Garrett Motion Inc. Q2 FY2025 earnings call

• Delivered solid second quarter financial results with net sales of $913 million, adjusted EBIT of $124 million, and adjusted free cash flow of $121 million. • Raised 2025 outlook to reflect euro-dollar exchange rate. • Repurchased $22 million of common stock and paid a $12 million quarterly dividend in the second quarter, with the Board declaring the third quarter dividend. • Secured over $1 billion of light vehicle program extensions in Q2, including wins for range extended electric vehicles, E-Turbo in Europe, and on/off-highway commercial vehicles. • Made progress on zero-emission technologies: secured proof-of-concept award for E-Powertrain, growing interest in commercial vehicle E-Powertrain, strong traction in E-Cooling for industrial nonautomotive cooling, and a significant fuel cell compressor award. • Inaugurated a new state-of-the-art R&D center in Wuhan, China.

Net sales for the second quarter were $913 million, flat at constant currency. Gasoline turbo sales grew by 4% in the quarter, outperforming the industry. Diesel sales were soft due to lower industry production in Europe and lower demand for aftermarket applications in North America. There was a $14 million tariff recovery within the quarter. Adjusted EBIT was $124 million with an adjusted EBIT margin of 13.6%, including 30 basis points of margin rate dilution from tariffs. Adjusted free cash flow was $121 million for the quarter. Gasoline contributed through strong growth and outperformance, while diesel and aftermarket had softness but were offset by tariff recoveries and foreign currency impacts. Revenue contribution: Gasoline showed strong growth and outperformance, diesel was soft, and tariffs provided a recovery element.

• Raised 2025 outlook to reflect euro-dollar exchange rate. • Midpoints for 2025: net sales $3.5 billion, net income $256 million, adjusted EBIT $500 million, net cash provided by operating activities $410 million, adjusted free cash flow $370 million. • Foreign exchange expected to drive 70 basis points of rate improvement. • Impact of full tariff recovery expected to drive 20 basis points of margin dilution for the year. • Continues to be alert to slowing demand and ready to take measures if necessary.

• Risks related to the automotive industry, competitive landscape, macroeconomic and geopolitical conditions. • Risks related to tariffs and their impact on margins, but expect to fully recover tariff costs as achieved so far.

Q: Could you just talk a little bit about this unfavorable sales mix and how you're adjusting the business for such an environment?

A: Unfavorable sales mix is due to fast growth in gasoline (lower margin rate) and softness in aftermarket/off-highway (more in North America). Adjusting with fixed cost actions and variable cost productivity.

Q: You ended the quarter with significantly more cash. Any reason why you didn't buy back more stock?

A: Buyback is not linear; committed to returning 75% or more of cash over time to shareholders, and buyback is a tool to return value but not linear.

Q: If you could help us understand some of the drivers of your stronger operating performance in the second half, especially with the volume assumptions roughly unchanged?

A: Continue to benefit from cost control; latest S&P estimate shows more favorability, could trend toward upper end of range if volumes stabilize, but been conservative in guide due to tariff impact.

Q: Do you guys still expect to be able to fully recover your tariff costs this year?

A: Absolutely, expect to fully recover, have tools in place and have been recovering since the beginning.

Q: In terms of these large turbos for backup data center, AI and whatnot, is that -- can you give us a sense of when you think that business or if you think that business will ever get to as much as 10% of revenues? And then the second question is really digging a little bit further on the linearity comments on stock repurchase.

A: Large turbos for backup data center will be in hundreds of millions of dollars within 3 - 5 years; buyback is not linear, committed to capital allocation framework of returning 75% or more of free cash flow to shareholders.