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Patrick Watson

Thank you, Sanjay. And good morning, everyone. I will begin on slide 7 with a review of Q3 operating results. The quarter's results show that we continue to execute our initiatives in the face of weak market conditions. Sales were down 6% year over year, with an organic decline of 3% and unfavorable foreign currency exchange of 3%. The sales performance this quarter was slightly below the midpoint of the outlook we provided last quarter.
Relative to those expectations, and as you heard from Sanjay, we experienced continued pressure in EMEA and the Americas, which impacted our General Engineering, Transportation, and Earthwork end markets. Energy was in line with expectations. Year over year, we experienced modest weakness in all end markets and regions, except for Aerospace and Defense. I will provide more color when reviewing the segment performance in a moment.
Operating expense declined approximately $5 million, benefiting from restructuring savings and favorable foreign exchange despite year-over-year wage inflation. And adjusted EBITDA and operating margins were 17.9% and 10.3%, respectively, versus 14.2% and 8.1% in the prior-year quarter.
During the quarter, we had an approximate $10 million benefit from an advanced manufacturing production credit under the Inflation Reduction Act. We also achieved $6 million in savings from restructuring programs, $3 million of which is related to the employment actions announced in January of this year. Lastly, foreign exchange was a $3 million headwind this quarter.
The adjusted effective tax rate decreased year over year to 22.8%, primarily driven by a benefit from the advanced manufacturing, production credit, and geographical mix. Adjusted earnings per share were $0.47 in the quarter versus $0.30 in the prior-year period. The main drivers of our EPS performance are highlighted on the bridge on slide 8.
The year-over-year effect of operations this quarter was positive $0.06. This improvement reflects the absence of unfavorable price raw material which occurred in the prior year, higher price, and incremental restructuring benefits, partially offset by lower sales and production volume, and higher wages and general inflation.
We also had a $0.10 benefit from the Advanced Manufacturing Production Credit, approximately $0.08 of which is related to a cumulative catch-up of prior-period material costs. Inclusive of the effect on the tax rate, the Advanced Manufacturing Production Credit had an approximate $0.13 impact on adjusted EPS. Unfavorable currency and pension effects on EPS were $0.02 and $0.01 respectively. Other reflects benefits from lower share count and interest, which contributed $0.02.
Slides 9 and 10 provide an overview of our segment performance. Reported Metal Cutting sales were down 7% compared to the prior-year quarter, with a 4% organic decline and unfavorable foreign currency exchange of 3% by region on a constant currency basis. The Americas and Asia-Pacific declined 1% each, and EMEA declined 6%. In the Americas, year-over-year performance was affected by lower industrial production activity in General Engineering, partially offset by a modest improvement in the Transportation end market.
In Asia-Pacific, we saw lower production volumes affect the General Engineering end market, partially offset by project wins in Transportation. EMEA's year-over-year decline reflects weakness in the General Engineering and Transportation end markets, partially offset by strength in Aerospace and Defense. In other end markets, Energy grew 2% this quarter from customer order timing in Asia Pacific. Aerospace and Defense was flat year over year.
We saw easing supply chains and improved build rates in EMEA that were offset by lower production in Asia Pacific from a customer quality issue and the slow ramp-up from the strike in the Americas. Transportation declined 2% year over year from the overall slowdown in EMEA, partially offset by project wins in Asia Pacific and higher production volumes in the Americas. And lastly, General Engineering declined 5% year over year from lower production activity, primarily in EMEA and the Americas.
Metal Cutting adjusted operating margin of 9.6% decreased 120 basis points year over year, primarily from lower sales and production volumes, unfavorable foreign exchange, and higher wages. These factors are partially offset by improved pricing, incremental year-over-year restructuring savings of approximately $4 million, and lower raw material costs. Additionally, as Sanjay previously mentioned, we ceased production at our Greenfield, Massachusetts facility that April.
Turning to slide 10 for Infrastructure, reported Infrastructure sales declined 4% year over year, with an organic decline of 2% and unfavorable foreign currency exchange of 2%. Regionally, on a constant currency basis, EMEA sales increased by 5%, Asia Pacific declined by 1%, and in the Americas, sales declined 5%. EMEA growth was primarily driven by Defense projects and higher activity in Earthworks, partially offset by lower industrial activity and project timing affecting General Engineering.
Asia Pacific declined primarily from lower volume in underground mining as mine production is lower in response to lower coal prices, which was partially offset by project timing in Energy and General Engineering. The decline in the Americas was primarily from lower underground mining activity in Earthworks and lower production activity in General Engineering, partially offset by Aerospace and Defense project wins and higher construction activity.
Looking at sales by end market on a constant currency basis, continued execution of our growth initiatives drove a 28% increase in Aerospace and Defense sales with good growth and execution in both EMEA and the Americas Defense. While the project nature of this business can make it lumpy, it's an example of how our team is executing on commercial opportunities.
Energy declined 3% mainly in the Americas from lower US land rig count and partially offset by project timing in Asia. General Engineering declined 4% from lower industrial activity in the Americas and EMEA. And lastly, Earthworks declined 7% from lower underground mining activity in the Americas and lower volume in Asia Pacific, which was partially offset by higher activity in EMEA.
Adjusted operating margin increased 770 basis points year over year to 11.5% from the advanced manufacturing production credit of approximately $10 million and the absence of unfavorable price raw timing, which occurred in the prior-year period. We also achieved year-over-year restructuring savings of approximately $2 million. These factors were partially offset by lower sales and production volumes.
Now turning to slide 11 to review our free operating cash flow and balance sheet, our third-quarter year-to-date cash flow from operating activities was $130 million compared to $163 million in the prior-year period. The change in net cash flow from operating activities was driven primarily by working capital changes, mainly increased inventory, as a result of lower demand. Our third-quarter year-to-date free operating cash flow decreased to $63 million from $84 million.
On a dollar basis, year over year, primary working capital fell to $654 million and on a percentage of sales basis decreased to 31.6%. Net capital expenditures decreased to $67 million compared to $79 million in the prior year. In total, we returned $40 million to our shareholders through our share repurchase and dividend programs.
During the quarter, we repurchased 1.1 million shares or $25 million under our $200 million authorization. And as we have every quarter since becoming a public company over 50 years ago, we paid a dividend to our shareholders. We remain committed to returning cash to our shareholders. This commitment reflects our continued confidence and our ability to drive long-term growth and margin improvement to create shareholder value. Our balance sheet remains healthy, and we have no near-term debt refinancing requirements.
At quarter end, we had a combined cash and revolver availability of approximately $787 million, and we're well within our financial covenants. The full balance sheet can be found on slide 16 in the appendix. Now on slide 12, regarding our full-year outlook, we now expect FY25 sales to be between $1.97 billion and $1.99 billion, with volume ranging from negative 5% to negative 4% and net price realization of approximately 2%.
As Sanjay noted, the expected market conditions in EMEA and the continued stagnation of industrial production in the US remain unchanged. We now anticipate an approximate 1% year-over-year headwind for foreign exchange based on the recently overall weaker US dollar. The foreign exchange sales headwind is now expected to be approximately $20 million at the midpoint of our updated outlook.
Specifically, as it relates to Q4, however, we anticipate a foreign exchange sales tailwind of approximately $13 million sequentially. Year over year, we expect Aerospace and Defense to have slight growth, Transportation to decline, General Engineering, Earthworks, and Energy to decline slightly. From a cost perspective, we expect to offset raw material, wage, and general cost increases on a dollar basis, and tungsten prices are assumed to be stable at current levels.
Foreign exchange and non-cash pension expense are expected to be headwinds of $4 million each. Approximately $14 million of rollover savings from our previously announced restructuring initiatives have been included. Our outlook also includes the impact of the FY25 announced plant closures and restructuring actions, which combined are anticipated to generate approximately $15 million of annualized run rate savings by June 30.
For fiscal '25, we have included approximately $7 million in savings related to these actions. At the end of the fiscal year, we expect to have achieved a $65 million savings run rate against our $100 million savings target. Depreciation and amortization is expected to be approximately $135 million, and we expect interest expense of approximately $27 million and an effective tax rate now of approximately 25%.
As a result of our performance in Q3, inclusive of the IRA tax credits and our current estimate of the impact of tariffs, we now expect adjusted EPS to be in the range of $1.30 to $1.45. This includes an approximate $0.05 negative effect from tariffs. As Sanjay outlined earlier regarding tariffs, we have several mitigation actions either implemented or in progress to fully mitigate the effects. We will provide an update on any impacts for FY26 on our August earnings call.
On the cash side, the full-year outlook for capital expenditures is now anticipated to be approximately $90 million, and the outlook for primary working capital is now 32% by fiscal year end. Taken together, we continue to expect free operating cash flow to be greater than 125% of adjusted net income.
And with that, I'll turn it back over to Sanjay.

Sanjay Chowbey

Thank you, Pat. Turning to slide 13, let me take a few minutes to summarize. We remain focused on staying the course despite the highly volatile macro environment, and we are executing on our value creation initiatives to deliver a strong finish to fiscal '25. We are obviously in our fourth quarter right now, and we are actively planning for the new fiscal year, which begins July 1. I am looking forward to the conversation with you in August, where we will provide some color and context on several topics. including progress on my first year as CEO, our fiscal '26 annual outlook, and finally, an update on portfolio, footprint, and structural cost initiatives.
And with that, operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Angel Castillo, Morgan Stanley.

Angel Castillo

Hi, good morning, and thank you for taking my question. I just wanted to talk about the outlook a little bit more, maybe particularly for the fourth quarter. So I think at this point, you talked a little bit about some green shoots and still kind of I think assuming a little bit of sequential improvement in some of the organic growth. Can you talk about, quarter to date, what you're seeing in terms of kind of demand trends as you think about April and May, particularly across some of the key end markets and how that's kind of progressing? And particularly, if you could also parse that out between what's kind of industry-specific versus share gain related?

Sanjay Chowbey

Yes, Angel, good morning.

Patrick Watson

Good morning, Angel.

Sanjay Chowbey

Yes, so I think at this point, we are continuing to see steady improvement, and as I outlined in our overall, in the market trend slide, most of the things are staying about the same. You know, as I have mentioned that General Engineering, the IPI other than Europe, I think US and APAC basically staying relatively flat. EMEA continues to be slightly weak. Transportation, same. EMEA is weak, rest of the market relatively flat. Energy, definitely sentiments are cautious right now with the customers. But again, for what we have said three months ago, very similar sentiment right now. In Earthworks, again, same thing, sentiments are similar, softness in US, coal exports, and then also demand in China versus capacity, no equation putting price pressure there. Aerospace Defense, slight improvement as things continue to get better with the OEM and the supply chain constraints. So I think at this point, we haven't seen anything different with respect to either buy ahead or any kind of impact of tariffs. So I think that we expect more or less a steady path for overall market at this point. In parallel, we'll of course gain some market share as we are outperforming them in both segments.

Patrick Watson

Yes, just one thing to give some color there on the Q4 sequential angel, and that is as we think about just reference the midpoint of the outlook here, a couple things to contemplate. Number one is we've got a pretty significant FX change from Q3 to Q4, so that's about a $13 million sales tailwind for us. And once you kind of pull that out, some of the incremental revenue associated with tariff surcharge You're going to get right back to a number that's much more normalized in terms of sequential performance Q3 to Q4. And so underlying the outlook is really normality from a progression of the business moving into Q4 here.

Angel Castillo

Got it. That's very helpful. And then maybe could you just talk a little bit more about kind of the specific buckets you talked about on tariffs? You laid them out in this slide. for mitigating the full kind of $80 million. Can you just maybe quantify each of those in just a little bit more kind of color as to maybe which of those are kind of fully underway, which might take a little bit more time or work, and how we should think about them?

Sanjay Chowbey

Yes, I think at this point we will not go into the quantification of each of the categories, but I can tell you on a high level first, repeating what I said in the prepared remarks, we are very confident that we'll fully mitigate the direct impact of tariffs. Now first the three items on the list there it talks about how we are utilizing our global footprint in our supply chain network. And those things are in progress already. More than half or slightly more than half of our direct impact is related to what we do between US and China and then China to US. And those things, we already have begun implementation of some of those product moves and tooling moves and things like that. The rest of that is in progress. We intend to complete those things as we go. We've already implemented tariff surcharges in the US for the Metal Cutting, and then we are also taking surgical actions on Infrastructure business from a surcharge perspective. So all in all, I will say the action implementation is coming along very well, and we are going to continue to implement the rest of the actions in a timely manner.

Angel Castillo

That's very helpful. And just to clarify that, because I guess the point of my – what I was trying to get across is maybe there's a five-cent headwind from tariffs, I think, in the fourth quarter. But is the implication, therefore, that by the first quarter, you're going to be fully offsetting everything? And I'll get back in the queue. Thank you.

Sanjay Chowbey

Yes, I think at this point, as Pat mentioned, the $0.05, some of the activities, obviously, tariffs was effective in the first part of IFLO. We started to make sure that things have been very fluid as we all know, you know so we took started to take actions and Notified our customers where we need to and also, you know internal moves of tooling and production supply chain So some of those things were in place by the end of April early May and that's part of that and then remaining actions will continue to be worked on I think that's the reason for us to say that we do have risk in Q4 We expect to provide more detail when we talk in August exactly where we are but like I said, We do intend to fully mitigate all the direct impact of tariffs.

Angel Castillo

Thank you.

Operator

Steven Fisher, UBS.

Steven Fisher

Thanks. Good morning. I just wanted to bridge a little bit on the morning on the quarter itself relative to the guidance you had previously. and if we back out the IRA credit and tax benefits related to that. Just kind of curious what you think were the kind of the biggest surprises relative to what you had thought before. It seems like it might have been price versus cost. And I guess on the cost side of things with tungsten prices having gone up in the last few months, I'm just kind of curious how you expect that to flow through over the next few months and how much you think you might need to raise pricing here just to manage that higher cost and when that might hit.

Patrick Watson

Yes, so let's start with that, Steve. As we just think about tungsten has moved up here. You know, I think as we think about like our second quarter, so the December quarter we would have seen like an average tungsten price of like 335. As we got into Q3 here, February, it was up just slightly, just I think low 340s. As we sit here today, it's closer to like 395 from an average perspective. So overall, I'll say the last 60, 45 days, we've seen that those prices come up. As we normally talk about from a pricing standpoint, we do have some contracts specifically in Infrastructure. In the Energy end market, they'll begin resetting. As that price rises, we'll see some favorable pricing come out of that as we move here into the fourth quarter. And then, depending on where tungsten rolls here over the next couple months, we'll probably see some additional favorability come through as well. In general, we always talk about, from a cost structure perspective, the costs that tend to flow through the P&L lag by about two quarters. and so at the moment we're still enjoying a cost base that's prior to the recent escalation here in prices. As we think about the third quarter and the margin performance, I'll just talk about EPS terms here, obviously the big driver for us in terms of versus our expectations at the outset of the quarter was the advanced manufacturing tax credit, so that in and of itself sits at about $0.13 between the benefit of the tax credit itself and some favorability that also pulls through the effective tax rate. And so going into the quarter, we knew that that was a – I'll call it a known unknown in terms of how much we would actually qualify. The Treasury regs for that were finalized in the December quarter. We worked through that. I think at this point in time, we'll continue to get an ongoing benefit from that, but the The surplus from a catch-up perspective, getting caught up to the regs, that's all behind us here in the third quarter. I think the other elements in terms of overall performance and sales was pretty much aligned to where our expectations were. Cost structure came in a little better. I'd say a little bit of that was from restructuring. And we had a couple of things kind of break our way over the course of the quarter as well that helped us deliver the number.

Steven Fisher

Very, very helpful. I just wanted to ask a little bit about the competitive dynamics and see if there's any tariff-related relevance here. You cited some competitive pressures in the Americas in the Infrastructure, and I think it was specifically in Earthworks. I'm just curious kind of what's the source of that and then sort of related potentially is to what extent the tariff regime is creating any competitive advantage that you might have in the United States, and do you think you need to prepare for kind of competitors to be reshoring up or moving operations to within the United States?

Sanjay Chowbey

Yes, Steve, first let me address the issue of the earth-cutting business comment on competitive pressure in the US and China. and then I'll come back to the overall competitive landscape and tariff. With respect to Earthworks, as we have said before, the coal exports coming out of US has been soft. And then in China itself, the demand versus capacity question has been lopsided for some time. So because of that, there has been price pressure and we are able to compete and keep our business. But there is definitely some pressure on price from that. Now we have not mentioned or we are not seeing anything from a price perspective, a price pressure perspective for any other business as such. Now coming to the overall competitive landscape, as we have said in our prepared remarks also, that we are definitely keeping up or most likely performing better than our peers, especially who have reported in the public domain. And that has been there for several quarters now. and we believe our overall organic growth initiatives are working well. Our commercial initiatives, our sales, marketing team, operations team have really been able to do a good job in customer service and able to provide good application support and continue to win. We believe that work will continue, we'll build upon that. For the time being, now again talking back about the tariff situation. We do believe that, as a company, in our industry, in cutting tool and web component business, we are better positioned than others based on our overall footprint that we have, strongly in the US, and also we have a strong footprint in Europe and APAC. So we believe that we'll be able to utilize that to make the moves we need to for mitigation actions, but we'll also be able to utilize our US footprint to make sure that we are taking growth opportunities and winning some markets, especially when it comes to powder sales and RODS and some cutting tool opportunities.

Steven Fisher

Terrific. Congratulations. Thank you.

Operator

Steve Barger, KeyBanc Capital Markets.

Steve Barger

Hi, good morning. This is Jacob Moore. I'm for Steve. Thanks for taking our questions. First one for me kind of just staying on tariffs. I'm curious if you're seeing any pull-forward or wait-and-see type demand pauses. It feels like component manufacturers have been more victims of pull-forward, while larger, more complex goods are more wait-and-see. Just curious what your experience has been so far, and maybe that's an opportunity for you to expand on specific mitigation efforts you'd like to call out as well.

Sanjay Chowbey

Yes, first of all, in terms of pull-forward, we have really not seen much just in the couple million dollar type of range. So for all realistic purpose, nothing much. and we don't expect that as such even in the coming weeks and months here. I believe that in our customer base, there has been definitely discussions about some production moves. As in the public domain, you have seen some of the automotive Transportation OEMs, they have talked about some production moves, but some of those things will take time. In the meantime, we're staying very close to our customers and supporting them as they need to manage through this situation. We look forward to overall utilizing this opportunity to definitely gain some new business.

Steve Barger

Great. That's helpful. And it kind of leads into my second question here, which is, do you think that any of this rapidly changing trade situation is an opportunity to look at M&A or portfolio optimization? I'm thinking about if there's lines of products you could consolidate or divest. or assets that are getting closer to your M&A criteria. Just how are you thinking about those types of actions in the absence of a robust demand environment?

Sanjay Chowbey

Yes, we have definitely been working on our strategic priorities and to see how those things are aligned with our inorganic portfolio actions. Now with the tariff, definitely it did bring a new front on this discussion. because we bring some things to the table. So of course there are discussions and we will share more information when we get to a certain point on that. But yes, there will be definitely some implications on that.

Steve Barger

Okay, thank you very much.

Operator

Julian Mitchell, Barclays.

Julian Mitchell

Hi, good morning. I just wanted to Hey, good morning. Just focus on the guide changes first off. So I suppose the EPS guide increase, it's sort of a composition largely of the production credit and then you've also $0.10 in the operating line and then it seems like sort of $0.05 each coming from tax and FX versus the prior guide. Just wondered if there was anything else kind of moving around. within that guide and put a finer point on the net tariff headwind that's dialed in for this year as a whole in EPS. And sort of tied to that, trying to understand organic sales, doesn't seem like there's many surprises, but just wanted to confirm if in recent weeks you've seen anything moving around versus normal seasonality.

Patrick Watson

Yes, just in terms of the outlook, I would say that the thumbnail version there, Julian, in terms of the approach we took on the outlook is we obviously outperformed the expectations here in the third quarter. That got rolled into the full year. We do have some benefits from the surcharge, but we've got costs associated with the tariff. That's the net exposure we've talked about. That's been rolled in. as we move through the quarter here. We're sitting at $1.13 and a half Euro versus we're closer to $1.08, so we've got some benefit on the weaker dollar. And then I would say lastly, just based on where we think sales and the business will perform here, just tighten up the range and narrow it down given that we're in the fourth quarter of the year. When I think about where we're at here from a sales performance in the month of April, and again, this is kind of how the outlook is built as well, pretty normal progression, right? And so, we've not seen from a demand perspective at this point in time anything that's out of the ordinary. Obviously, as we think about the March and April timeframe from year to year, you've got an Easter holiday effect in there, predominantly in Europe, that can be a little wonky, but again, the business seems to be performing and demand levels seem to be you know, pretty normal.

Julian Mitchell

That's helpful, thank you. And then just when we're thinking about the sales recovery whenever that comes assume it's some time, let's say in fiscal '26, just wondered really for Sanjay, I suppose, given you've almost been in the job for 12 months now as CEO, what kind of operating leverage are you kind of aiming for in that recovery? You know, we can see the historic record and the restructuring efforts more recently, for example, since January that have been announced. But rolling everything together, what's the sort of operating leverage kind of entitlement Kenner Metal should have when your sales start to grow again?

Sanjay Chowbey

Yes, Julian, we'll start with a simple answer of mid-40s, okay? That, for sure, we expect. As we have been working on our cost structure, and we'll share more details on overall portfolio analysis and cost structure footprint and those actions, we do believe that we are continuing to improve our fixed cost. But at this point, you can definitely go with the mid-40s in terms of leverage.

Patrick Watson

That's great. Thank you. Thanks, Julian.

Operator

Michael Feniger, Bank of America.

Michael Feniger

Hey guys, thanks for taking my questions. Just on inventories, I think your inventories, if I look at the quarter, actually increased sequentially. Revenue was a little flat. I'm just kind of curious how you feel with your inventory position. Does the quarter have a benefit from that absorption? Are you carrying a little bit more inventory? Is that strategic going into this type of environment now as we enter the back half of this year? That's my first question.

Patrick Watson

Yes, a little bit of absorption there. When you look at finished goods inventory, it's up quite modestly sequentially from Q2 at December end. The bigger uptick will be in WIP and powder inventory, and so that's where you've seen it. I would say a couple things about it. Number one just given the change in demand that we've seen here and projected over the last couple of months, supply chain is relatively long. It does take a little bit of time to adjust the supply chain. I would also say at the moment, given that a lot of that is WIP and raw material related, with the elevation of the tungsten prices, that's not necessarily a bad thing to have more inventory acquired at the lower cost either.

Michael Feniger

Fair enough. And if I just ask it, did you guys provide a breakdown of of your COGS geographically from an area like China. I'm just trying to get a sense of, is the impact mostly that China tariff? Is it that 10% for the rest of the world, maybe Europe to US? And I guess with what you guys are factoring in, is it based on those rates from April 4th, Liberation Day? If we wake up in a few weeks and we see a deal struck, is that upside to that 80 million? Just any help there? would be helpful for us.

Sanjay Chowbey

Yes, sure, Michael. Yes, we are using all the tariff rates which were on effect on April 30th. So as negotiations happen and things like that, that 80 million itself will come down. But what we're also telling you, regardless of whether 80 million becomes 60 or 50, we have action plans in place to fully mitigate the direct impact of tariff cost. and we are also in parallel definitely looking at opportunities for growth, capitalizing on our footprint and supply chain network. To your comment, the risk will come down as the negotiations happen.

Michael Feniger

Fair enough, Sanjay. If I could just sneak one more in just to follow on with Julian's comment. I hear the point on 2026 with the incrementals. Just when we think of where you're going to end up in FQ4, when we think of that normal seasonality to start the year for FQ1 normally seasonally we see a seasonality standpoint from Q4, Q1 on the top line or bottom line that we should kind of be thinking about as we kind of turn the page.

Patrick Watson

Yes, no, obviously, yes, the normal seasonality going into Q1, right, and we'll give an update on end markets and where we think that will precisely be, obviously, in about 90 days. I would say from a cost structure perspective, just a couple things to be mindful out there as you guys put together your expectations for '26. You know, we have had some benefits flow through this year in terms of the P&L that are non-repetitive in nature. That's going to be, we've got about $6 million of proceeds from tornadoes, insurance proceeds on a tornado that was a year ago in May, June, in excess of cost. So obviously, that's not going to repeat. That's within the Infrastructure segment. We've talked already about on this call the tax credit, although that will continue forward at this point in time based on tax legislation indefinitely until Congress changes the tax law. As we talk about the '25 to '26 progression, there's about $8 million of benefit in '25 that's not going to repeat in '26 because that's the catch-up amount. And then the last thing I would just reflect upon would be in terms of restructuring programs what will end at the run rate will end this year and what we already have in the pipeline to pick up about another $8 million of benefit in the first half of fiscal '26. as that annualizes out throughout the year. So from a cost structure perspective, I think those are the three big things that are worth thinking about. Thank you, Patrick.

Operator

Tami Zakaria, JP Morgan.

Tami Zakaria

Hey, good morning. Thank you so much. I have two follow-up questions. Hi. So my first question, just wanted a bit of clarity on the pricing outlook. I think you kept it unchanged at 2% for the year. And it seems like you're already taking some pricing action for tariffs. So is 2% pricing still the right number to think about for the final quarter of the year?

Sanjay Chowbey

Yes, I think excluding tariff impact approximately 2% is what we have said so that, yes, that will be the right number.

Tami Zakaria

So it could be higher if the current price increases slow through.

Sanjay Chowbey

Yes, if you're adding the tariff on surcharge, yes, but I'm excluding the tariff surcharge, and I'm saying that is like on top of tariff surcharge is simply to offset the tariff direct impact.

Tami Zakaria

Got it, okay. And so my follow-up question is, are you able to share what price and price cost was in the third quarter?

Patrick Watson

No, the only thing I would say there, Tammy, is as we think about the business performance on a year-over-year basis, right, and this is where, this is given the timing elements that can move through the P&L a year ago, third quarter, in Infrastructure they would have been on the wrong side of the price-raw cycle, and so you would have seen operating income margin and Infrastructure of about, I think, 3.8% last year, 3Q. And as we got to this year, price-raw from an Infrastructure perspective is in balance in Q3, and so neither a headwind or a tailwind, quite frankly, to note there.

Tami Zakaria

Got it. Okay. Thank you.

Operator

Joe Ritchie, Goldman Sachs.

Joe Ritchie

Thank you. Good morning, everybody. Hi, Joe. So just my first question, and this is just a higher-level question for Sanjay. Some of these tariff actions that you're taking in place on slide five, Is it fair to presume, regardless of what happens with the tariff situation, because I guess there's an expectation that at some point this number is going down, that these actions are kind of more structural in nature outside of maybe like the surcharges? There'll be structural movements to your supply chain that will continue?

Sanjay Chowbey

Yes, Joe, for the most part, that will be the correct assumption. I think if things went back to the way it was before in that case, there could be some regrouping of production in terms of getting the economy up to scale, because there are certain types of specialty products that we make today in one part of the world or the other, and we ship around. But we are very capable of producing our general product, the standard products in all three regions. So those kind of moves we have already enacted very quickly in April. But there are some specialty products. We will revisit that depending on where the tariff levels go back. But assuming that there is some sort of tariff in place, I think these will be more in like a little bit more permanent shape. And we'll definitely, in parallel, we're working on, we're always looking for improvement as we are even doing this. And as part of continuous improvement mindset, we're not just saying that let's just do this to manage tariff. When we're moving any of these things around, we are looking for cycle time improvement, uptime improvement, and overall yield improvement. So our idea here is that we come out stronger from this situation.

Joe Ritchie

Got it. That's helpful. And look, not that the current environment is supporting this, but if for some reason we were to see some like real acceleration in the demand backdrop, I'm curious, is there risk to being able to supply the market if we do see an inflection point in your business? Typically, when you see these types of moves, sometimes you run into this kind of like taking a Python problem. And I'm just curious how you're managing and how much capacity you have if things were to inflect from a revenue perspective.

Sanjay Chowbey

Yes, on a high level, we do not anticipate any risk. I think we have definitely like if you go back a few years ago, we as a company and the industry we have seen 30 months of slowdown in industrial production. So if you go back to even five years ago, we have more capacity to support Aerospace and Defense demands, same way for Transportation, General Engineering, so on and so forth, Energy. So we can definitely handle, we'll be happy to handle some recovery in the market. And in parallel as Pat also mentioned we have definitely worked on our cost structure. We'll be exiting this year. In January, we announced the $15 million. We're well on track to complete that. So I do believe that we will be able to handle in terms of demand, but also in terms of getting – coming out with this better cost structure too.

Joe Ritchie

Got it. Great. One last one. I know we'll get the guide in. and next quarter. But just maybe you can comment, any changes to how you will guide, like in terms of the information you'll provide versus versus how you guided last year? Either any incrementally new or less information when you do give the guidance?

Patrick Watson

No, I think that's a question we'll answer, Joe, in about 90 days.

Joe Ritchie

All right. Fair enough. Thank you.

Operator

Thank you. This concludes our question-and-answer session. I would now like to hand the call back over to Mr. Chobe for closing remarks.

Sanjay Chowbey

Thank you, operator, and thank you, everyone, for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to Mike if you have any questions. Have a great day. Thank you.

Operator

The conference has now concluded. Thank you for your participation.