Good morning. Thank you for coming to the MSA Safety presentation. I'm Ross Sparenblek, the research analyst here at William Blair, that covers MSA. I'm required to inform you that for a full list of research disclosures and potential conflicts of interest, you can visit our website at www.williamblair.com. Today, from MSA, we have Steve Blanco, President and Chief Executive Officer, and Lee McChesney, Chief Financial Officer. MSA Safety is a global manufacturer of safety products that help protect workers and facility infrastructure. The company is headquartered in Cranberry Township, Pennsylvania, and boasts a strong product portfolio, with leading market positions across firefighter safety, industrial head and fall protection, with a growing adoption of gas and flame detection solutions globally. With that, I'll turn it over to Steve for opening comments before some Q&A.
Thank you, Ross, and thanks to William Blair for the conference, and good morning. Our team's really happy to be here, and as Ross mentioned, I'm Steve Blanco. I'm our CEO and President, privileged to be so, and with me is Lee McChesney. So I'll start this off. I got a few things I'll go through, and then Lee will follow up with some other content. And by the way, we just had our investor day in May, so there is a ton of content that's on the website, our investor relations website, that I'd encourage you to follow up with and get some more material on. Before we get rolling, just a reminder of safe harbor and the forward-looking statements commentaries. I wanna make sure we clarify that, and let's get going. So as Ross said, we are a safety company.
We are 100% pure play in safety. It's been our mission for 110 years, which we'll celebrate this month, and that safety mission has never changed, and that is that men and women may work in safety, and they, their families, and communities may live in health throughout the world. That drives our over 5,000 associates to deliver to the customer solutions that solve their toughest challenges and problems. And that's enabled us to protect over 40 million workers annually. So it really is a positive impact on society and certainly an ESG play as well. When you look at the business, we're about $1.8 billion in sales. We spend about $80 million in R&D a year, which enables a product vitality rate of about 37%.
That product vitality driven innovation, as well as our business system, really enable us to have attractive gross and operating margins. You can see our leverage here. We've got a strong balance sheet, which gives us plenty of flexibility with which to grow the business into the future, which we intend to do. And we've got 54 years running of consistent growing dividends, and this year, we increased it by 8.5% in May. We go to market in three different product categories on the right, I'll talk to you in a little bit. But first, let me reference, we've got two segments that we have P&Ls related to. One, the Americas, and it's just what you'd think. You start in Canada, go all the way down, through U.S. and then Latin South America. That's our Americas business.
It's a little over two-thirds. Then the remainder of the world, those sales are inside of what we call international. So if we dive a little bit into the product categories, we have three diverse product categories that serve a number of different markets. When we talk about markets, certainly think about energy, utilities, construction, manufacturing, fire service is a big market. A number of those markets, we're really broad-based across those markets, serving whatever safety needs our customers have. When you think of really the sophisticated safety products and solutions, that's what MSA plays in, and that's where we believe that we can differentiate and win. So looking at these a little bit more clearly, starting with detection, it represents about 35% of our sales, and detection for us is in two categories. One, what we would call fixed infrastructure or asset protection.
That's fixed monitoring, and the other is what we'd call portable gas detection. So think of a wearable device for someone that's looking for protection against toxic or flammable gases. So those are the two categories we have. A lot of innovation is in this space. We differentiate in a number of different categories. One, we manufacture our own sensors. They're the fastest responding and most reliable sensors on the market. We have a lot of IP in that category. We also have seen some strong growth through innovation. Some of our product categories, you know, on the fixed monitoring, strong product category for us is the X5000 and S5000 product lines. For the portable, we recently launched a connected platform called the ALTAIR io 4. So this is an area that we've seen growth from that innovation and also from M&A.
So recently, we acquired a refrigeration monitoring company called Bacharach, which is just added to this portfolio, and a nice ESG add for us as well. In the middle is fire services. Fire services represents about 39% of our business, and in this case, you've got products that start with like an SCBA or self-contained breathing apparatus that the firefighter wears, and then a head-to-toe solution set, starting with boots, turnout gear, which is the protective apparel firefighters wear, and then helmets. And again, innovation plays a key role here. We've got two categories of what we call SCBA. One for the NFPA market, predominantly U.S., Canada, and some areas of the world, Middle East, and then the other is for the end markets.
And those are different, and they've been launched and been effective, and we're seeing some nice growth, especially in the international market with the M1, which was recent, recently launched a couple of years ago. This is also a market that we serve exclusively through fire service channels. It's a little different in the other spaces. You'll go to market through industrial distribution or directly to a facility through the engineering community. But fire service is through a, you know, it's an exclusive channel that is just serving that fire service market.... This is another area where we've seen some real nice growth with connected cloud platforms, and we expect that to continue into the coming years. Third category is what we call our industrial PPE.
The main two product categories I'll talk to here are industrial head protection, where we continue to be number one across the world. We've got a number of products that support this, our iconic V-Gard, as well as some other new launches, including a hat that lowers the body temperature by up to 20 degrees Fahrenheit in heat stress situations that launched last year. Then fall protection. Now, fall protection, you think of wearables, like personal protective, like a harness or a mechanical that attaches to the harness, but there's also a big piece of this business that's related to systems that's really, you know, infrastructure, roofing, et cetera. This has been a business that's grown. It's a very fast-growing category of the safety market, and we intend to continue to innovate in this space, which has been really, really helpful for us.
We recently did an evaluation of our strategy to really look at what we've done well, and also what we believe we can improve on. And that's informed us on how we move forward with our strategic initiatives and focus areas. So these four pillars really represent where we're headed and what we believe the key strategy is that we have. On the left, to continue to be the leader in the premium safety solutions, this is really about those three product categories I talked about. It's ensuring that we focus on the innovation we have and the customer intimacy.
One of the big differentiators for us is our attachment to the customer, our understanding of the customer, and the recognition we live with the customer day in and day out to understand their pain points, which is what leads us to innovate for solutions based on their challenges. The next category is what we call targeted growth accelerators. These are areas that we believe we can compete and win, that are unique and are areas that give us upside as we go forward. Think of connected solutions. This is an area that's somewhat in its early stages or infancy. It's only the last few years. We've got some product categories here and some we believe some really nice technology that we're gonna bring to bear, and we believe this is what the customer is ready for.
Services and solutions is another subset that we're excited by, and we believe that we've got an opportunity for growth. And then M&A. We've seen success over the last few years with some acquisitions we've done. We'd like to get disciplined about doing that on a more routine and consistent manner. Third category is the MSA Business System. We've been implementing and deploying this. I'll talk a little bit more about this here in a second. And of course, allocating capital effectively. We've been strong financial stewards of our capital, and we plan to continue to do so, and we think we're in a good position to grow the business as we do that. So this business system, let me talk a little bit more about that. This is really our behaviors, our processes, and our tools with which we drive our continuous improvement culture.
When we think of our CI culture, it's how we really deliver high performance as an enterprise. We started this journey back in 2012 when I joined, and we started with what we call the operating system. It was operations-focused, lean, principled approach, and then we've expanded that. In the last few years, we've really focused on making this enterprise-wide across all the functions in the organization to really deliver lean, principled cost reduction, improvements, productivity, and utilizing, engaging all of our 5,000-plus associates. That's the journey we're on. We're not finished with this journey. Frankly, you're never done with this journey, but we expect this to be a really nice part of our business success as we look into the future.
With that, I'm going to turn it over to Lee, and he'll talk a little bit more, and then I'll come back up here in a minute. Lee?
We're gonna keep safe up here on the stage. So again, good morning. Thank you. Lee McChesney, privileged to serve as the CFO for MSA Safety. As Steve said, a 110-year anniversary this month. I thought I'd start off with just a little bit of a reminder of how we're looking here for 2024. In the first quarter, certainly we're encouraged with a nice solid start. We had $413 million of sales, nice mid-single digit growth, 21% operating margin, and our EPS grew 18%. We've talked about really for the year, you know, reconfirmation of mid-single digit growth as well. We've said, you know, from an orders perspective, we just said it in our Investor Day, we're still seeing really that nice trajectory, on track.
I can still say that today here, as we also have, you know, a few more weeks of sales in as well. You know, one of the things we shared in coming out of the first quarter is we had a mix of performance within the businesses. Oftentimes within the business, I like to remind people, you know, not to be too overreactive to three months because there can be some cycles in orders. You can see some large orders, and oftentimes, you wanna look at things over a six-month basis. And again, with, you know, this mid-single digit growth outlook, I think you're gonna see all three businesses kind of be at the midway point, you know, really on their normal trajectory that you've seen historically from us.
Now, with that said, you know, we just did an Investor Day, so I'm gonna pivot a little bit towards, you know, what we're seeing, obviously, now, but also as we look forward here. But if I do reflect on, you know, what we did in the last couple of years, what we're on track to do here in 2024, you know, we continue to really deliver some differentiated performance. So let's pivot there and go backwards here a little bit, look over the last 10 years. I think we all, we can all say a lot happened over the past 10 years, whether it's, you know, the pandemic or some of the geopolitical swings. But, you know, this is a little bit of the nature of MSA Safety. Very diverse business, very sticky business we're in, and it performs well.
We've delivered over this time period a nice, solid mid-single-digit growth CAGR. Again, we have businesses that are, you know, nicely diverse, and frankly, we don't have the same cyclicality that a lot of industrials have because of the recurring nature of our business, and, you know, whether it's the traditional way to define that or just the fact that, you know, so many businesses, you begin 10-year relationships based on when you, you know, when you have an initial win, and you continue to work with those customers over an extended period of time. That's the sales side. You know, a lot of work also on operating margin and really across the entire portfolio, whether it was SG&A or our work in gross margin.
So certainly some, some really nice progress here to move from the, you know, the 12.5 type level to, to over 22% over the last 10 years. Our focus on improving the business certainly started in operations. You know, Steve joined us 12 years ago, really bringing the operating model to life, which has become the business system. That's really now spread across the entire organization over the past decade. And again, it, it drives a focus on gross margin improvement in SG&A efficiency, and certainly, I think the numbers show that. And then, with that, so we also shared recently just what we've done from a return on capital employed basis.
You know, we have a business that is a, you know, a lighter capital basis, and then you mix that with, obviously, the financials you see on there. It's a really solid, differentiated type of return in our business here. So what's behind that? So certainly, Steve just talked about the, you know, the business system, but really, you know, it's a nice value creation model we have at play consistently across MSA. So if we start with growth, again, we are in very diverse, resilient markets, and there's just a growing focus on safety across all companies. All of you get to spend time with a lot of different companies, and oftentimes you see them talking about safety more than you ever have in the past.
Everyone's mindset is: How do I protect people more than I did last year? You got to invest in safety. So whether it's traditional PPE that people wear, or some of the things that Steve talked about in terms of really protecting, detecting, and preventing some of these incidents from occurring. Really good model there. Again, innovation is how we solve that. It's not an accident we have this consistent 30%+ vitality. Again, we spend a tremendous amount on innovation and really finding the leading solutions in many of these areas that we focus on. And then certainly, we have some long, embedded commercial relationships. You service your customer well here, they continue to want to work with you. Okay?
From a profitability perspective, certainly the business system has brought everything to life. So whether that's classic productivity, whether that's this built, this, this discipline we've built with pricing, or some of the areas that Steve just talked about in terms of just driving SG&A efficiency, all really coming to life. And then you have some nice things in terms of, like, controlling mix and driving a positive mix. The growth in our detection business has been a nice lift as well to driving margin improvement as well. You bring that all together, very strong balance sheet, and it gives us a lot of optionality. Certainly, you know, we focus on driving organic growth, returns to our shareholders, but then, you know, again, we have this balance sheet. It can really give us a lot of options in the M&A space as well.
So let's just take a minute just to look at that. This is a five-year look at how we have deployed capital. And again, very much, first focus on investing in the business. You know, this, this wonderful balance sheet to leverage enables us to invest at the levels we've spoken about from a driving innovation perspective. You know, it's about a third of what we've done historically. You know, a little bit of a, a larger mix over the last five years towards M&A as well, and we also had our legacy liability divestiture. But if you step back and think about this as you look forward here, very consistent message. About a third of this is going into investing in the business, a third in reinvesting in return to our shareholders.
You've seen that with our recent increase in dividend, our fifty-fourth consecutive increase in dividend at 8.5% most recently. And then we also announced our $200 million share buyback, which we're in the market today activating under to make sure we offset any dilution from our employee compensation programs. And then, again, the last, a third available to invest in non-organic opportunities and innovation. So the, you know, we've this, this situation we're in today is kind of where we've been in the past and certainly our mindset looking forward here.
And the strength of all that capital, you know, that cash flow we have, and then the, you know, the strength of what we have in terms of what we can do from a debt perspective, you know, we're in a very good situation, and the first thing we want to do is continue to invest in our businesses. Again, organic growth certainly drives the highest level of return, but we've also shown an ability to find the right assets and create a ton of value. So where do we do that? Well, certainly, you know, it's in our core businesses. We love those businesses. They've been really a big catalyst for the last 10 years for us, and where you've seen this acceleration of performance.
So, you know, that could be in detection, you know, recent examples like Bacharach, where strong brand, excellent market position in a space we already had experience in. There's other examples like that in detection that we'll certainly participate in. In fire services, again, that could be a geographic opportunity, but then it could also be an extension of you know, what a, what a firefighter uses to, you know, to fight a fire or protect people. And then finally, as, as Steve mentioned, you know, we have this wonderful business in head protection and fall protection. We put a, you know, bigger focus on fall protection. There could be some opportunities there around the world as well. But again, we'll, we'll be very disciplined.
We're looking for leading positions, places where innovation matters, and certainly, you know, we wanna make sure they hit all the financial thresholds as well. So, you know, we're always looking at transactions, but it's, it's gotta fit, it's gotta fit the filter. But again, the nice thing here is we have a very strong balance sheet, and it's been important in the past. We probably have the capability to do even more of that over the next five years as well. So one of the things we did a couple of weeks ago as well, was we did issue 2028 targets, something we had not done in the past. That certainly speaks to not only our confidence level in what we've done historically, but also what we see we can do over the next five years as well.
So, you know, this again, we talked about this consistent mid-single-digit growth, leveraging our market position, and really enhancing a consistent focus on innovation. We've also spoken about a goal of 30-50 basis points of targeting an improvement in operating margin. That would come through both gross margin improvement and continued evolutions within SG&A. And, you know, all that gives us a platform to really deliver an EPS beyond $10. And again, that's all an organic mindset, and certainly with the ability we have in the balance sheet, there's opportunities to enhance that even further. Again, all coming together under this perspective of still driving a return on capital employed of 20%+ while doing this, and you've certainly seen us do that over the last 10 years. So with that said, let me pass you.
Maybe we can do it from here? Just we'll pass back to go from there, and then we'll give Ross some time here.
All right. I forgot, we've got one last slide just to help kind of pull it back together. So just key takeaways we'd like you to think about when you think of MSA is, certainly, we think being mission-driven is a big differentiator for us. It not only matters because of how we drive that mission with our customers, but it really enables us to have top talent. We retain top talent, we attract talent 'cause they're all driven by that mission. They just drive... You know, they really like that purpose that we have, and it helps us from all categories of the business. Leading positions, Lee talked about this, too. We believe they're really attractive and resilient markets. The safety market, the secular trends continue to be really strong, so we expect that to continue, as he just said, over the next time horizon.
Our intent is to continue to innovate based on what the customer's needs are to drive that profitable growth. So it's another piece of that, you know, story of how we think organic is a major driver for, you know, that outgrowth on the profitability. The business system, I think we've talked enough about that, but that is a key lever for us, and what we believe makes us unique in how we're gonna execute going forward. And then the capital allocation. You know, we've got a lot of opportunity to utilize that capital, and we're looking forward to doing so for growth. So with that, I'll hand it to you, Ross.
Thank you for that, gentlemen. Very helpful. Mic's up there.
We're gonna make that recommendation on safety standards, Ross.
Yeah, this is like logistics.
So, you know, MSA had a nice start to the year, where there's generally some uneasiness around broader industrial demand. So can you just maybe provide us an update on where order trends stand through May and what you're seeing across the three segments?
Yeah, I'll. Maybe if you want to add something at the end of this. You know, we've, as we said at the earnings call, we felt like the start of Q2 was good, you know, and that's continued. We were, we were very pleased with what we saw the order pace was in May across both segments. You know, industrial is still choppy. It's not consistent, but the pace of business, across the other two categories has been very strong and really fits what we expected it to be. So we haven't seen anything that changes that, story for the entire year. So I'd say overall, it's pretty good. I don't know if there's anything else on top of that.
Yeah, I'll just reinforce the point that, you know, again, mid-single-digit growth in the first quarter, you saw fire be particularly strong, and then you saw, you know, different trends in detection and industrial PPE. But again, the business can be lumpy. There were some weird comps. I mean, I think as we said all along, when you get through the six months, you're gonna see the businesses really are performing, you know, very much in line with what you've seen historically in the mid-single-digit category.
Mm-hmm. Right.
Well, maybe outside of the macro, I mean, you guys provided what appeared to be pretty credible, 3%-5%, you know, growth targets over the next 5 years. Can you walk us through your R&D roadmap and, you know, how you're thinking about potentially outgrowing that, or maybe any challenges?
The R&D roadmap?
Yeah, just the digital strategy.
It's top secret, Ross. We can't share R&D stuff. No, it's a great question. So we have... You know, one of the things, if I back up, that we've historically done and we continue to do, is we spend a lot of time with the customer. I referenced that a little bit. And we do a lot of VoC, or Voice of the Customer, typically with the customer in the field, doing the jobs they're doing, trying to, you know, really shadow what they do, and that's enabled us over the last decade to innovate in ways that match the needs they have, because when we see a challenge, we try to come back with a solution and say, "Hey, does this address the problem you have?" And doesn't always work, right?
Sometimes it's not a solution that fits, but most of the time, we've gotten some really good wins based on that, you know, like the G1 breathing apparatus and then the M1 breathing apparatus, the harnesses we have. It's the first harness that was custom fit that fits a female construction worker, the same thing with turnout gear. We have that same fit category because we look at the customers and the demographics to try to match those. As we look forward, we're trying to do the same thing. I would reference the ALTAIR io 4 that we recently launched. So the MSA+ is a connected platform we have.
It is a cloud-based solution that ensures that any of our end user customers, as they look to protect their workers, so think of an industrial site, they may have 400 people that need to have one of these individual detection devices, then they are able to monitor all 400 associates, and they have situational awareness for each associate, no matter where they are. It could be on that site, it could be halfway across the world, and they have one individual or a team, however they want to manage it, that can monitor everybody, tell them when to evacuate from wherever they're at, as well as communicate with them or any of any issues, or when they have an alarm or alert, be aware of that. That's based on that customer feedback.
So you're gonna see more product categories like that, especially in detection. You know, again, the easy use is a big deal. So in the old ways of how that industrial customer would monitor these detection devices, they'd have a line. Just think of this, you got a line of people, they got to come in, and they either got their Excel spreadsheet, and they're taking your name: "Hey, Steve, here's your number." And they give you a device, and you walk out, and the next person, et cetera. Well, that takes a lot of time, and inevitably, some of these bigger customers are losing these detection devices, right? They're in the back of trucks or whatever else. But now, our device, you just walk up, you get an RFID, boom!
And you are immediately tagged to you, and it stays to you till you return it. For them, now, it doesn't necessarily help them detect the toxic or flammable gases, but it's easy use for the customer. It allows them to manage their asset and know where it's at and know who it's attached to. So those are things when you spend time in the field, you understand, and you're able to provide those solutions.
Maybe really quick on margins, we have a couple of minutes left here. Just where do you think you are in your MBS journey? And can you maybe help us frame that 30-50 basis points as we think about volume mix and what you guys control yourselves through productivity?
Yeah. Take a shot at that.
Yes. So we've spoken about 30-50 basis points, targeting that type of improvement in operating margin each year. And I say targeting. That's a mindset, again, on all the elements of the business system, you know, from productivity to SG&A to pricing, to driving positive mix as well. You know, we've said you know, that's what we're gonna do, go after each year. We've certainly had some nice momentum over the last several years with our margins. And, you know, one thing we don't control is what happens in the macro environment. But with that said, our mindset is to drive this improvement each year.
You know, that should give us an opportunity that when, you know, if there was an FX environment or some type of geopolitical thing, that we still are in a pretty good position to protect those margins. And absent that, you know, you have continued opportunity to keep driving improvements. But, yeah, we'll focus on what we can control. It's certainly had a nice rally, as we've said a little bit here. You know, the MBS journey is never over. You're always, you know, always looking for those next levels of improvement.
All right, Steve, Lee, thank you, guys. We'll be hosting a breakout session in Jenny B right after this.
All right, great.
Thank you.
Thank you. Absent that, you know, you have continued opportunity to keep driving improvements. But, yeah, we'll focus on what we can control. It's certainly had a nice rally, as we've said a little bit here. You know, the MBS journey is never over. You're always, you know, always looking for those next levels of improvement.
All right, Steve, Lee, thank you, guys. We'll be hosting a breakout session in Jenny B right after this.