MSA Safety Inc

NYSE:MSA

Earnings Call Analysis

MSA Safety's Resilient Q2 2024 Performance with Strong Future Outlook

MSA Safety reported Q2 sales of $462 million, a 4% organic increase. Key growth drivers were Detection and Fire Services, which grew 8% and 4% respectively. Despite a 2% decline in Industrial PPE, the operating margin rose to 23.4%. Net income was up 10% with earnings per share at $2.01. The company reduced its backlog and maintained robust cash flow. Looking forward, MSA Safety anticipates mid-single-digit growth for 2024, driven by strong demand in Fire Services and Detection, despite macroeconomic and geopolitical uncertainties.

Introduction

MSA Safety accomplished significant strides in the second quarter of 2024, celebrating their 110th year. The company continues to focus on its mission to ensure worker safety, with over 5,000 employees dedicated to meeting this objective. This quarter, operational improvements, new product launches, and excellent utilization of the MSA Business System were noted.

Company Performance

Sales for the quarter reached $462 million, up 4% on an organic constant currency basis and 3% on a reported basis compared to the prior year. This growth was driven by contributions from volume and price increases, partially offset by a 1% headwind from currency translation. Notably, Detection and Fire Services categories showed healthy growth of 8% and 4%, respectively, while Industrial PPE faced a 2% contraction.

Geographical Segment Performance

In the Americas segment, sales increased by 2% year-over-year, fueled by high single-digit growth in Detection and mid-single-digit growth in Industrial PPE, though this was slightly offset by a decline in Fire Services. The adjusted operating margin improved by 60 basis points to 31.3%. International sales also grew, registering a 6% increase year-over-year driven by double-digit growth in Fire Services and Detection, albeit slightly hampered by currency translation headwinds. The adjusted operating margin in this segment stood at 16.4%, reflecting a robust 70 basis points increase.

Financial Metrics

Gross profit margins for the quarter were 48.2%, up 40 basis points from the previous year, with operating margins on a GAAP basis at 21.6%. Adjusted operating margins came in at 23.4%, marking a 20 basis points increase. GAAP net income for the quarter was $72 million, equating to $1.83 per diluted share, while adjusted diluted earnings per share were slightly higher at $2.01. Free cash flow stood at $39 million, representing a 49% conversion rate of adjusted earnings, and capital expenditures were $14 million.

Strategic Initiatives and Capital Deployment

The company made headway in several operational initiatives, including production transfers in factories in the U.K., Morocco, and Mexico, which are intended to optimize the manufacturing footprint and support future growth. Additionally, MSA repaid $8 million in debt, disbursed $20 million in dividends, and repurchased $10 million in common stock. The company's net debt was $441 million, with a cash balance of $147 million, showing a net leverage ratio improvement to 0.9x.

Product Innovation and Market Position

MSA launched new products like the V-Gard H2 safety helmet and FL5000 Multi-Spectrum Flame Detector, which received positive market feedback. Growth in Detection sales was attributed to improvements in both fixed and portable detection devices. Fall protection remains a promising area, with ongoing demand and strategic manufacturing changes poised to enhance service efficiency in this sector.

Outlook for 2024

The full-year outlook for 2024 includes anticipated mid-single-digit sales growth, maintaining the momentum from the first half of the year. Executive guidance reflects an expectation for similar growth rates in the second half, with orders potentially skewed towards Q4 due to funding cycles and delivery timings. The company remains focused on maintaining healthy demand trends, disciplined cost management, and robust cash flow generation to achieve its long-term profitability targets set for 2028.

Conclusion

MSA Safety's performance in Q2 2024 underscores the resilience and strength of its diverse product offerings, market presence, and strategic initiatives. With a clear path to sustained growth and profitability, the company is well-positioned to navigate macroeconomic risks and capitalize on opportunities in the safety industry. The commitment of their global workforce and a strong innovation pipeline continue to drive the company forward.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the MSA Safety Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Larry De Maria. Please go ahead.

[Lawrence De Maria, executive]

Thank you. Good morning, and welcome to MSA Safety's Second Quarter 2024 Earnings Conference Call. This is Larry De Maria, Executive Director of Investor Relations. I'm joined by Steve Blanco, President and CEO; Lee McChesney, Senior Vice President and CFO; and Stephanie Sciullo, President of our Americas segment.

During today's call, we will discuss MSA's second quarter financial results and provide an update on our full year 2024 outlook.

On Slide 2, I'd like to remind everyone that the matters discussed during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, all projections and anticipated levels of future performance. Forward-looking statements involve a number of risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed today. These risks, uncertainties and other factors are detailed in our SEC filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law.

Turning to Slide 3. We've included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our Investor Relations website at investors.msasafety.com.

I'd now like to turn the call over to Steve Blanco. Steve?

[Steven Blanco, executive]

Thanks, Larry, and good morning, everyone. I'm on Slide 4. In June, we celebrated our 110th year as a purpose-driven company. Over that time, we've remained steadfast in our mission that men and women may work in safety and they, their families and their communities may live in health throughout the world. And I'd like to thank our more than 5,000 associates around the world who are inspired by the singular purpose of safety for our customers each and every day.

This was an exciting quarter. Driven by our mission, we delivered solid commercial and operational results in the business through excellent execution and utilization of the MSA Business System. I'm pleased with the continued work on our product launches and operational accomplishments. In May, we held our Investor Day, where we discussed our strategy for profitable growth and capital deployment going forward as well as identifying our long-term targets for 2028. Also, earlier this week, we released our 2023 impact report, which I will highlight in a couple of minutes.

First, let's review some highlights from the quarter. During our earnings call in April, we discussed supply chain issues that resulted in an elevated backlog for Detection and Industrial PPE. I'm pleased to report that the team overcame these challenges during the second quarter and reduced our backlog to normalized levels.

Previously, we discussed our efforts to optimize our manufacturing footprint as part of our operational excellence initiatives. This quarter, we made significant progress in production transfers at some of our factories in the U.K., Morocco and Mexico. These changes better positioned us for growth by enabling a more efficient and productive structure to deliver and serve our customers across the globe. All of these efforts resulted in our ability to maintain our positive momentum through the first half of the year. This is building on strong performance from recent years. The team executed well and delivered net sales growth of 3%, organic constant currency sales growth of 4% and adjusted earnings growth of 10%.

Moving to our product categories and innovation, sales in Fire Service were up mid-single digits in the quarter, with notable growth in turnout gear and fire helmets. The new Cairns 1836 is being very well received by the market and performance of Globe and Bristol continue to strengthen. We continue to see excellent momentum in international markets with our M1 SCBA and have a solid global commercial pipeline going into the second half of the year. The Fire Service market remains resilient and the environment for funding around the world is healthy. I'm pleased to note that this month, we were awarded the second tranche of the U.S. Air Force order, which is about $28 million.

Our sales in Detection were up high single digits, with solid growth in both fixed and portable detection. The new FL5000 Multi-Spectrum Flame Detector launch continues to go well with positive customer feedback leading to a strong start in orders. Portable detection continues to grow both in traditional and connected devices. The io 4 continues to gain traction with the expansion in new geographies and new customers, both existing and for new applications.

Industrial PPE sales overall were slightly negative on a year-over-year basis. Our head and fall protection products continue to grow and are offset by headwinds in other PPE products such as ballistic helmets in international as well as respirators. I'm excited by our opportunity to grow our fall protection business, where we continue to see healthy demand. The footprint changes I mentioned earlier will help us better serve our customers in this specific growing category.

In May, we continued our leadership in head protection with the launch of the new V-Gard H2 safety helmet, which provides superior comfort and versatility while incorporating the latest technology to help protect against lateral impacts and features the optional Mips technology.

Turning to Slide 5. I would like to review some of the key points from our 2023 impact report, which I noted earlier. This was released this week. As the safety company, our commitment to operating as a sustainable business is evidenced by our initiatives across the MSA Safety pillars of products and solutions, people and planet and is captured in the MSA impact metric. This impact metric represents the average number of global workers that use our products and solutions each year. We estimate that MSA helps to protect more than 40 million people annually.

Here are a few examples of what can be found in the report. The products and solutions we develop are at the core of our approach to creating positive impact. Our solutions use technology and connecting the tech for safety and sustainability, helping to make work safer and easier as well as more productive. For example, our SCBA simplifies maintenance and reduces waste and Bacharach refrigeration detection solutions help food and beverage customers reduce their carbon footprint and operating costs. We're also on track to meet our commitments towards our 2030 emissions goals.

As you would expect from MSA Safety, we maintain world-class employee safety metrics within our facilities. Additionally, we collectively shared that MSA Safety was recognized as one of Newsweek's most responsible companies, USA TODAY America's Climate Leaders and Forbes Best Employers for Diversity. There are many more highlights in this report, so please visit our corporate responsibility section on our website to learn more.

On Slide 6, I also note to you the 2028 financial targets we launched in May at our Investor Day, underpinned by our strategy to drive profitable growth and create value for our customers and shareholders. We highlighted a set of actions that we believe will enable us to continue to grow the top and bottom line over the near and long term by leveraging such key enablers as the MSA Business System. These include capitalizing on secular trends, targeting growth accelerators, developing additional solutions with recurring revenue streams and utilizing our strong balance sheet for strategic capital deployment. We look forward to sharing our progress against these targets over the coming years.

With that, I will turn the call over to Lee, who will discuss our financial results for the second quarter. Lee?

[Lee McChesney, executive]

Thank you, Steve, and good morning, everyone. We appreciate you joining the call today. I will now review our performance in the second quarter and provide an update on our full year outlook.

Let's get started on Slide 7 with the quarterly results. Sales were $462 million, up 4% on an organic constant currency basis and 3% on a reported basis over the prior year with a balanced contribution from volume and price. Currency translation was a 1% headwind. Across our product categories, Detection and Fire Services contributed healthy growth, up 8% and 4%, respectively, partially offset by a 2% contraction in Industrial PPE. Globally, it was also encouraging to see these sales trends fueling our Americas and International results.

Overall, orders were healthy in the quarter across our business, though there were some trend changes within the months. As I've noted in the past, this is not unusual for our business and orders can vary from quarter to quarter. Our commercial pipeline is encouraging across our product categories and in most of our regions, and we have a nice continuation of activity we're seeing so far in July.

In the second quarter, our book-to-bill was slightly below 1x, but above the prior year period and is just below 1x for the first half of the year. As we had hoped, our backlog was reduced in the quarter to more normalized levels, principally due to good progress in Fire Services and Detection.

Our margin performance continues to be very resilient and our team's commitment to the MSA Business System is evident from our results. Gross profit margin in the quarter was 48.2%, up 40 basis points over the prior year. Operating margin on a GAAP basis was 21.6% in the quarter, up 40 basis points over the prior year. Slightly higher SG&A reflects volume, inflation, investments in professional services and a onetime cost related to a legal matter. Adjusted operating margin was 23.4%, up 20 basis points over the prior year, and incremental operating margin was 29%. Margin expansion was largely driven by volume leverage, productivity and cost price management.

GAAP net income in the quarter was $72 million or $1.83 per diluted share. On an adjusted basis, diluted earnings per share were $2.01, up 10% over the prior year. The increase is primarily due to operating profit and lower nonoperating expenses.

Now moving on to our segment performance. In our Americas segment, sales increased 2% year-over-year with high single-digit growth in Detection and mid-single-digit growth in our Industrial PPE, partially offset by a modest decline in Fire Services. The adjusted operating margin was 31.3%, up 60 basis points compared to the prior year. Margin expansion was driven largely by volume leverage, productivity and cost price dynamics.

In our International segment, sales increased 6% year-over-year. Strong double-digit growth in Fire Services and Detection was partially offset by declines in Industrial PPE. Currency translation was a 1% headwind in the quarter. Adjusted operating margin was 16.4%, a strong increase of 70 basis points year-over-year, driven by volume and SG&A leverage, partially offset by modest FX headwinds.

Now turning to Slide 8. Free cash flow in the quarter was $39 million, representing a conversion rate of 49% of adjusted earnings. Second quarter cash flow reflected inventory investments and increased capital expenditures, and we remain on track to deliver our full year cash flow objectives of 90% to 100%. As a reminder, we typically generate more cash flow in the second half of each year.

Consistent with our strong capital allocation history and our Investor Day goals, capital expenditures were $14 million in the second quarter, including investments to drive productivity and execute production transfers as part of our strategic manufacturing programs. We also repaid $8 million in debt, returned $20 million in dividends to shareholders and repurchased $10 million in common stock.

Net debt at the end of the quarter was $441 million, and our cash balance was $147 million. Our net leverage ratio at quarter end further improved to 0.9x. Adjusted EBITDA for the trailing 12 months ended June 30 at $466 million, or 25.7% of net sales.

Now I'd like to move to our full year outlook on Slide 9. We entered the second half with good momentum but are mindful of the dynamics of order timing and macro and geopolitical risks. Our end markets are generally healthy, demand trends remained positive and we have executed initiatives to bring our backlog down to more normalized levels. Our business has broad diversification across products, geographic regions and markets, and there remains attractive underlying market trends in the safety industry, leading to the resilience we have delivered over time.

We remain close to our customers, disciplined on costs and focused on executing our strategy to deliver profitable growth and generate strong cash flow. Should macro conditions change, we will adapt as needed. As we look forward to full year 2024, we are maintaining our sales outlook of mid-single-digit growth, which compounds on top of the 17% growth we delivered in 2023. We believe our second half growth rates will likely be similar to the first half. We do have to be cognizant of the timing of orders, primarily related to the AFG funding cycle and customer delivery timing as we work through details of large orders like the U.S. Air Force order, which implies growth may be skewed towards the latter part of the year.

Our business is healthy. Our pipeline is strong, and we look forward to executing our second half plans in the long-term profitable growth strategy outlined at our Investor Day. With that said, I also want to reiterate my thanks to our associates across the globe who are focused on supporting our customers passionately each and every day. Your continued focus on driving improvement is yielding significant impacts for all of our stakeholders, well done.

With that, I'll now turn the call back over to Steve for concluding remarks.

[Steven Blanco, executive]

Thank you, Lee. I want to reiterate the resiliency of our business, which continues to benefit from the broad diversity of our products, geographies and markets. With attractive industry fundamentals, our proven innovation process and leading positions in our markets; I'm excited by our future. I believe we have the best team in the industry and with our mindset around continuous improvement and the commitment to the MSA Business System, we're well positioned to create value over the long term for all of our stakeholders.

With that, I'll now turn the call back over to the operator for questions.

[Operator]

[Operator Instructions] The first question comes from Stanley Elliott with Stifel.

[Stanley Elliott, analyst]

Could you guys talk a little bit more about kind of the full year -- the mid-single-digit guide kind of implies you're making kind of a consistent run rate, maybe a slight acceleration in the second half. I know seasonally, the business picks up in 4Q, but it sounds like [indiscernible], but other data points that we've been watching them, the overall economy might be slowing down a little bit. And your order book is a little more normalized. Where is the confidence kind of coming in to be able to hit that second half sort of run rate?

[Steven Blanco, executive]

Yes. Thanks for the question, Stanley. And maybe I'll start here and Lee, you can jump in if you have some commentary at the end.

I think it's the diversity of the business that really helps us. We're a little different than maybe most industrials, as you know. But when we look at our business, I would say that the demand in the end markets remains healthy. Certainly, Fire Service, Energy and Utilities are healthy and stable. And we see a really solid pipeline in Fire Service and Detection. Timing can be lumpy as we've seen before, but the fundamentals are good and the pipeline is solid.

From a macro, we think these markets are resilient. We've seen that in the past. They've been resilient. We've been comfortable with that. Industrial PPE is certainly a bit more cyclical as we saw in the first half, and that's likely to continue. But it's really where the diversity of our markets and geographies help. So if the performance continues, if we're able to turn that pipeline into orders, we feel really good about the second half continuing to be a growth category.

Lee, you got anything you want to add?

[Lee McChesney, executive]

Yes. I think that's a good summary. I mean, Stanley, as I said in my comments there, we think the back half will be similar to the first half. I think if we are going back to the beginning of the year, maybe we were hopefully even better than that, but that's just the reality. I think some things you just mentioned. But we're still in a good place.

I do think you'll see what we just experienced in the first half where you have some segments be really strong in one quarter and maybe be a bit weaker in the other quarter. So we can manage that. We'll probably lean a little bit towards the fourth quarter being stronger [indiscernible] than the third quarter. And it's just, as Steve said, we're in a good place for nice diverse mix. I said this all year, when we deliver 3% growth, 4% growth, we're doing it on top of the 17% growth last year. So I just think that puts it in perspective. And I think we're doing this year is compensating for that. So it actually says we're even doing better on the orders front than we are on the sales front.

[Stanley Elliott, analyst]

No doubt. Kind of speaks to the breadth of the portfolio. You did mention one thing interesting, if the macro conditions change, you guys could adapt as needed. How quickly could you react if we were to see something? I mean I think now with the market kind of looking more towards some rate cuts the back part of this year into next year, I'm not sure that necessarily we would see that. But just give us kind of like the playbook in terms of how you would react?

[Steven Blanco, executive]

Yes, it's a good question, Stanley. I mean, we've done that in the past. I would say it'd be pretty quick. Certainly, we're going to protect our profitability and margin profile. And we have a list of levers that we could pull if we needed to pull to make sure we protect it ourselves. And I think we've talked before about our incrementals are 30% to 40%, but we manage our decrementals at a lower level, and we would expect that to be the same if we needed to pivot.

[Stanley Elliott, analyst]

The very strong quarter in the Detection side of the business, what's driving these gains? Is that more just kind of the product availability and the backlog is getting worked down. And then you also had some interesting comments around some of the new revenue models and the traditional versus connected devices, really interested to see how this connected device platform is starting to shape up.

[Lee McChesney, executive]

Thanks for that question as well. So we did see a little bit of back -- certainly, we were pleased that we were able to ship that elevated backlog to deliver to our customers. You know that business, when you think of Detection, and I talked a little bit about it earlier when you asked about our confidence in the second half. But if you break it down that longer cycle fixed monitoring, our position is really good. Strong installed base supported by the energy needs, including, as we've discussed, the future clean energy needs we have, and the pipeline of business is really solid there.

For portables, a little more cyclical because it's tied to employment levels. But we feel like our approach of providing the market different options with the traditional platforms through our 4XR and our 5X added by the connected io 4, just a tremendous combination for our customers to choose from. And that's what we're seeing. We're seeing this io 4 -- I think the take rate right now is, we're still seeing 50-plus percent of the take rate from customers that are new to us, which has really been a nice add. But you put those 2 together and that's why we have confidence in Detection.

[Stanley Elliott, analyst]

Great guys. Nice to hear. Congrats and best of luck in the second half.

[Operator]

The next question is from Rob Mason with Baird.

[Robert Mason, analyst]

Steve, you kind of made mention of your incrementals at this 30% to 40% range. Is that just given the growth profile that you're expecting in the second half? I'm just curious how your confidence level is either around the upper or lower bounds of that range. Is that the expectation?

[Steven Blanco, executive]

Lee, do you want to hit that?

[Lee McChesney, executive]

Yes, I think like we said throughout the first half of this year, you do have some interesting comps. So just to give you some reminder there, right, we had this incremental 70% in the first quarter, 29% in the second quarter. You're going to see that same type of volatility in the back half. I mean the third quarter was a very strong quarter. Certainly, a very good revenue quarter, but our absolute highest margin. There was some backlog and mix help that went into that last year that you won't see this year. So you'll see a lower incremental in 3Q, and then you'll see a nice rebound in 4Q.

I mean overall, we keep coming back to the 30% to 40% goal. And we're certainly on track to being in that range. And based on where we are so far in the year, maybe slightly higher, but we'll see how it plays out.

[Robert Mason, analyst]

Sure. Maybe relatedly, you made mention of the progress that you've made, getting some of your manufacturing book reconfigured. Is all of the work that's in motion, is that complete. And I'm just curious how you feel about this current scaling of those operations and potential opportunity to see more leverage from those specific moves.

[Steven Blanco, executive]

Rob, maybe I'll take a stab at that. So it's not complete yet. We're more than halfway through that activity, but there's still a lot of work to be done on that in the second half. What we're doing is really trying to make sure that we continue on our strategy of manufacturing in region, for region and providing the opportunity for us to have kind of a best cost and best delivery option available for the customer base through our manufacturing footprint and operational performance. So this is really a big part of what we're doing with this. And it's really going to have a nice impact, especially in things like fall protection with the moves to Mexico and the plant transitions or shutdowns that we've had. So it's better than halfway, but we're not quite done yet. We've got more work to do through the second half.

[Robert Mason, analyst]

I see. And just last question. You mentioned your price volume was roughly equal in the quarter. I'm curious as you got to mid-year, did you do anything different in your price adjustments or how you're viewing the inflationary impacts right now?

[Steven Blanco, executive]

We had our price increase at the beginning of the year. One region did a price increase early in Q2. But typically, that's consistent where we're at. This year, it's more of a normalized pricing. We're following the inflationary environment, the potential of any tariffs. Certainly, we're going to continue to track, and as we've done in the past, if we need to pivot and adjust, we will. I would add, that's part of the -- for us, part of the reason we continue to lean in on the business system and continuous improvement and these operational footprint changes, bear that mind, is to make sure that if we need to offset, we'll offset internally and get what we need to in price to make sure we protect our margins, which I think we've done a nice job of in the past.

[Operator]

[Operator Instructions] The next question is from Ross Sparenblek with William Blair.

[Ross Sparenblek, analyst]

Coming back to the second half revenue guidance, we're seeing positive read-throughs on order rates for the Detection and Fire business. I mean it's implying a reacceleration in the second half, and you guys are clearly taking share. So can you maybe just further delineate what some of these watch items are and what is maybe tempering your expectations for the second half?

[Steven Blanco, executive]

Yes. Thanks for the question, Ross. So we do feel good about where we're at in the market in both of those spaces, and we think the pipeline is solid. Part of it is just timing. The order timing can be lumpy as we've seen in past years. So we think that there's good opportunity if we get some of that over the pipeline to flush through in the orders. But part of it is the funding environment. Do they have the funds? The environment is good. But for example, AFG, the Assistance to Firefighter Grants, last year, they started releasing funds much earlier than this year. This year, they just did the first couple of tranches last week. So about $62 million of the $325 million available has been released.

So obviously, for those that are expecting to use that funding vehicle, they have to have that available to them. So that's the thing that we just want to make sure those things come through. I would look at that. Lee?

[Lee McChesney, executive]

Yes. Ross, I'd just add a couple of things. So again, you have dynamic in the back half of last year. We had some really nice wins. If you remember, things like we were shipping to L.A. last year in the third quarter on the SBA side. In Bacharach, we had nice large wins that had some big chunky orders to it. This year, it looks like some of those things will be more in the fourth quarter than the third quarter. So it's just a subtlety to some of -- the outlook being a little bit more back half of the second half just to counter it as you kind of look at your model.

[Ross Sparenblek, analyst]

Okay. I mean, can you maybe just update us on the supply chain bottlenecks in the first quarter? I believe that there's maybe 100 basis points slipping in the second half? And then maybe just on that fourth quarter comment, if we could dig into the margins there, because it almost seems to imply with the guidance that we could see a nice little step down in the third quarter on gross margins.

[Lee McChesney, executive]

Yes. I mean, Ross, obviously, lots of moving pieces. I think as you talked about the back half in terms of maintaining the kind of similar levels of growth, that includes all of that in there. I think in terms of margins, you have a nice continuation. We've talked about this 48 type of level -- kind of being in the plus or minus of that for the year. Our outlook for the back half is, we will maintain that. Last year, you had a very strong third quarter, that won't repeat itself. But if you look at where we are in the second quarter, in the mid-48s, you'll have a step down because you have things like Europe holidays and things like that, that factor in, and then you'll have an improvement again in the fourth quarter.

So we're in a good place. I think to the question earlier on the incrementals, obviously, we're at the halfway point slightly higher than our range on incrementals, and it will still be in a good place in the back half. But the back half comp on margin is harder than the first half. So just one of the factors.

[Ross Sparenblek, analyst]

Okay. That's helpful. And then maybe can you just give us a sense of where the recurring revenue shook out as a contribution in the quarter? And maybe help parse out also what those growth rates look like? It sounds like it's pretty meaningful.

[Lee McChesney, executive]

I appreciate the question. Well, I would tell you this, we've shared that we sit today in the 15% zone. We obviously have a lot of initiatives to drive that into a better place. We talked about it at Investor Day, eventually getting to the 20% zone. I would say there wasn't a material change in the third quarter towards that. But we had some nice wins in the io 4 space, in the MSA+ space just globally. So we continued to make progress and keep building out that book of business and it certainly helped the growth rate in portables for the first half of the year and certainly is one of those factors that again goes into why be optimistic. Well, we booked for the last 1.5 years is good, about a 3- and 4-year contracts on the io 4.

[Ross Sparenblek, analyst]

Okay. All right. I mean maybe then just on the mix, if we can get a sense of what the impact was from International. It does sound like the recurring might have offset a bit of that on the gross margin side?

[Lee McChesney, executive]

Yes. I would say mix is a pretty neutral story. I mean it's interesting. Think about the margins in the second quarter. They are a record, certainly margin rate record in Americas ever in any quarter. So that's really coming from the business system that focused on productivity, continued management of price and cost and then certainly, the new product innovation being nice, nice lift as well. So it's those elements, mix, again, pretty neutral for us. I think it's going to be a bit of a headwind in the back half, again, because we had a really strong lean into Detection last year as we cleared that backlog.

[Steven Blanco, executive]

I do think you're -- Ross, you're pointing to something on International as you think of what we've been doing at the least point on the innovation front. And we're seeing the Fire Service do what we expected. So Fire Service and Detection and International have been really nice growth categories that we expect in the coming years, we'll kind of shift that mix. While we'll Grow industrial, we expect those to really play a nice role in International's growth.

[Ross Sparenblek, analyst]

Got it. So Industrial should probably have a seasonally higher step-up in the second half despite the ballistic helmets in the second quarter?

[Lee McChesney, executive]

I mean, it's going to be market-driven. I wouldn't necessarily expect the industrial space to have a higher lift in the second half. We're expecting that it's probably going to be somewhat similar to the first half unless the economy accelerates or changes materially. I would expect it to be fairly or very consistent with the first half. We had some tough comps on the ballistic side for International, the ballistic helmets business there. So I would say it's probably going to be fairly consistent.

[Robert Mason, analyst]

Got it. All right. Well, congrats to the quarter, guys.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks.

[Lawrence De Maria, executive]

Thank you. We appreciate you joining the call this morning and for your continued interest in MSA Safety. If you missed the portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.