PHINIA Inc. Q4 FY2025 earnings call

• Brady Ericson started by discussing the solid finish to 2025 despite a dynamic macro environment, highlighting the resilience of the business due to diversification. - Noted changes in segment recasting related to Fuel Systems and Aftermarket segments, including OES sales redistribution and enhanced end market breakdown. - Fourth quarter net sales were $889 million, up 6.7% year-over-year. Adjusted EBITDA was $116 million, up $6 million. - Highlighted wins in various markets including aerospace and defense, commercial vehicles, and alternative fuels. - Discussed capital allocation, having repurchased 9.8 million shares since spin, returned over $500 million to shareholders, and announced an 11% dividend increase and $150 million share repurchase program increase. - Mentioned significant milestones in 2025 including first acquisition, aerospace quality certification, and strong financial performance.

For the fourth quarter, the Fuel Systems segment had sales of $560 million, up 7.9% with an adjusted operating margin of 10.7%. The Aftermarket segment had sales of $329 million, up 4.8% with an adjusted operating margin of 15.8%. For the full year, Fuel Systems revenue increased 3.3% with a 40 basis point increase in adjusted operating margin. Aftermarket segment sales were up 2.7% for the full year, with margins of 15.2% (down 30 basis points) primarily due to tariff recoveries. Fuel Systems' full year segment AOI was $244 million, an increase of $16 million, while Aftermarket's segment AOI was impacted by tariff recoveries.

• For 2026, net sales are expected to be in the midpoint of $3.5 to $3.7 billion, with mid-single-digit growth inclusive of FX and low-single-digit growth excluding FX. - Adjusted EBITDA is guided to be $485 million to $525 million with an EBITDA margin of 13.7% to 14.3%. - Adjusted free cash flow is expected to be $200 million to $240 million. - The adjusted effective tax rate should be in the 30% to 34% range.

• Risks related to macroeconomic and industry uncertainties, including dynamic market conditions. - Exposure to tariffs, geopolitical tension, and shifting policy landscapes which could impact operations and costs. - Potential impact of future policy changes by governments on operations or technical centers, including additional tariffs or taxes.

Q: Bobby Brooks asked about guidance, specifically regarding commercial vehicle for Europe being the industry overall and hurdles preventing more robust margin expansion.

A: Chris Gropp responded that margin expansion of 20% incremental is good, considering FX and tariff factors.

Q: Bobby Brooks asked about the aerospace and defense supply contract, whether it's with the same customer.

A: Chris Gropp said it's the same customer.

Q: Bobby Brooks asked about the timeline for the third aerospace and defense supply contract to start.

A: Chris Gropp said it's slated to start in July 2027.

Q: Joseph Spak asked about revenue guidance, adjusted EBITDA margins, and input prices.

A: Chris Gropp discussed tariff and FX impacts and input prices being mostly copper and aluminum with minimal impact on margins.

Q: Jake Scholl asked about the industrial mix growth drivers and capital allocation priorities.

A: Brady Ericson talked about growth in marine, off-highway, gensets, ag, construction, and aerospace, and capital allocation focusing on maximizing shareholder value with share repurchases and opportunistic M&A.

Q: Drew Estes asked about 2026 volume assumptions and competitors' behavior.

A: Brady Ericson discussed market volume expectations and continued market share gains in GDI despite market flatness, noting competitors' de-emphasis on ICE-related programs.