Garrett Motion, Inc. Q3 FY2026 earnings call

• Strong Financial Execution: The company delivered strong Q3 results with organic sales growth, margin expansion, and healthy adjusted free cash flow of $136 million (89% earnings-to-cash conversion).
• Turbo Technology Progress: Launched a new high-volume e-turbo with Mercedes; secured multiple light vehicle wins including hybrids and programs for China domestic/export markets; launched a new off-road turbo application with Polaris.
• Industrial Segment Acceleration: Growth in existing power generation programs exceeded expectations. The company raised its outlook for industrial sales to $230 million for 2026 and $300 million for 2027, driven by demand for genset and other power generation applications.
• Zero-Emission Technologies: Completed proof-of-concept tests for high-speed architecture in light vehicle e-powertrains. Heavy-duty commercial vehicle e-powertrain testing is progressing toward a 2027 launch. Industrial cooling testing is on track for 2027 launches.
• New Business Wins: Secured an industrial e-cooling compressor award with new customer Multistack. Continued traction with Trane and Ingersoll Rand for HVAC applications.
• Capital Allocation: Repurchased $57 million of common stock and paid $15 million in dividends. Repaid $50 million of term loan debt, bringing YTD repayments to $100 million. Board authorized a new $250 million share repurchase program for 2027.

Net sales for the third quarter of 2026 were $930 million, representing a 3% organic increase year-over-year. The Adjusted EBIT margin expanded to 16.3%, driven by favorable product mix and strong operating performance. While specific revenue contribution percentages for each segment are not explicitly broken down in the transcript, the Industrial segment is highlighted as a key growth driver, with sales expected to reach approximately $230 million in 2026 and grow to about $300 million in 2027. Commercial vehicle and industrial applications collectively contributed to a robust 23% organic growth rate during the quarter.

• Reaffirmed Midpoint Outlook: Management reaffirmed the midpoint outlook communicated in the Q2 earnings release for all metrics.
• 2026 Full-Year Guidance: Net sales expected at $3.8 billion (4% constant currency growth). Adjusted EBIT expected at $580 million (15.3% margin). Adjusted pre-tax cash flow expected at $430 million (74% conversion).
• Narrowed Ranges: The guidance ranges have been narrowed across all measures, implying higher confidence in the midpoints.
• Offsetting Factors: Strong operational execution is expected to offset foreign exchange headwinds, particularly in the fourth quarter.

• Foreign Exchange Headwinds: Significant unfavorable impact from foreign currency fluctuations, primarily anticipated in Q4, which offsets operational improvements.
• Tariff Impacts: Unfavorable impact from tariff pass-throughs affecting reported net sales.
• Industry Volatility: Uncertainty regarding automotive industry production trends, particularly in Europe and Asia, where market dynamics remain fluid.
• China Market Dynamics: Rapid shifts between domestic and export markets in China create uncertainty in program lifecycles and volume predictions.

Q: Analyst asked for breakdown of $300M industrial sales target between Genset and other verticals, and long-term sizing of contracts like those with Trane/Ingersoll.

A: Olivier Rabiller stated that current industrial sales are mostly Genset-based and will exceed $250M next year. He noted it is too early to size specific long-term contracts due to the dynamic nature of the industry, but confirmed acceleration in launching larger Equilin compressors and securing new customers like Multistack, aiming to become a significant player.