Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hammond Power Solutions Inc (HMDPF, Financial) achieved record all-time shipments for the sixth consecutive quarter.
- The company opened a new factory in Mexico on time and on budget, enhancing production capacity.
- Sales growth increased by 14% compared to the same quarter in 2023.
- Strong bookings in the second quarter, with the second highest month of new orders ever in April.
- The company received Great Place to Work certification in Canada, the United States, and India, highlighting a positive workplace culture.
Negative Points
- Some facilities are operating close to or at capacity, limiting the ability to grow the top line more quickly.
- Standard product sales cooled in the United States in June, reverting to more normal levels.
- India's volume was impacted by lower renewable and export shipments.
- Margin headwinds due to the price of copper surpassing $5 in May and unabsorbed overhead from the new factory in Mexico.
- Selling and administrative expenses increased by 8.6% in the second quarter due to higher volumes.
Q & A Highlights
Q: Can you break down whether the cooling of standard transformer bookings from April to June is due to competition, the election cycle, or industry-wide demand? How does demand look over the next one to two years?
A: The cooling is primarily due to general economic conditions. We saw significant activity in April and May, which was out of sync with the economy. June's order intake was more normal. We expect the commercial market to remain stable for the rest of the year, with no significant growth anticipated. (Adrian Thomas, CEO)
Q: Should we expect US revenue growth in the back half of the year to be similar to the first half, considering price increases, growth in distribution, and custom demand?
A: We are nearing full capacity at certain facilities, and additional capacity will come online early 2025. Shipping around $200 million a quarter is likely, with minor fluctuations. (Richard Vollering, CFO)
Q: Can you help us understand the 30 basis point sequential improvement in margins this quarter?
A: The improvement is due to a combination of factors, including price increases, which offset the impact of higher copper prices and unabsorbed overhead from the new factory in Mexico. (Richard Vollering, CFO)
Q: Are there any changes in competition or new capacity additions from competitors?
A: We have seen announcements around liquid fill capacity increases but no significant changes in dry type transformers from competitors. (Adrian Thomas, CEO)
Q: What are you seeing in terms of quotation levels and win rates?
A: We see diverse project work across multiple industries, including hospitals, industrial projects, infrastructure, and data centers. We are effectively targeting projects we can win and have capacity to serve. (Adrian Thomas, CEO)
Q: What impact will the start-up costs in Mexico have on margins for the rest of the year?
A: The start-up costs will continue to have a minor negative impact in Q3 and possibly into Q4, but we expect this to clear up by early next year. (Richard Vollering, CFO)
Q: Are there any other reshoring opportunities for the company in the future?
A: We see opportunities for reshoring to win business by having a strong manufacturing presence in North America, particularly in industrial activity. (Adrian Thomas, CEO)
Q: Should we expect margin headwinds as the new capacity for larger power transformers ramps up in early 2025?
A: The payback for this capacity should be quicker, measured in one or two quarters, as it involves adding equipment and people to existing facilities. (Richard Vollering, CFO)
Q: Can you start booking orders against the new capacity for larger transformers now?
A: Yes, we plan to utilize the new capacity as soon as it comes online to avoid idle time. (Richard Vollering, CFO)
Q: What are your plans for future capacity expansions?
A: We believe there will be a continued need for transformers and electrical equipment. We continually evaluate the timing for new capacity investments, considering long-term demand. (Adrian Thomas, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
