Gentherm (NasdaqGS:THRM) Q3 2025 Earnings Call October 23, 2025 08:00 AM ET Speaker0Ladies and welcome to the Gentherm Third Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gregory Blachett, Senior Director, Investor Relations.Thank you, sir. You may begin.Speaker1Thank you, and ...

Market Performance - The Dow Jones Industrial Average (DJIA) showed resilience, initially gaining 100 points (0.2%) before closing with a modest decline of 0.1% [2] - The S&P 500 (SPX) followed a similar pattern, gaining 0.4% early on and closing up 0.2% [2] - The Nasdaq Composite (IXIC) performed best, advancing 0.7% in the morning and finishing up 0.6% for the day [2] Tariff Developments - A looming 100% tariff on Chinese goods, particularly due to rare earth export controls, caused the S&P 500 to decline by 1.8% and the Nasdaq 100 by 2.4% [3] - US Treasury Secretary announced that 85 senators are prepared to authorize tariffs of up to 500% on China for purchasing Russian oil, which could disrupt supply chains [4] - The automotive sector is facing a 100% tariff on Chinese electric vehicles, with analysts suggesting manufacturers may reroute products through Mexico [5] Agricultural Sector Impact - President Trump’s consideration to terminate business with China regarding cooking oil led to significant gains in oilseed and related agriculture stocks, with Australian Oilseeds Holdings surging over 260% [6] - Despite the tariff threats, the actual impact on cooking oil commodities is expected to be minimal due to already decreased Chinese shipments [6] Furniture Tariffs - New furniture tariffs ranging from 30% to 50% took effect on October 14th, causing shares of import-reliant retailers like RH and Wayfair to dip, while domestic manufacturers like La-Z-Boy saw modest gains [6] Inflation and Consumer Impact - President Trump declared inflation "over," while 75% of Americans report soaring prices, with tariffs costing the average household $191 per month [11] - Goldman Sachs predicts that US consumers will absorb 55% of tariff costs by year-end, potentially reaching 70% by the end of next year [11] Geopolitical Developments - Trump's announcement of a second meeting with Putin regarding the Ukraine war and India's commitment to stop Russian oil purchases added uncertainty to the market [8] - The market reacted minimally to Trump's threats of strikes on Venezuela, indicating a high tolerance for geopolitical brinkmanship [9] Cryptocurrency Ventures - Eric Trump announced a "Real Estate Tokenization Initiative," but the market for World Liberty Financial tokens has seen a decline of 39.11% over the last 90 days [10] - Bitcoin traded at $108,800, down from a Thursday high of $112,000, reflecting the volatility associated with Trump's announcements [10]

Core Insights - The ongoing earnings season presents opportunities for investors, particularly in stocks with strong cash levels, as cash is essential for a company's resilience and financial health [1][3][4] Group 1: Importance of Cash Flow - Companies can be profitable yet face cash flow issues, leading to potential bankruptcy if profits are not managed properly [3] - Positive cash flow indicates an increase in liquid assets, enabling companies to meet obligations, reinvest, and return wealth to shareholders [5] - Increasing cash flow is crucial for future growth, reflecting management's efficiency and reducing reliance on external financing [6] Group 2: Screening Criteria for Stocks - Stocks were screened for those with cash flow in the latest quarter at least equal to the 5-year average, indicating a positive trend [7] - Additional criteria included Zacks Rank 1, average broker rating of 1, current price above $5, and a VGM Score of B or better [8] Group 3: Selected Stocks - Sumitomo Corporation (SSUMY) has a VGM Score of B, with a 4.1% increase in fiscal 2026 earnings estimate [9][10] - Mission Produce, Inc. (AVO) has a VGM Score of B, with a 13.6% upward revision in fiscal 2025 earnings estimate [10] - Flexsteel Industries, Inc. (FLXS) holds a VGM Score of A, with a 5.5% increase in fiscal 2026 earnings estimate [11] - FreightCar America, Inc. (RAIL) has a VGM Score of A, with a 14.9% increase in current-year earnings estimate [12]

Group 1: Tariffs and Market Reactions - Trump announced a 100% tariff on foreign films and new duties on lumber and furniture, aiming to protect domestic industries, which led to negative market reactions from major streaming and production companies [2][3] - Shares of Netflix and Amazon fell by 1.5%, while Warner Bros Discovery and Paramount dropped by 1.1% and 1% respectively, indicating immediate market concerns over the enforceability of these tariffs [3] - The furniture and lumber industries are facing significant tariffs, with 10% on imported timber and 25% on kitchen cabinets and upholstered furniture, set to increase by 2026, causing stock declines for companies reliant on imports like Wayfair and Restoration Hardware [4][5] Group 2: Domestic Manufacturing Gains - Domestic manufacturers such as La-Z-Boy and Ethan Allen saw stock gains, with Ethan Allen up 5% year-to-date, benefiting from the tariffs imposed on foreign competitors [5] - The U.S. Lumber Coalition supported the new tariffs, while Canadian lumber producers face high total tariff rates of 45%, leading to reduced shipment targets and weaker earnings [5] Group 3: Government Shutdown and Market Indices - The U.S. government experienced a partial shutdown, yet major market indices like the Dow Jones and S&P 500 rose, indicating resilience in the face of political turmoil [9][10] - Historically, markets have shown the ability to weather government shutdowns, often viewing them as minor disruptions rather than significant economic threats [10] Group 4: Agricultural Aid and Market Impact - Trump announced a substantial aid package for U.S. soybean farmers, estimated between $10 billion and $14 billion, which positively affected soybean futures [11] - The aid is seen as a response to the trade tensions with China, where soybean purchases have been halted, highlighting a circular economic model where tariff revenue is used to mitigate damage from tariffs [11] Group 5: Geopolitical Factors and Market Behavior - Trump's foreign policy announcements, including a "zero-enrichment policy" for Iran and a ceasefire agreement in Gaza, have historically led to predictable market reactions, such as falling stocks and rising oil prices [7][8] - Despite initial market jitters, these geopolitical events often result in short-lived impacts, with markets quickly recovering as investors compartmentalize global crises [8]

Group 1 - President Trump announced plans to impose substantial tariffs on countries that do not manufacture furniture in the United States, aiming to revitalize the domestic furniture industry, particularly in North Carolina [1][2] - Trump also threatened a 100% tariff on movies produced outside the United States, claiming that the U.S. film industry has been adversely affected by foreign competition [2][4] - The announcement has led to a decline in Netflix's stock by 1.3% in premarket trading, reflecting investor concerns over the uncertainty surrounding the proposed tariffs [3] Group 2 - The proposed tariffs on foreign films and furniture have raised questions about their implementation and valuation for duty-collection, given the global nature of film production and the complexities involved [5][6] - Trump has already enacted a 30% tariff on upholstered furniture and a 50% import tax on kitchen cabinets and bathroom vanities, effective from the upcoming Wednesday [6]

Group 1 - President Trump announced a plan to impose a 100% tariff on foreign-made films and substantial tariffs on countries that do not manufacture furniture in the United States [1][4] - The rationale behind these tariffs is to address the perceived loss of California's movie-making business and North Carolina's furniture industry to foreign competitors [2][3] - Trump previously made a similar threat regarding tariffs on foreign films in May, but the White House had softened its stance at that time, leaving the current situation unclear [3][4] Group 2 - The proposed tariffs are part of a broader strategy to reverse the decline in domestic industries, particularly in film and furniture manufacturing [2][3] - Trump's statements reflect a continued focus on protecting American industries from foreign competition, likening the loss of the movie business to "stealing candy from a baby" [3] - The lack of clarity on the implementation of these tariffs raises questions about the actual impact on the industries involved [1][4]

Market Overview - The S&P 500 is attempting to hold the 6,600 level, which is significant as it is close to the 20-day moving average, a key support area since the tariff announcements [2][4] - Recent market activity indicates a rotation towards more defensive positioning, with profit-taking observed [4] Tariff Implications - The U.S. government is set to implement 100% tariffs on all branded prescription drugs, excluding generics, which may benefit companies like Eli Lilly and JNJ that are expanding manufacturing in the U.S. [6][8] - The pharmaceutical industry imported approximately $213 billion worth of prescription drugs in 2024, indicating a substantial impact from the new tariffs [9][10] - If generics are included in future tariff considerations, it could negatively affect both consumers and manufacturers, as generics are a significant volume driver for profitability [9] Industry-Specific Impacts - The furniture sector is facing 50% tariffs on kitchen cabinets and bathroom vanities, and 30% tariffs on upholstered furniture, primarily affecting imports from China and Vietnam [12][13] - Heavy-duty trucks are subject to 45% tariffs, which may not have an immediate impact due to a decline in demand over the past few years [14][15] TikTok Deal Developments - The Trump administration has approved a deal involving TikTok, with the entity valued at around $14 billion, significantly lower than market expectations [17][18] - The deal includes Oracle and aims to secure U.S. data and algorithms, which is seen as a significant achievement for the administration [16][18]

Group 1 - Asian share markets experienced a significant selloff, particularly in drugmakers and furniture makers, following the announcement of new tariffs by U.S. President Donald Trump [1][5] - The new tariffs include a 100% duty on branded drugs and a 25% tariff on heavy-duty trucks, effective from October 1, which could impact global drugmakers and manufacturers [1][4] - Companies like Paccar-owned Peterbilt and Kenworth, as well as Daimler Truck-owned Freightliner, may benefit from the tariffs on heavy-duty trucks [4] Group 2 - The Trump administration's trade deals with Japan, the EU, and the UK include provisions that cap tariffs for specific products, which may limit the impact of the new tariffs on certain sectors [3] - Global drugmakers are proactively increasing their U.S. manufacturing capacity and domestic inventory in response to the new tariffs [3] - The market is currently pricing in approximately 39 basis points of easing by December, reflecting a shift in expectations regarding U.S. interest rate cuts due to tariff-related inflation concerns [6]

Core Insights - The company reported improved earnings and steady sales growth in Q2 2025, with total sales increasing by 5% year-on-year to DKK 349 million, and organic growth of 3% [1][8] Sales Performance - Sales growth was observed in both B2B and B2C segments, although order intake slowed in the second quarter, particularly in the B2C segment due to weakening consumer confidence and retail spending [2] - The B2B segment saw a decline in project orders, while orders from housebuilders showed a positive trend [2] Financial Metrics - The gross margin increased to 23.7% in Q2 2025, up from 21.5% in Q2 2024, attributed to higher average selling prices and stable input costs [3] - Adjusted EBIT rose by 20% from DKK 28.0 million in Q2 2024 to DKK 33.6 million, with an adjusted EBIT margin of 9.6%, compared to 8.4% in the same period last year [3][8] - Free cash flow improved to DKK 32 million in Q2 2025 from DKK 26 million in Q2 2024, driven by higher earnings and improved net working capital [4][8] Strategic Developments - The company agreed to acquire the remaining 55% of online retailer Celebert ApS, following the majority shareholder's decision to exercise its put option, indicating confidence in Celebert's growth trajectory [5] - Full-year revenue guidance for 2025 has been narrowed to DKK 1,250–1,300 million, with adjusted EBIT expected in the range of DKK 90–110 million [6]

Company Overview - TCM Group A/S is Scandinavia's third largest manufacturer of kitchens and furniture for bathrooms and storage, with products designed and produced in Denmark [3] - The company operates a multi-brand strategy, with its main brand being Svane Køkkenet, alongside Tvis Køkken, Nettoline, and AUBO, catering to a wide price spectrum [3] Financial Outlook - TCM Group has narrowed its financial guidance for 2025, projecting full year revenue in the range of DKK 1,250–1,300 million, down from a previous range of DKK 1,250 – 1,325 million [1] - The adjusted EBIT forecast for 2025 has also been revised to DKK 90–110 million, compared to the earlier estimate of DKK 90–115 million [1] - This guidance assumes full ownership of Celebert toward the end of the year [2]