted to ask about the fourth quarter margin guidance. Just based on your full year EBITDA margin guide, it seems like there's a fairly wide spread for the fourth quarter implied. I'm just wondering if you could talk about any puts and takes for 4Q margin and what factors could push you to the high end versus the low end?

Jack Kienzler

Yes, absolutely. So first of all, I would just say our year-to-date margin performance has been quite strong. Year-to-date, sitting at 20.3% for the high end of our guide on a cumulative basis. So really proud of the team for what they've been able to deliver there and navigate various puts and takes from a macroeconomic perspective. If you look at then the implied Q4, as you know, it's about what, 19.1%, I think it is.

So a few different pieces there. I would say, first of all, I mentioned before from a price/cost perspective, we are keeping a close eye on the inflationary backdrop. As a reminder, we price at the beginning and the middle of the year. And so we're keeping a close eye on that as input costs continue to rise in response to the macroeconomic landscape. So that's one piece. I would say the other piece is if you just look at kind of seasonal trends in our business. Generally, we do see lower hours in the fourth quarter. And so that leads to lower absorption benefits, obviously, in the manufacturing environment. And so that's been a pretty consistent trend.

If you look at 2025, 2024, 2023, usually see a bit of a step down in margin in the fourth quarter. And really, all that's driven by is that seasonal dynamic as we work through remaining inventory and set our sights towards the next year. So really nothing more than that. We're excited again about the full year performance of the business, feel like both top line and margin performance in addition to robust cash flow has been a really great story.

Operator

Your next question comes from the line of Bobby Brooks with Northland Capital Markets.

Unknown Analyst

This is [indiscernible] on for Bobby. It seems like you've done a good job navigating the rise in raw material costs. I was just kind of curious if that's a fair assumption? And maybe if you could discuss a little bit on how you've been able to achieve that.

Stephanie Disher

[indiscernible], I'll ask Jack to take that one.

Jack Kienzler

Yes. Thanks, [indiscernible]. So yes, as I mentioned earlier, I think absolutely, we'll be price/cost positive. It is always a difficult needle to thread, right? Obviously, we can't price necessarily ahead of when input costs impact the business, but we do our best to make sure that we're consistently pushing price into the market to meet the technology offerings that we can bring to the market overall. So we did increase prices at the beginning of the year,in line with normal market practices and then took a modest midyear price increase.

In addition to that, our third pillar is supply chain transformation, and we continue to do a really good job of finding efficiencies in the business, working with the supplier base to really get more suppliers under contract and find ways to take cost out of our products. So it's kind of a combination of all of the above, and we'll continue to stay vigilant on that as we move into 2027.

Unknown Analyst

Okay. And then on the new Koch facility that you're opening up in Florida next year, can you give us a sense of investment size and capacity add to that? And then also a second question on Koch, the new clean room testing, will that be a higher-margin product line? And what is the opportunity there over the next few years?

Stephanie Disher

We're excited about the growth investments. We've got through the integration at Koch Filter, very pleased with the way the business is continuing to perform and now focused on growing. And we've identified a number of growth investments. We've highlighted 2 today.

One is the HEPA clean line investment that you talk about, the HEPA clean room investment that you talk about. This does allow us to move more into high-efficiency products, and we do expect them to be stronger margin products. That's part of our strategy to move into higher technology products that support our customers. And that we'll be able to support markets like health care, in particular. So in addition, those markets are faster growing than some of our exposure to other markets. So we see that as a great growth opportunity for the Koch Filter business. It's early days. We've just made the investment. We've got our first order. So we're really starting to turn that, and we'll start to see the benefits of that coming through here in fourth quarter and beyond.

In terms of the investment in Florida, we haven't made it yet. It will be into next year. We've approved the investment, and we'll be moving forward with that. Florida is the third largest HVAC market in the United States. We see great opportunity to further expand the Koch filtration business, where we already have great capabilities here in the United States. Beyond that, we'll continue to look for growth opportunities in the industrial air filtration segment, very much in line with our stated growth strategy of expanding into industrial filtration.

Operator

Your next question comes from the line of Kevin Uherek with Wells Fargo.

Kevin Uherek

Congrats on the quarter. Yes, I just had a question on EPA 2027, just given all the uncertainty around that. What are your expectations for kind of going into the quarter, prebuy? And what are you hearing from customers?

Stephanie Disher

Kevin, thanks for the question. A lot of uncertainty, as you say, around EPA 2027 and the associated actions of engine manufacturers and truck OEMs in response to that as we get into 2027 here. I think as we've communicated before, the transitionary approach that has been outlined in EPA 2027 should be good overall in terms of really allowing the industry to make a transition to regulatory standards -- new regulatory standards in an effective manner. So I think that's playing out.

We're still awaiting guidance and outcomes. I think many are saying that's expected in December in terms of the 2027 regulations, the final outcomes there. So waiting to see that here inside 2026. We are working closely with all of our customers to support them through this transition, and we feel well equipped to do that. In some cases, some of our customers are running multiple engine platforms, providing customers the choice of previous platforms and the new, and we are on both those platforms and are working with our customers to support them. And in other cases, customers are moving to the new standards and providing only one option. So we feel like we're in good shape to support our customers through all of those outcomes, and we'll all know more here as we get into the final quarter.

Kevin Uherek

Got it. And then as a follow-up, when we think about 4Q and kind of the implied volume bridge, is there anything that you'd call out for 4Q like in 3Q, tougher comp from Stellantis? How should we think about that?

Stephanie Disher

Yes. And a couple of things I would call out. We're expecting continued strong performance through the fourth quarter and to finish the year strong. Year-over-year growth is very strong. We are expecting the first-fit markets, heavy-duty and medium-duty markets to continue to show growth year-on-year and aftermarket to be relatively flat.

I did note in my script that there is pressure on pickup demand. It is -- our first-fit business is about 15% of our overall revenues in Power Solutions and a small part of that is associated with pickup demand. And we are expecting some downward pressure in that in the fourth quarter, but that is more than offset, I would say, by the upturn we're seeing in heavy and medium-duty markets.

Operator

There are no further questions at this time. I will now turn the call back to Steph Disher for closing remarks.

Stephanie Disher

Thank you, Percy. So in closing, I want to leave you with 3 key takeaways. First, we are building momentum in our business as we execute our 4-pillar growth strategy. Secondly, we have demonstrated disciplined execution throughout the year, and we expect strong full year performance. And thirdly, our business generates strong and consistent cash flow, enabling us to invest for growth and return value to shareholders.

I want to thank you all for joining us today and for your continued interest. Have a great day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.