Garrett Motion (GTX)2024-07-25 14:56Financial Data and Key Metrics - Net sales decreased by 12% on a GAAP basis and 10% at constant currency, driven by industry softness across all verticals and regions except for aftermarket, which increased by 7% [7] - Adjusted EBITDA margin improved to 16.9%, up 40 basis points sequentially, despite a $121 million decrease in reported net sales [28][32] - Adjusted free cash flow was $62 million, impacted by a $52 million change in working capital, with expectations of improvement in the second half of the year [13] - Full-year adjusted EBITDA midpoint revised to $608 million, reflecting lower production in light and commercial vehicle industries [34] Business Line Performance - Gasoline and diesel products sales decreased by 15% and 14%, respectively, impacting net sales by $107 million [1] - Commercial vehicle sales decreased by 2% at constant currency, but increased to 18% as a percentage of net sales, driving favorable mix dynamics [1] - Aftermarket business increased by 7% at constant currency, contributing $8 million to net sales and comprising 14% of total sales [1] - Zero-emission vehicle technology saw significant progress, with a first series production contract secured for fuel cell compressors in commercial vehicles [12] Market Performance - Industry softness was observed across all regions except for aftermarket, which showed growth [7] - China experienced a strong price war in the light vehicle gasoline and hybrid segment, impacting volumes for both global and local brands [42] - Europe and Korea also faced weak market conditions, with commercial vehicle and off-highway segments underperforming [46] Strategic Direction and Industry Competition - The company continues to focus on zero-emission vehicle technologies, dedicating 60% of R&D spending to this area [44] - Significant progress was made in securing predevelopment contracts for high-power centrifugal compressors and E-Powertrain solutions for commercial vehicles [30][50] - The company remains the number one turbo player in the industry, with continued momentum in both core turbo and zero-emission technologies [29][77] Management Commentary on Operating Environment and Future Outlook - Management highlighted the company's ability to adapt to volatile market conditions, delivering strong operational performance despite lower sales volumes [28][47] - Commodity deflation is expected to continue, with a 2% organic decline in net sales but no impact on adjusted EBITDA due to pass-through mechanisms [2] - The company remains confident in its ability to generate cash flow and deliver operating strength across all economic cycles [15] Other Important Information - The company returned significant value to shareholders, repurchasing $174 million in stock in the first half of 2024 and reducing debt by $394 million since the beginning of last year [6][11] - Foreign exchange had an unfavorable impact of $18 million year-over-year, primarily due to fluctuations in Asian currencies [1][22] Q&A Session Summary Question: Impact of commodity deflation and FX on revenue - Commodity deflation impacts sales but results in higher margins, with a one-quarter delay in pass-through to customers [23][24] - FX impact was mainly seen in the Korean won, Japanese yen, and Chinese renminbi, with the euro remaining stable [22] Question: Demand dynamics in Europe and China - The demand drop in China is influenced by a price war in the light vehicle gasoline and hybrid segment, affecting both global and local brands [42] - Europe and Korea also face weak market conditions, with commercial vehicle and off-highway segments underperforming [46] Question: Participation in hybrid and zero-emission vehicles - The company is actively participating in hybrid platforms, with immediate impact, while zero-emission vehicle cycles are longer [43] - Significant progress has been made in securing predevelopment contracts for zero-emission technologies [12][50] Question: Outlook for commodity costs and FX - Commodity costs are expected to continue declining, with a one-quarter delay in impacting revenue [23] - FX impact is mainly seen in Asian currencies, with the euro remaining stable [22]