Martinrea International Inc.

 

Martinrea is a global manufacturer of parts for automotive customers operating in the same industry as Linamar and as such its valuation is also suppressed by fear of a rollover of the U.S. auto sector.  Martinrea has grown through acquisition (it has not been painless) but more recently they have not been growing as they focus on improving their operations and margins.  Their lower revenue growth and challenges they had in the past likely explains the valuation discount, improved results and growth could see this discount whittled away as investors regain confidence in the company.  One interesting area for Martinrea is its focus on products to reduce vehicle weight, light weighting, which will be in high demand for hybrids and electrics.  Of note, the company reports total revenues and operational revenues which exclude sales of tooling equipment which can swing the top line but they are not profitable.  The company has made solid progress on reducing its debt levels and how has a solid balance sheet.  Fears of trade wars and tariffs and potential supply chain disruption are weighing on the stock and the group. For reference, the company’s facility breakdown by square footage at the end of FY17 is 33% U.S., 15% Canada, 22% Mexico, 22% Europe, 8% ROW (Brazil and China). Their 4 largest facilities representing 35% of total square footage are in Europe and the U.S.  Approximately half of their North American revenue comes from the U.S. and Canada represents less than 20% of total revenue.  Management maintain more than 90% of their NA product is shipped to a customer in the same country.

 

Owns 22% of NanoXplore (~$279m)

 

Ests:     3Q24   4Q24   FY24    FY25

Revs    1.27b   1.46     5.23b   5.38b

EPS      .47       .42       2.09     2.41

 

P=10.82, Div=.20, yield=1.8%, net debt 820m, solid 200m in non-cash NWC, D/C=35%, TTM EPS=1.94, P/E=5.5X

 

3Q24 .44 vs .68, ex .25 non-cash tax revaluation due to fx, est .47 down from .55

  • Nov 12, 2024, P=10.82, TTM EPS=1.94, P/E=5.5X

  • Operational Revs -6.4% to 1.17bn, Revs -10.3% to 1.24bn (est 1.27bn), GM 13.2% vs 13.1%, OM 5.3% vs 6%, Adj OpInc -20.6% to 65.9m, Adj EBITDA -5.7% to 154.1m (est 154.2m)

  • New business 35m, OCF 131.9m vs 153.2m, FCF incl leases 43.9m vs 68.6m, YTD 68.5m vs 40.8m or YTD 107.4m vs 75.5m ex leases

  • Expect FY24 FCF at high end of their 100-150m range, “potentially even better”

  • Expect 4Q prodn down q/q with inventory reductions

2Q24 .58 vs .62, est .60 down from .65

  • Aug 6, 2024, P=10.51, TTM EPS=2.18, P/E=4.8X

  • Operational Revs -1.7% to 1.23bn, Revs -4.4% to 1.3bn, GM 14.1% vs 12.8%, OM 6.3% vs 6.1%, OpInc -1.1% but EBITDA +3.4%

  • New business 125m, repurchased 2m shares or approx. 2.5% of shares outstanding

1Q24 .62 vs .54 +14.8%, est .56 down from .65

  • May 2, 2024, P=11.35, TTM EPS=2.30, P/E=4.9X

  • Operational Revs +1.4% to 1.257bn, Revs +1.5% to 1.3bn, GM 13% vs 12.8%, OM 6% vs 5.8%, adj EBITDA +6.8% to 162.8m

  • FCF (1.4m) vs (31.5m), repurchased 1.35m shares for 15.9m

  • New business 30m, 150m replacement business

4Q23   .37 vs .58 -36%, est .42 down from .57, FY23 EPS +26% to 2.22

  • Feb 29, 2024, P=13.90, TTM EPS=2.22, P/E=6X,

  • Operational Revs -0.4% to 1.168bn, Revs +0.1% to 1.296bn GM 11.8% vs 12.2%, OM 4.4% vs 5.4%, OpInc -20%, EBITDA -6%, FCF record 119.9m

  • Results impacted by strike as expected, also Tier-2 supplier issue hit OM by 70bps (EPS approx. .09), restructuring in Germany to align with OEM volumes

  • New business 75m, 375m in FY23 plus 375m replacement business for GM’s next gen light-duty truck

  • FY24 Outlook Revs 5-5.3bn (vs 5.34bn), OM 5.7-6.2% (vs 5.6%), FCF 100-150m vs 160m, stock got whacked hard on EPS miss and relatively stable outlook that’s not unexpected.

3Q23   .68 vs .56, est .54

  • Nov 8, 2023, P-12.58, TTM EPS=2.41, P/E=5X

  • Operational Revs +11% to 1.25bn, Revs +15.5% to 1.49bn (est 1.22), GM 13.1% vs 12.8%, OM 6% vs 5.8%, OCF 153.2m vs 151.3m, FCF 79.2m vs 64.1

  • New Business awards 80m, YTD 300m

  • Revs and EBITDA new quarterly records, limited impact from UAW strikes in 3Q but expect greater impact in 4Q but resumption should benefit 1H24. Still expect to exceed FY23 rev targets, might fall a bit short of margin target, still expect record FCF

2Q23   .62 vs .32, est .58 down from .68

  • Aug 9, 2023, P=14.41, TTM EPS=2.29, P/E=6X, FY24 P/E=5X

  • Operational Revs +18.9% to 1.25bn, Revs +22.2% to 1.36bn, GM 12.8% vs 11.3%, OM 6.1% vs 4.1%, Adj EBITDA 160.6m vs 114.3m, a new record

  • New business awards 150m, 220m YTD

  • Repurchased 815k shares for $10m or $12.30/sh

  • Affirming FY23 Outlook, mgmt. describes the environment as continuing to improve.

1Q23 .54 vs .31 ex .06 gains, est .59 down from .65

  • May 4, 2023, P=13.58, TTM EPS=1.99, P/E=7X, FY23 P/E=6X

  • Operational Revs 1.24bn, Revs +12.9% to 1.3bn, GM 12.8% vs 10.6%, OM 5.8% vs 3.8%, adj EBITDA 152.5m, record high, OCF 54.5m vs 29.9m (before NWC 153.6m vs 105.6m), FCF -31.6m vs -52.1m

  • NA +13.3% to 974m, EU +16.1% to 303.5m, ROW -14.8% to 33.9m, Prodn in China not recovering as expected

  • 70m new business awards, 50m lightweighting on GM’s EV pickup truck, 20m propulsion with GM and Tesla

  • Although volumes improved, stability has not improved as quickly/smoothly as expected

  • EPS down q/q due to low tax rate and fx gain in 4Q contributed ~.06. Gain due to selling share of VoltaXplore to NanoXplore, received additional shares in NanoXplore as compensation.

  • Reiterated FY23 Outlook

4Q22   .58 vs (.12) est .48, FY22 EPS 1.76 vs .41

  • Mar 2, 2023, P=14.20, TTM EPS=1.76, P/E=8X, FY23 P/E=5.8X

  • Operational Revs +38% to 1.17bn, Revs +22.9% to 1.295bn (est 1.17b), GM 12.2% vs 6%, OM 5.5% vs (0.3%), FCF 14.7m vs 21.1m, FY22 FCF 50m,

  • New business awards 90m, 175m in FY22 plus 250m replacement awards.

  • Reiterated FY23 Outlook Revs 4.8-5bn, OM 6-7% (vs 4.8%), FCF 150-200m

  • Mgmt continues to emphasize their culture of excellence, safety, and treating employees well to achieve happy workforce.

  • Reinstating share-repurchase program.

  • Discussed recent acquisition of effenco assets, producer of ultracapacitor systems for hybrid electric solutions for heavy-duty vocational trucks.

  • Mgmt related an anecdote of very low dealer inventory and most incoming vehicles are already pre-sold.

  • 4Q earnings benefited from some cost recapture but mgmt. argued it should be looked at through an annual basis.

3Q22   .56 vs (.21), est .39

  • Nov 1, 2022, P=8.86, TTM EPS=1.06, P/E=8X, FY23 P/E=3.5X

  • Operational Revs +41% to 1.1271bn, Revs +40.7% to 1.19bn, GM 12.8% vs 5.9%, OM 5.8% vs (1.9%), EBITDA 140.2m vs 44.9m, FCF 64.1m vs (37.3m), expect FCF positive for FY22

  • “continue to make good progress on recovering inflationary costs”, concluded several agreements, expect more progress.

  • Prodn environment has improved but isn’t as stable as they expected it to be at this point, still expect 2H>1H but won’t specifically say 4Q>3Q given erratic changes that can occur.

  • FY23 Outlook: Revs 4.8-5bn, OM 6-7%, FCF 150-200m, OM and FCF marked down but better than FY22, headwinds from energy and other commodity prices and interest rates, launch activity lower than last couple of years, some prodn ramps, preps for some FY24 launches.

  • FY23 estimate a bit high based on Outlook revision (implies ~2.30) but the stock is clearly discounting those ests.

2Q22   .32 vs .34, est .28 up from .21

  • Aug 8, 2022, P=9.66, TTM EPS=.29, P/E=33X, FY23 P/E=4X

  • Operational Revs +25% to 1.05bn, Revs +26% to 1.1bn, GM 11.3% vs 12.6%, adj OpInc +16.6% to 45.5m, OM 4.1% vs 4.4%, EBITDA 114.3m vs 99.6m, FCF 31.8m vs (60m), YTD (26m), expect breakeven to positive for FY22

  • Mgmt expects continued improvement in 3Q and beyond

  • Won 85m new business, 70m of which in Lightweight Structures, 15m in Propulsion Systems (both include additional EV volumes)

  • Making further progress on negotiations for cost recapture

  • Expect 3Q better than 2Q, Reiterating FY23 Outlook

1Q22   .31 vs .41, est .11 down from .32

  • May 5, 2022, P=7.60, TTM EPS=.31, P/E=25X, FY22 P/E=7X

  • Operational Revs +19.3% to 1.1bn, Revs +15.8% to 1.16bn, GM 10.6% vs 12.1%, OpInc 44.3m vs 48.5m, EBITDA 112.4m vs 109.8m

  • OCF 30m vs 57m, OCF before NWC 105.6m vs 112.5m, 

  • Revenue driven by both recovery of prodn and ramp of new programs. 

  • Launch costs continue to weigh on margins, Experienced lower level of semiconductor-related shutdowns and call-offs

  • Re-iterating 2023 Outlook, expect 2H22>1H22 as bottlenecks ease and launch activity normalizes. 

4Q21   (.12) vs .55, est (.01) down from .40, FY21 EPS .41 vs .58

  • Mar 3, 2022, P=9.13, TTM EPS=0.41, P/E=22X, FY22 P/E=5.5X

  • Operational Revs -13.5% to 849.9m , Revs -1.6% to 1.05bn, GM 6% vs 14.6%, OpInc (2.9m) vs 66.1m. EBITDA 63.2m vs  131.7m, FCF 21.1m vs (2.6m)

  • New business wins ~100m, YTD 300m

  • Expect “notably better” results in 1Q on more stable production environment, gradual improvement through the year. Also expect launch activity to normalize this year resulting in better margins on higher sales as volumes ramp.  Mgmt has made some progress on cost inflation negotiations and expect further progress. 

  • By 2026 ~40% of the book of business to be electrified (previously stated 25% of sales by 2025)

  • Reiterated 2023 Outlook again

  • Modestly disappointing results but encouraging that we might be turning the corner as long as Ukraine conflict doesn’t expand, there’s significantly more value in the future operational results.

3Q21   (.21) vs .57, est .24 down from .65

Nov 4, 2021, P=11.73, TTM EPS=1.08, P/E=11X

Operational revs -15% to 797.2m, Revs -13% to 848.5m (est 893), GM 5.9% vs 15.6%, OpInc (16.2m) vs 75.6m, EBITDA 44.9m vs 134.2m, OCF 9.9m vs 178.5m due to 40m into NWC

New business wins ~40m, YTD ~210m

Supply chain disruption and raw materials costs impacting results

Initiated proactive discussions with lenders in case further disruptions push them outside covenants, mgmt. doesn’t see a risk to dividend. 

Q4 “should suck less”, Mgmt expects prodn volumes to gradually improve in 2022, robust 2023 and beyond, expressing confidence in the FY23 targets

GM recently indicated they expect improvement starting next week? GM said they expect “sizable step-up in volumes” 3Q to 4Q with 4Q looking more like 2Q (3Q deliveries were -25% q/q to 1.3m, 2Q levels were similar to 3Q20 but below 4Q20. When constraints ease, prodn could exceed deliveries as inventories are re-built). 

2Q21   .34 vs (.91) vs .66, est .38 down from .42

  • Aug 10, 2021, P=12.52, TTM EPS=1.86, P/E=7X

  • Operational Revs 838.9m -6.6% vs 2y. Revs 884.9m (est 974), GM 12.6% vs (2.7%) vs 16.3%, OM 4.4% vs (14.9%) vs 8.9% 

  • CFO 15.3m vs (11.9m) vs 128.5m, FCF -65m due to weak CFO

  • New business wins ~40m at mature annualized volumes

  • Heavy launch activity and labour challenges pressuring margins, customer releasing fluctuating due to supply chain constraints.

  • EPS came in only .02 below the low end of their guidance, not providing 3Q Guidance, FY21 guidance probably off the table, visibility is weak and shutdown notice can be short like what Adient experiences, possibly worse q/q vs .57 last year, management confident in FY23 Outlook given low inventory levels, strong order book, management thinks their capacity will be full when prodn normalizes, one large auto customer recently stated inventories are so low low that it would take >2 years to rebuild to normal. 

  • Challenging environment and stock requiring more patience than I hoped but the opportunity remains for when supply chain issues normalize.  

1Q21   .41 vs .38 +8%, incl (.08) alum drag, est .39 down from .46

  • May 6, 2021, P=13.54, TTM EPS=0.61, P/E=22X, FY21 P/E=7X

  • Operational Revs +12% to 924.1m, Revs +14% to 997.2m, GM 12.1% vs 13.8%, OM 4.9% vs 5.8%, adj OpInc -4.5%, adj EBITDA +1.9%

  • NA +2.5% to 704.1m (-0.3% ex Metalsa), EU +59% to 254m (+25% ex Metalsa), ROW +67% to 46.5m (+12.3% ex Metalsa)

  • New business wins ~130m at mature annualized volumes

  • 2Q Outlook: Operational Revs 850-950, adj EPS .36-.46, est .42 including continued impact from semiconductor shortages (driving temporary shutdowns) and heavy launch cycle

  • FY21 Outlook: Expect EPS to approach FY19 levels, breakeven FCF

  • FY23 Outlook: Revs 4.6-4.8bn (10% CAGR from FY21 est), OM>8%, FCF>200m (looks >70% of NI), could drive EPS 3.30-3.50 at 8% OM (>8% would drive higher), 10m interest exp, 25% tax rate, P/E=4X

  • Given valuation, results and outlook are solid, 2Q EPS would be below 2Q19 but supply chain issues should abate, mgmt. expects Metalsa to turn profitable in 2H

Mid Quarter Update – April 15, 2021

  • Announced 50/50 JV with NanoXplore (of which they own 25%) for VoltaXplore, an EV battery initiative, $4m investment each, could provide $6m more 

  • Will build a demonstration facility to develop and produce Li-Ion EV batteries with graphene

  • Would expand to 100Gwh battery cell manufacturing facility in Canada following successful demonstrations.

 

4Q20   .55 vs .42 +31%, est .52, FY20 adj EPS .58 vs 2.27 (due to 2Q20 bomb)

  • Mar 4, 2021, P=15.20, TTM EPS=0.58, P/E=26X, FY21 P/E=7X

  • Operational Revs +25% to 982m, Revs +16.7% to 1.07bn, GM 14.6% vs 14.2%, adj OM 6.2% vs 5.6% (OM 7.3% ex Metalsa, ~.11 EPS drag), OpInc +28%, 

  • New business awards 115m, graphene brake line now approved for customer use.

  • Pandemic delaying getting Metalsa to targeted profitability but potential still remains.

  • 1Q disruption from weather and semiconductor 

  • 1Q Outlook: Prodn sales 900m-1bn (+9-22%), adj EPS .36-.44 (-5% to +16%, est .46) including ~.08 cost lag to be made up in 2Q (pass-through aluminum costs)

  • FY21 Outlook revs ~2019 levels, adj EPS “approach” 2019 levels including Metalsa impressive considering 1Q19 and 2Q19 EPS ~0.67 implying strong performance in 2H21.  FY22>FY19,

  • FY20 FCF was better than expected due to timing, ~breakeven FY21, back to normal after.

  • Expect EV exposure to hit 25% of their sales in FY25 from 8% today. 

  • EV programs include Ford Mach E Mustang, GM EV Hummer, Tesla Model Y, Audi E6

  • Mgmt. thinks content per vehicle EV > ICE, “get paid for complexity, not paid for weight”.

  • Solid results, 1Q EPS guide ex cost lag is solid, delay in reducing Metalsa costs frustrating but still presents ~20% EPS accretion opportunity, EPS power >2.70

  • Stock sold off >10% on what was a briefly a weak day, some analysts negative on 1Q soft guidance which ends in less than 30 days, outlook looks compelling.

 

Mid-quarter update – Jan 13, 2020

Linamar released an update, 4Q auto a bit better than they expected, also expect 1Q21 global light vehicle prodn +15% y/y, FY21 +13%, expect negative impact from semiconductor shortage

3Q20   .57 vs .53 +7.5%, est .47 up from .30

  • Nov 11, 2020, P=12.67, TTM EPS=0.45, P/E=28X, FY21 P/E=

  • Operational Revs +10% to 933m (flat organic), Revs -0.3% to 971m, GM 15.6% vs 14.8%, OM 7.8% vs 7.1%, OpInc +9.4%, OM ex Metalsa >9%, 

  • Operations benefited from 6.6m CEWS benefit (~.07/sh to EPS), $3m German passthrough

  • CFO 178.5m vs 97.1m, FCF 102.5m vs 36.9m (2.2X NI vs 0.85X)

  • won 70m new business, expect 1st graphene products in 2021 (enhanced brake line)

  • 4Q Outlook: Operational revs 900m-1bn, adj EPS.46-.54 (+9.5% to +24%, est .50)

  • Very solid results, record 3Q levels, and set to improve as they improve operations of Metalsa which are still a drag, expect Metalsa breakeven next year and exceed $30m EBITDA in 2023 

  • In comparison LNR eps +46% y/y but +15% compared to 2 years ago while MRE 3Q20 EPS is +29.5% vs 2 years ago. 

  • Mgmt feels on track to hit FCF breakeven target in FY20 “if not exceed it”, depends on working capital

2Q20   (.91) vs .66, est (.74) down from (.15)

  • Aug 10, 2020, P=10.53, TTM EPS 0.41, P/E=26X, FY21 P/E=5.5X

  • Revs -51% to 460.6m, GM (2.7%) vs 16.3%, adj EBITDA (8.2m) vs 137.7m, adj OpInc (68.5m) vs 83.97m, CFO (11.9m) vs 128.5m due to significant reduction of payables

  • Won 65m in new annualized sales

  • 3Q Outlook: Operational Revs 850-950m (vs 847m last year but slightly down ex Metalsa), adj EPS .40-.50 (est .30, vs .53), with Metalsa contributing negative earnings (“similar” margins y/y ex Metalsa)

  • Negotiated covenants to exclude 2Q20

  • Mgmt targeting breakeven FCF for FY20, would mean 2H slightly positive

  • Results more horrific than expected but recovery in 3Q better than expected, stock still incredibly cheap on its earnings power, balance sheet still in solid shape. 

1Q20   .38 vs .67 -43%, est .40 down from .66, low est .31

  • May 13, 2020, P=7.65, TTM EPS 1.98, P/E=4X

  • Operational revs -11.3% to 822.5m, Revs -14.7% to 872.7m, GM 13.8% vs 15.4%, OM 5.8% vs 8.2% OpInc -39% to 50.8m, adj EBITDA -19.6% to 107.7m due to higher D&A

  • NA -15.2% to 687.5m but -16.2% organic, EU -16% to 159.9m but -24.1% organic, ROW +19.4% to 27.9m but -6.5% organic

  • Sounds like they will continue to pay dividend at least for now, next expected payment mid July.

  • CFO 81.5m vs 60.1m, FCF 9.9m vs (21.7m), 156m in cash, 300m total liquidity, added 280m additional capacity on revolver in April, could also do up to $300m asset-based financing

  • Chinese operations restarted well, prodn relatively normal, rest of prodn due to restart soon and to slowly ramp through June.  

  • Took out some costs, while some programs delayed, none have been terminated.  

  • New business awards 35m at mature volumes

  • No guidance, 2Q20 est (.15), low est (.60), FY20 est .68 down from 2.51, low est .13

Mid Quarter Update – March 20, 2020

  • Withdrawing FY20 and 21 guidance due to COVID-19, not surprising. 

  • Suspended buyback to preserve cash, looing at prudent measures to manage risk rather than need for financing.  

4Q18   .42 vs .51 -18%, est .40 down from .55, FY19 EPS 2.27 vs 2.22

  • Mar 5, 2020, P=10.90, TTM EPS=2.27, P/E=4.8X, FY20 P/E=4X

  • Raised dividend 11% to .20, yield=1.8%, total share buyback has been ~8% so far. 

  • Operational Revs -6.4% to 787m, Revs -0.9% to 917.6m, GM 14.2% vs 14.5%, OM 5.6% vs 7.1%

  • NA -2.1% to 720.2m (-8.4% operational but slightly up ex GM strike), EU -5.4% to 158.4m (-4% operational), ROW +49% to 41.1m (+38.7% operational).

  • FY Revs +5.5% to 3.86bn, Operational +1.8% to 3.72bn, GM 15.2% vs 15.2%, OM 7.5% vs 7.8%

  • FY NA +8.4% to 3.07bn (+1.1% operational but +3% ex GM strike), EU -5.8% to 672m (-3% operational), ROW -2% to 132.7m (flat operational)

  • New business wins $140m annualized at mature volumes, $300m won in FY19

  • FCF 51.4m, FY FCF $127m, Repurchased $19.6m in shares in 4Q, $57.8m in FY19

  • Closed acquisition of Metalsa which will add ~$400m in annualized revs, initially EPS drag but turning positive by end of year

  • Previously delayed launches to materialize later in year and into 2021

  • 1Q Guidance: Operational Revs -2% to -7% to 860-910m, EPS -3% to -10% to .60-.65 (est .66)

  • FY20 and FY21: OM expansion in FY20 (vs 7.5% in FY19), ~8% in FY21 based on mix and Metalsa drag (previously 4bn and 9% target for FY21), FY21 sales with Metalsa ~4.4bn, ~10% higher than current FY20 estimate which is largely $400m from Metalsa

  • Discussion on shift to EV: lightweight structures (incl Metalsa) is largest business, will do well.  Shift from engine blocks to more battery trays, motor housings and structural parts, Fluids (brakes) will be needed in EVs and they currently sell to Tesla.  Also thermal management in fluids should offset decline in fuel line.  Have won other EV programs in China with Geely, global platform with Daimler, Ford. In 5 years they expect ~23% of their revs to be BEV and hybrid programs based on current wins.  

  • As expected, results impacted by GM strike, have yet to see significant improvement in GM volumes

  • Stock is incredibly cheap (4.8X trailing EPS) for resilient results and improved FCF profile.  GM and F saw 4Q EPS fall 97% and 60% and FY19 EPS fall 26% and 8.5% respectively.  Compare to MRE 4Q19 -18% and FY19 +2% and valued at a DISCOUNT to GM and F (cheaper stock, better results).  The stock was at this level in late 2015 when EPS was 1.38, now EPS is 64% higher, none of the progress the company made is in the stock.  

Mid Quarter Update – Dec 19, 2019

  • Acquiring Structural Components for Passenger Cars operations of Metalsa SA de CV for $US 19.5m, expected to close near end of January 2020.  Purchase price reflects required restructuring costs

  • 6 plants in Germany, US, Mexico, South Africa, and 2 in China and technical and engineering centre in Germany, ~2000 employees

  • Includes chassis components such as cradles, control arms, trailing arms; body components such as side rails, A and B pillars, door beams, wheel housings and bumpers; other components such as fuel tanks. 

  • Martinrea expects 2020 revenue contribution of ~$400m, not currently generating positive CFO but expect breakeven EBITDA in 2020 and 30m EBITDA in 2021 and accretive to earnings. 

  • Customers include Daimler, BMW, and VW 

3Q19   .53 vs .44 +20%, est .52 down from .55

  • Nov 12, 2019, P=11.49, TTM EPS=2.37, P/E=5X, FY20 P/E=4X

  • Operational Revs +5.5% to 847m, Revs +14% to 974m, GM 14.8% vs 14.9%, OM 7.1% vs 6.9%, OpInc +18%

  • NA +20% to 781m (+6% operational), EU -8.2% to 157.7m (flat operational), ROW +12.5% to 37.7m (+6.8% operational)

  • Softer OpInc in NA but significant improvement in EU and ROW

  • Won 55m in new business, repurchased 1m shares, increased stake in NanoXplore to 25%, could have a product available in 2020 if all goes well.

  • Results somewhat impacted by GM strike ($20m), larger impact in 4Q ($70m), seeing other customers cut prodn to adjust inventories, seeing many new program delays (~6-9 months) and slower ramps than previously planned, pushing >$200m of sales into 2021.  

  • 4Q Guidance: Operational Revs 750-810m (-11% to -4%), adj EPS .35-.45

  • Mgmt still expects growth in 2020 with higher earnings, OM improvement to >8% 

  • For FY20, mgmt. sees industry volumes flat to down in China, EU, and NA.  

  • Pushing 4bn sales target to FY21 and moving 9% OM margin target to FY21

 

From 2012 to June 2019 (7.5 years), the stock has been roughly flat with significant ups and downs.  The company’s market cap is about $890m, over that period cumulative adjusted net income was $884m, cumulative CFO was 1.6bn while cumulative FCF (including dividends paid) was -297m as the company continued to invest in its business.  Assets increased by 1.5bn while debt increased by only 415m and total liabilities increased by 858m.  With no increase in the market value of the equity.  This is bizarre.

2Q19   .66 vs .64 +3%, est .65 down from .69

  • Aug 6, 2019, P=10.26, TTM EPS=2.28, P/E=4.5X, FY19 P/E=3.7X

  • Operational Revs +4.8% to 898m, Revs +2.9% to 948.5m, GM 16.3% vs 16.3%, OM 8.9% vs 8.9%

  • NA +7.4% to 754m (+5% operational)

  • EU -12.2% to 165.6m (-6% operational)

  • ROW -9.9% to 30.5m, (-5% operational)

  • Won 50m in new business, FCF turned positive to 57m, expect trend to “continue over the course of the remainder of the year and heading into 2020”.

  • 3Q Guidance: Operational revs 820-860m (+2-7%), EPS .53-.57 (+20-30%, est .55)

  • Quoting activity remains high, mgmt. expects some larger awards in 2H19 or 1H20

  • Mgmt. discussed their view about suppliers owned by private equity typically seek price increases and might struggle in this environment, mgmt. feels they are very well positioned. 

  • Challeng in China fluid business due to Ford and its partner (initially its only customer) saw volumes decline significantly, mgmt. decided to exit that relationship but winning other customers.  

  • Decent results in a soft auto environment, stock reacting negatively (towards its lows) in a weak period focused on tariffs and trade issues despite having not really participated in the rally.

  • Guidance and new business wins continue to be encouraging that their business is not falling off a cliff like valuation implies.

1Q19   .67 vs .63 +6%, est .66, 

  • May 2, 2019, P=12.94, TTM EPS 2.26, P/E=5.7X, FY19 P/E=5X

  • Operational revs +3.8% to 927m, Revs +6.1% to 1.0bn, GM 15.4% vs 15%, OM 8.2% vs 8.1%

  • NA +9.4% to 811.1m (+1.9% operational), EU +2.5% to 190.4m (-1.8% operational), ROW -42% to 23.3m (-26.4% operational)

  • Won 55m in new business

  • In midst of heavy launch cycle which is proceeding well, seeing heavy quoting activity

  • 2Q Guidance: Operational Revs 870-910m (+1.5% to +6.2%), EPS .64-.68 vs .64, est .69, OM to be lower y/y due to higher mix of tooling sales. 

  • Experiencing volume headwinds in China and Brasil, enacting $5-10m restructuring in Brasil, considering one in China, also seeing some supplier stress in overall market, acquired a small plant in Mississippi “at a very attractive price”, could see other acquisitions.

  • Solid results, EPS guidance a bit lighter than estimate but still positive, valuation still cheap.

4Q18   .51 vs .50, +2%, est .51, FY18 EPS 2.22 vs 1.91, +16%

  • Feb 28, 2019, P=12.27, TTM EPS 2.22, P/E=5.5X, FY19 P/E=5X

  • Operational Revs +3.8% to 841m mostly from fx, Revs +5.4% to 926.2m, GM 14.5% vs 14.1%, OM 7.1% vs 7%, with launch costs and tariffs, FY18 adj OM 7.8% vs 6.4%

  • Won 230m in annualized business, ~800m in FY18

  • NA +9% to 735.9m (+2.9% operational), benefited from new launches partly offset by some lower volumes, EU +2.2% to 167.5m (-2% operational), ROW -34% to 27.6m (-15% operational)

  • 1Q19 Guidance: Operational Revs 910-950m (+2-6%), EPS .65-.69 (+3-10%, est .66), expect FY19 OM >8% and FY20 Revs >4bn (vs 3.7bn in FY18) and OM >9% (implies OpInc +25% or more by FY20 from FY18) 

  • Decent results, solid wins, stock responding strongly likely as investors get comfort on durability of earnings in context of attractive valuation, fears of cyclical decline possibly fading.

  • Mgmt continues to be very optimistic on potential for graphene.

3Q18   .44 vs .42, +7% ex (.02) fx loss and rounding, est .45

  • Nov 8, 2018, P=11.45, TTM EPS=2.22, P/E=5X, FY19 P/E=4.6X

  • Operational revs +0.4% to 803m, Revs +1.5% to 851m, GM 14.9% vs 13.5%, OM 6.9% vs 6.2%, OpInc +12.7% to 58.5m, EBT ex fx loss +11% to 51.5m, EPS +7% due to higher taxes, shares

  • NA +0.3% to 648.6m, (-2.3% operational), EU +4.1% to 171.9m (+0.6% operational), ROW +10.6% to 33.5m (+10.3% operational)

  • Won 40m in annualized business, YTD 580m

  • Developed new sales strategy to focus on 2 groups: lightweight structures and propulsion

  • Will continue to sell industrial products independent of automotive, can develop new processes for industrial or automotive applications, construct and dvelop prototypes as well as new material development such as graphene to develop engineered systems rather than just commodity products.  

  • Repurchased ~700k shares and will be repurchasing more. Debt/EBITDA improved to 1.35X

  • 4Q Outlook: Operational Revs 820-860m, (+1-6%, EPS .49-.53 vs .50, est .51) WPS factoring in launch costs, some volume softness, and some tariff impact.

  • Mgmt continues to expect growth in 2019 and OM at or >8% and 2020 Revs >$4bn and OM at or >9%

  • Decent results especially considering continued share weakness. 

2Q18   .64 vs .55, +16.4%, est .63

  • August 8, 2018 P=12.79, TTM EPS=2.20, P/E=6X,

  • Operational Revs -8.2% to 857, Revs -5.2% to 921.7, GM 15.6% vs 12.5%, OM 8.9% vs 6.9%

  • EBITDA +15.7% to 125.7m

  • NA -11.1% (-8.7% operational), EU +21.3% (+6.5% operational), ROW +3.2% (+2.3% operational)

  • Revs below their outlook due to lower than expected volumes and a fire at another supplier’s magnesium plant that disrupted vehicle prodn

  • Won 240m in annualized business, YTD 540m

  • Extended and expanded credit facilities, also move to unsecured structure.

  • 3Q Outlook: Operational Revs 790-830m (-1.3 to +3.8%)), EPS .43-.47, (+5-12%), est .42

1Q18   .63 vs .45, ex .02 fx gain, est .60

  • Operational Revs -4.7% to 893m, Revs -3.7% to 964m, GM 15% vs 11.8%, OM 8.1% vs 5.6%, adj EBITDA +27% to 120m

  • NA -7.7% (-5.4% operational), EU +7.8% (+2.3% operational), ROW +49% (+23% operational), U.S. volumes were down, EU and ROW were up.

  • Won 300m in annualized business

  • 2Q Outlook: Operational Revs 860-900m, EPS .62-.66, est .61, still see flattish FY18 sales with growth in FY19

4Q17   .50 vs .36, est .46, FY17 EPS 1.91 vs 1.50

  • Raised dividend 50%, see opportunities to invest in their business, repay debt, and potentially repurchase shares (in conjunction with dividend as total return to shareholders)

  • Operational Revs -8.3% to 809.8m, Revs -11.3% to 878.6m, GM 14.1% vs 10.5%, OM 7% vs 4.6%, OpInc +34%, EBITDA +22%

  • NA-16.2% (-6.3% operational), EU +8.6% (+2.7% operational), ROW +9.8% (+2.1% operational)

  • 1Q Guidance: Revs ex tooling 840-880, EPS .59-.63 (vs .45, est .54)

  • Mgmt reiterated margin targets (9% or higher by FY19), opportunities with fluids and light-weighting for all vehicles including EVs,

  • Re NAFTA, >90% of their products are shipped intra country

  • Low margin or unprofitable business continues to roll off and get replaced by higher margin business in conjunction with their continued operational and culture improvements.

3Q17   .42 vs .34, est .41

  • Revs ex tooling -8.7% to 800m, Revs -8.3% to 838.5m, GM 13.5% vs 10.9%, OM 6.2% vs 4.7%

  • Revs slightly lower than guidance due to 2 week GM strike, NA -12.2%, EU +8.6%, ROW +9.4%

  • Won 70m in new business, quoting activity is robust particularly in aluminum.

  • 4Q Guidance: Revs ex tooling 790-830, EPS .45-.49 (est .46), double digit EPS growth in FY18 on flattish sales, growth in 2019 and sales to reach >$4bn by 2020.

  • Now believe they will get OMs to 9% or more by FY2019 instead of 2020 (more than a 50% improvement from now).

2Q17   .55 vs .44 est .51 up from .49

  • Revs ex tooling -1.9% to 933.5m, Revs -5% to 972.8m, GM 13.3% vs 11.4%, OM 6.9% vs 5.6% despite 2.2m litigation costs in Brazil

  • NA-5.7%, -2.9% ex tooling, EU -7.5%, -3.4% ex tooling, ROW +46.9%

  • Won 50m in new business, launches and efficiency initiatives going well, continue to expect 11th consecutive quarter of y/y margin improvement and EPS growth, solid results in a flat/soft market. Still target OMs >6% by end of year and debt/EBITDA 1.5X (currently 1.68X), >8% by 2020 (half the OM gains operational improvements, half new business at higher margins, assuming flatish volumes for a few years).

  • 3Q Guidance: Revs ex tooling 810-850m, EPS .40-.44 vs 34

1Q17 .45 vs .38, est .44

  • Revs -3.7% to 1bn, ex tooling -6.8% to 936m, GM 11.8% vs 10.8%, OM 5.6% vs 4.9%

  • NA -4.8%, E+4.6%, ROW -22.2%

  • 10th consecutive quarter of record y/y earnings

  • NA down mostly from fx and lower volumes on some platforms late in their cycle, partly offset by increased tooling, returning volumes of Chrysler V6 Penstar engine, higher volume on some platforms, and new launches. EU up due to increased tooling, higher prodn from new facility in Spain, and slightly improved prodn in Honsel, partly offset by fx. ROW down due to lower tooling and lower prodn volumes in China, partly offset by higher prodn in Brazil.

  • Continue to expect OMs>6% by end of FY17, Debt/EBITDA1.5X, expect margins to be > peer average (~8%) by end of the decade.

  • Created a new exec position, Product Line Executive (PLE) to bring new/innovative products to market, currently showing a hybrid aluminum sub-frame that is gaining customer interest.

  • Mgmt did a stress test, 25% decline in volumes would see a slight reduction in margins.

  • 2Q Guidance: Revs ex tooling 920-960 (vs 952), EPS .49-.53 (est .49)

  • Consistent with recent trends, softness in the top line is not impeding operational improvement and earnings growth, remains a cheap stock in the group which overall continues to be weighed down by fears of a rollover in U.S. auto prodn, stock reacting positively.

  • 4Q16 .36 vs 34, est .34

  • Revs -4.3% to 990.4m, GM 14% vs 13.2%, GP +0.5%, OM 5% vs 4.6%

  • NA -4.1%, EU -10.7%, ROW +23.8%

  • FY16 EPS 1.50 vs 1.38

  • Guidance: 1Q Revs ex tooling 920-960m, EPS .42-.46 vs .38, est .42