PHINIA Inc. Q1 FY2026 earnings call

The first quarter developed largely as expected with solid revenue growth from both fuel systems and aftermarket. Maintained a healthy balance sheet while paying dividends and repurchasing shares. Hosted a successful Investor Day in New York. Had good progress in new business, including winning business in aerospace and defense, with a new program for an unmanned aerial drone leveraging GDI injector technology. Notable wins across fuel systems and aftermarket channels. Aftermarket business continues to be a steady contributor with consistent demand driven by an aging fleet and growing vehicle park, and recent wins across diverse geographies.

In the first quarter, the fuel system segment had sales of $549 million, up 12%, with an adjusted operating margin of 9.3%. The aftermarket segment had sales of $329 million, up 7.5%, with an adjusted operating margin of 17%. Total net sales in the quarter were $878 million, up 10.3% from the same period of the prior year. Excluding FX impacts and the contribution of SEM, revenue was up 3.6%. Adjusted EBITDA was $115 million for the quarter, up $12 million, and a margin of 13.1%. Total segment adjusted operating income was $107 million with a 12.2% margin. Adjusted earnings per diluted share, excluding non-operating items, was $1.29 for the quarter, compared to 94 cents in the same period of the prior year, a 37% increase year over year.

Reiterate the four-year guidance issued earlier this year. At the midpoint of the revenue outlook range of $3.5 to $3.7 billion, expect an increase in net sales in the mid-single-digit range inclusive of FX. Excluding expected FX, growth is projected to be in the low single-digit area. Guide adjusted EBITDA to be $485 to $525 million, with an EBITDA margin of 13.7 to 14.3%. Expect adjusted free cash flow to be $200 to $240 million in 2026.

Q: Joseph Spack from UBS asked about the negative mix weighing on EBITDA and details on products driving it, and about green shoots in commercial vehicle and IEPA-related tariffs.

A: Joe said it mainly resides in fuel systems with programs not at full ramp, saw positive signs in commercial vehicle orders, and IEPA-related tariffs were about $40 million with expectation of flowing back to OE customers.

Q: Bobby Brooks from Northland Capital Markets asked about the drone engine program, SG&A increase, and tariff recoveries.

A: The drone program is for commercial production with a defense engine manufacturer, SG&A increase due to bonuses and management tranches with some IT cost reductions offsetting, and tariff pass-through expected to be flat going forward