PHINIA INC. Q4 FY2024 earnings call

• New business wins: Second product win in aerospace and defense, key contract extension with medium-duty engine manufacturer, Light Vehicle GDi program extension for South America, aftermarket wins in Europe and South America, and introduction of over 3,600 SKUs for aftermarket customers.
• Segment performance: Total segment adjusted operating margins were 12.8%, a 20 basis point improvement from Q4 2023. Aftermarket segment margin decreased 140 basis points to 14.9% due to increased freight, while Fuel Systems segment margins were strong at 11.4%, up 110 basis points year-over-year.
• Financial position: Strong balance sheet with cash and cash equivalents of $484 million, up from $365 million at year-end 2023. Returned $35 million to shareholders via share buybacks and dividends in Q4, and increased share repurchase program by $200 million and raised dividend by 8% in 2025.

In the fourth quarter, net sales were $833 million, down 5.6% from the prior year. The Aftermarket segment had a year-over-year increase of 4.9% due to higher volume and pricing, while the Fuel Systems segment sales were down 11.7% including prior year contract manufacturing sales or 7.7% excluding. For the full year, adjusted sales were $3.38 billion, down 2%, with Fuel Systems down 6.1% and Aftermarket up 4.5%. Revenue contribution: combined commercial vehicle markets totaled 39% of revenues, OES and independent aftermarket was 34%, and LPV OE was 27%.

• 2025 net sales range expected to be between $3.23 billion and $3.43 billion, including a negative ~$80 million impact from foreign exchange.
• Adjusted EBITDA projected to be $450 million to $490 million with an EBITDA margin of 13.7% to 14.5%.
• Anticipates industry trends similar to 2024 with light vehicle ICE sales down in low single-digit range globally and CV sales up in low to mid-single-digit range varying by region. Projections exclude ramifications of new US administration policy changes.

• Macroeconomic and industry softness impacting top line. - Exchange rate headwinds with a stronger US dollar affecting over 60% of sales generated outside the US. - Challenges in unwinding legacy tax structures leading to a higher effective tax rate than targeted. - Potential impact of US administration policy changes (tariffs, tax reform) on revenue and cost base.

Q: Could you give more color on CapEx associated with new programs and if they could help lift margins going forward?

A: Brady Ericson said CapEx full year was just over 3%, spread globally, supporting new launches. Chris Gropp added it's related to CV pre-buys, existing program improvements.

Q: Why does the tax rate remain high and any impact from global minimum tax?

A: Chris Gropp said it was due to carryover from old structure, Phase 1 to eliminate inefficiencies taking longer, and working on Phase 2 and 3 to address tough structural regions.

Q: Thoughts on potential M&A for growing CV and aftermarket?

A: Brady Ericson said looking for profitable assets that add EPS, undervalued, and expect to announce deals in next few quarters.

Q: Where might weakness in guidance come from and upside?

A: Brady Ericson said downside risk is CV rebounding not as strong in second half; upside could be stronger global markets, weaker dollar, or aftermarket new opportunities.

Q: Tariff-related impact on customers' decision-making?

A: Brady Ericson said customers were regionalizing supply base, tariffs could affect consumers and volumes; Chris Gropp added little exposure to China tariffs for revenue.