PHINIA (PHIN) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for the first quarter were $796 million, down 7.8% year-over-year, with a 4.1% decrease when excluding foreign exchange impacts and prior year contract manufacturing revenues [9][28] - Adjusted EBITDA was $103 million with a margin of 12.9%, representing a year-over-year decline of 260 basis points [10][34] - Adjusted earnings per diluted share were $0.94, excluding non-operating items [11][31] - The balance sheet remains strong with cash and cash equivalents of $373 million, and total liquidity of approximately $900 million [12][37] Business Line Data and Key Metrics Changes - Aftermarket segment sales decreased by 3.9% year-over-year, primarily due to lower OEM sales [29] - Fuel system segment sales were down 10.2%, or 7.3% excluding prior year contract manufacturing sales, attributed to lower OE sales across all regions [29][32] - Total segment adjusted operating margins were 12.2%, a decrease of 140 basis points year-over-year [10][31] Market Data and Key Metrics Changes - The macroeconomic environment and automotive industry showed signs of slowing, similar to the second half of 2024 [7] - The North American market is experiencing a softening in commercial vehicle (CV) and light vehicle (LV) segments, with expectations of no pre-buy effect in the second half of the year [21][51][120] Company Strategy and Development Direction - The company is focused on long-term profitable growth through capital investment, share repurchases, and dividends [19][20] - There is a commitment to expanding product offerings and capturing new business wins, particularly in alternative fuels and aftermarket segments [15][17][25] - The company aims to navigate near-term uncertainties while maintaining a strong financial position to invest in business and pursue acquisitions [25][72] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by tariffs and macroeconomic conditions but expressed confidence in the company's resilience and ability to adapt [22][25] - The company expects to maintain a strong order board and sees opportunities for growth despite current market softness [51][122] - The effective tax rate for 2025 is expected to be between 38% and 42%, with ongoing efforts to improve it [43] Other Important Information - The company returned $111 million to shareholders through share buybacks and dividends during the first quarter [12] - Capital expenditures were $35 million, representing 4.4% of sales, primarily for new machinery and equipment [40] Q&A Session Summary Question: Impact of tariffs on business - Management indicated that the majority of North American business is USMCA compliant, positioning the company well to manage tariff impacts [48] Question: Changes in production market - Management confirmed a softening in the commercial vehicle market but noted a stable order board and ongoing demand from customers [51][54] Question: FX impacts on guidance - FX headwinds were initially estimated at $80 million but are now closer to $20 million, with expectations of stability for the remainder of the year [59] Question: M&A strategy amid uncertainty - The company remains in a strong cash position and is focused on smaller, cash-flowing tuck-in acquisitions [72] Question: Supplier settlement and standalone costs - Management clarified that the supplier settlement was a one-off headwind and that standalone costs are expected to stabilize [78][84] Question: New product development and commercialization - The company continues to see strong demand for new products and expects to add over 2,000 SKUs annually [114] Question: Customer sentiment regarding tariffs - Management reported no significant changes in customer behavior or delays in development activities due to tariffs [106] Question: Free cash flow and shareholder returns - The company will assess share buybacks each quarter based on cash flow forecasts and market conditions, with a current limitation on repurchases due to a tax manager agreement [128]