Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Martinrea International Inc (MRETF, Financial) achieved a record adjusted net earnings per share of $0.58 and an adjusted EBITDA of $166 million in Q2 2024.
- The company reported an adjusted operating income margin of 6.3%, which is a 30 basis point improvement from the previous quarter.
- Martinrea International Inc (MRETF) has been awarded new business worth $125 million in annualized sales, including significant contracts with major automotive brands.
- The company's North American operations are performing well both operationally and financially, with steady production sales.
- Free cash flow before IFRS 16 lease payments improved significantly to $51.7 million in Q2 2024, compared to negative $1.4 million in Q1 2024.
Negative Points
- The slower than expected ramp-up in electric vehicle (EV) programs has resulted in underutilized capacity across the automotive industry.
- Inflationary cost pressures and tight labor markets continue to pose challenges, despite some improvements.
- Tooling sales declined by over 40% quarter-over-quarter, reflecting a moderation from elevated levels seen in 2023.
- The European segment remains a lower margin segment for Martinrea International Inc (MRETF) compared to North America, with ongoing volume headwinds.
- The company faces continued challenges in negotiating compensation for EV volume shortfalls and ongoing inflationary items.
Q & A Highlights
Martinrea International Inc (MRETF) Q2 2024 Earnings Call Highlights
Q: Can you talk about the performance of the European segment and expectations for the back half of the year?
A: The European segment has faced headwinds, particularly with EV volumes. We benefited from some commercial settlements in the first half, which we expect to normalize in the back half. Europe will generally have lower margins compared to North America, but we have made improvements and restructuring efforts. (Robert Wildeboer, Executive Chairman of the Board)
Q: How do you see the future of commercial recoveries related to EV volumes?
A: We expect commercial recoveries to continue as part of our normal business due to the rocky EV landscape. The run rate for recoveries is similar to the recent past and will remain a part of our business going forward. (Peter Cirulis, Executive Vice President - Aluminum)
Q: How have you managed to maintain your guidance despite lower production forecasts?
A: We have some commercial activities that are lumpy quarter-to-quarter, which help us stay consistent with our guidance. The U.S. SAAR was strong in July, and our operations are running well, contributing to our stable performance. (Peter Cirulis, Executive Vice President - Aluminum)
Q: Is there a path to returning to pre-COVID operating margin levels?
A: Over time, we aim to return to pre-COVID margin levels. Our biggest headwind is inflationary costs, but we are recovering and incorporating these into piece prices. Operational improvements and new model launches will help us achieve this target. (Fred Di Tosto, President, Chief Financial Officer)
Q: How has the bidding process changed post-COVID?
A: The bidding process now includes more dynamics, such as volume protection and capital upfront. Suppliers, including us, are more selective and disciplined, ensuring we hit our hurdle rates. This approach is more disciplined than pre-COVID. (Peter Cirulis, Executive Vice President - Aluminum)
Q: How core is the European business to Martinrea?
A: European customers are important as they are global, but Europe has its challenges. We do not expect the same margin profile as in North America. Growth in Europe would need to be very disciplined and attractive for us to pursue. (Peter Cirulis, Executive Vice President - Aluminum)
Q: What is the production visibility for key programs with OEMs, and is there potential for extended summer shutdowns?
A: We do not expect significant changes in summer shutdowns. Any adjustments would likely occur in December. Volumes have been relatively stable, and the stability this year is better than in previous years. (Peter Cirulis, Executive Vice President - Aluminum)
Q: What are the key opportunities to improve margins in 2025?
A: Operational improvements, recovery of volume problems, and resolving inflationary issues are key opportunities. Extensions of ICE programs due to EV shortfalls also offer opportunities to reprice products and improve margins. (Fred Di Tosto, President, Chief Financial Officer)
Q: What is your forecast tax rate for the year?
A: The Mexican peso exchange had a significant impact on our effective tax rate in the quarter. We expect this impact to carry forward into the second half of the year, resulting in a higher tax rate. (Peter Cirulis, Executive Vice President - Aluminum)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
