Q2 2021 Linamar Corp Earnings Call
From its peak in early 2018, despite the pressures of the pandemic.
Likewise improved dramatically to now 0.17 times last 12 months EBITDA.
I thought it would be good idea to talk a little more impact around some of the headwinds we're facing at the moment around the supply chain issues logistics cost and labor shortages.
Certainly as we emerge from the low point as being economically last year end markets have roared back we are feeling the impact of these issues in a variety of areas. The good news is although of course they are difficult to manage these issues are not new we've seen them in the past and like them they will resolve as additional capacity.
Put in place, which is well underway.
The Big news naturally is around the shortage of semiconductor chips, which has hit the automotive industry quite cars as often happens in a recession the capital intensive chip industry scaled back investments to conserve cash last year, which has restricted supply.
Exacerbating the problem is the spike in orders for consumer electronics, and computer equipment for businesses relocating to remote work last year, which put pressure on demand when the auto industry roared back and demand spikes again, there just wasn't enough ships to go around and as the last man in auto was short supply chip.
And part of the problem is the situation is the unpredictability of the impact on when it will realistically be resolved.
Total estimated lots of vehicles built for the year. According to IHS is currently $5.3 million unit and you can see how that splits out over the year in the top left quadrant of this slide with Q2 expected to be the peak impact.
That said the bottom right chart shows you the original estimated impact for each quarter compared to the actual or latest estimate with respect to Q3 coming into Q2. As an example, the estimated volume loss of vehicles for the quarter with 160000 units and it ended up being.
$2.6 million units not not built vehicles not done.
The current estimate for Q3 is a loss of 1.27 million vehicles, which by the way. It was originally estimated at only 50000 back in May we are worried. This figure is also underestimated and will grow closer to the Q2 impact that's not the current forecast from IHS, but we do see it as a risk.
We are suggesting a conservative outlook be used for Q3 in terms of volumes as a result.
In terms of the impact of lost vehicles by region you can see the impact recently was relatively balanced in that path.
<unk> hand chart, although Asia has taken the biggest hit in Europe the lease.
In terms of Oems now I'm in the bottom left quadrant, if you add up the three Volkswagen group you can see they took the biggest hit overall at over 1 million units of impact. They were followed closely by Ford and that's Atlantis and Jim.
Although we will see improvements in supply of chip each quarter, thanks to capacity coming online in coming months, it's largely expected that the situation won't fully resolved until at least mid 2022.
Commodity prices are presenting a challenge as well you can see here some of the more important commodities to us in the charts that were just plain of course on the mobility side. The vast majority of contract do allow for a pass through on metal price changes based on a predetermined metal market index.
Though I will note there was a bit of a lag effect.
Industrial side. However, there is no such mechanism, making adjustments for commodity cost changes more challenging.
At the same time, we're seeing a lag in the ability of suppliers to meet demand, notably on the industrial side, which impacts not just cost, but our ability to meet production needs for a rebounding market.
And of course across its shipping has dramatically increased in the last 18 months as well as and again container company to stop investing in 2020 to conserve cash.
Another issue was the imbalance in container availability geographically that was created due to uneven levels of production shutdowns from country to country again, when the situation will resolve as there is quite a bit of additional capacity being put in place for containers, but it will likely be another six months before we see relief.
Finally, we're seeing a real shortage in the availability of labor at the moment, despite unemployment levels being reasonably high we are struggling to fill open positions in Guelph alone. We are looking for more than a thousand people it should be able to find them given unemployment is seasonally adjusted to more than 10%.
We believe that the continuation of generous government subsidies for people not working is a key factor in our inability to attract people back to work.
Although these subsidies are critical during the toughest month of the pandemic to keep income flowing to people that we are unable to work. The opposite is now the case with record levels of job openings across North America and workers, just not stepping up to fill them.
We really need to wind down these programs to encourage people to get back to work frankly, both for their own physical and mental health as well as our economic model.
Now the good news is we will get through this situation just as we have in the past when these very same challenges we're facing.
Here's a couple of articles describing the challenges in Cogs and supply on the left is that an article from the New York times, describing container prices tripling in another article on the rights from Us and English paper that describes the semiconductor chip shortage that is hitting the industry now it may surprise you to know.
Both of these articles as we're showing in those little bubbles there were written in 2010.
Supply chain issues are not unusual coming out of a recession or similar time of disruption when the economy slows or stops companies stop investing to conserve cash sometimes they shut down because of capacity, they've got making shipping containers, they stop adding needed capacity or slow down investments all of that has a big impact when demand.
Dressed rebound and it just takes time to work through that supply demand equation investments has to be made capacity you have to ramp back up containers need to be built and commissioned ultimately it gets done but it typically takes 12 to 18 months to work through the hiccups in the supply chain. So that's what you should expect.
Now turning to the market outlook, we have the next really good piece of news and that is that market demand is exceptionally strong consumers are buying and markets are up notwithstanding the constraints that we described what that means is we will be looking at a sustained period of strong performance for some.
At the time after these issues get resolved, which will happen over the next couple of quarters.
We're seeing market sharply across the board this year, which shouldn't be a surprise after a tough 2020.
Industry experts are predicting strong growth in light vehicle volumes globally. This year to $14.6 million $18 million of $44.5 million vehicles in North America, Europe, and Asia, respectively.
22 will see continued strong growth in North America to 17 million units and growth in Europe, and Asia to 'twenty, three and $47.8 million.
And then three experts are predicting on highway medium heavy truck volumes to be solidly up in North America, and Europe, this year, but down in Asia.
Next year, we'll see continued moderate growth in North America, and Europe, but again down in Asia.
Industry experts predict strong double digit growth in the access market in North America, and Europe is here and next year coming off a tough 2020 as construction projects start to ramp back up and consumer confidence continues to build post pandemic.
Asia will see solid growth this year as well with more modest growth forecast for next year.
Backlog is meaningfully up from prior year at nearly four times. The level. We were at in Q2.2020. The challenge is meeting the demand with supply chain issues hampering production level.
Lastly industry is predicting solid growth in the combined Draper header market. This year in double digits globally, but strongest in North America. We're also seeing some pickup in the Windrower market. This year. After a few years of declines, notably in Europe of Cif and North America.
The book is up significantly over last year with farmers feeling more confident with persistently strong commodity prices are good harvest last year and a perception of a more stable international trade environment meeting demand is also a challenge for Mac, Don regarding supply chain and logistics issues. There are a few concerns.
On the horizon in terms of this year's harvest with a drought in North America and flooding in Europe, the coming months will give us a better idea of the success of the harvest and therefore farmers' attitudes towards buying for 2022.
Right.
Looking out a little more detail on the auto side you can see sales are fairly consistently up over prior year at significant growth levels to fight the automakers inability to build vehicles at the rate they would like and the very low inventory levels. So great to see that the those positive bars of.
At the far right in each region.
In fact, the inventory levels in North America are at record lows with average days of inventory at only 24 days overall, what this means and this is really important regardless of consumer demand, we will be in a sustained period for at least a couple of years, our strong production levels just to replenish.
Inventory, that's regardless of demand, we need to replenish the inventory and it's going to take a couple of years to do that.
Demand will just the length of the time period of this strong.
Period of production to be at about two years.
This is great news for the industry to have a period of sustained above normal production levels. So look forward to.
And looking at production levels compared to what was forecast at our last conference call. In May you can see a softer Q2s on forecast again is as mentioned dropping out of the chip issues Q3 is currently forecast to be slightly softer than we expected last quarter as well again regarding chest and the same story for the full year, which is now.
Trimmed out by $1.5 million units for the same reason.
That said production in Q2 wasn't of course dramatically up from last year, which is the blue bar to the far left of each chart, that's showing you prior year actuals.
Q3 will be slightly softer than Q3 last year, but the full year will still be up in double digits in comparison to 2020 in terms of global light vehicle production.
The Bottomline is markets are significantly up despite the issues and are poised for a few years of strong growth as supply issues resolved.
Looking at the access market any more detail you can see first that all three market showed exceptional growth over prior year in the second quarter and triple digit increases across the board in which is the Orange bar.
Further growth for the full year in core North America and European markets are expected.
The great science equipment utilization levels continue to look positive in Q2 utilization levels are between 93, and 98% of 2019 levels and well ahead of 2020, which is a really good sign.
Double digit growth as expected in core North American and European markets in 'twenty, 'twenty, one and 'twenty 'twenty two as you can see the strong backlog already noted at Skyjack certainly supports it and should drive double digit sales growth for Skyjack This year and next year.
In the agricultural business, we're seeing a very optimistic outlook in North America in particular picked up a digit growth. This year. After a softer 2020 Q2's online retailers in North America were 10% up from prior year with a strong showing in Canada, which was up 22% and the U S up 7%.
Got.
International markets are also predicting double digit growth across the board markdown continues to build market share in international market, notably with our Draper header products with strong growth and market share growth in all of Australia, South America, Europe, and see I have over the last 12 months.
We're also seeing growth in our winter our product market share in both Europe and <unk> as the market shifts back to wind growing from straight cutting in reaction to regulatory changes what.
Order intake is significantly ahead of last year at this time, indicating double digit sales growth for Mac on this year as well and an expectation of continued growth in 'twenty 'twenty two assuming no significant issues with the harvest this fall.
Turning to an update on our growth in outlets you will be pleased to know that we had another excellent quarter in new business wins I'm going to highlight a few of our more strategic wins in a moment, but just to talk a little bit about the opportunity out there. We are seeing electrified vehicles continue to provide great opportunities.
<unk> for us.
Just a quarter of business wins year to date were for electrified vehicles was likewise makes up a substantial share of the book of business currently being pursued.
Our percentage of our book of wins that are for electrified vehicles has been steadily growing every year as you might expect given the expected growth in the SEC went up the market.
You can see here a steady build in our global content per vehicle for battery electric vehicles. As a result of recent wins, it's quite a steep curve of growth.
The lines of internal combustion engine and battery electric vehicles global content per vehicle are converging, which of course is the goal.
Content per vehicle in the electric vehicles is predicted to surpass that of hybrids and within a couple of years as we see more and more battery electric ones, which are certainly the majority of what we're seeing on the electrified side.
Our strategy for preceding electrified vehicles and diverse in many aspects, which allows us to really maximize the opportunities for growth. We have a diverse lineup of products in various areas of the vehicle from propulsion. So sounds distrustful of chassis to power generation and then our storage.
We're targeting passenger cars as well as commercial vehicle truck every class and off road vehicles, and we're targeting all types of electrified propulsion battery electric hybrid fuel cell electric we're also targeting both traditional Oems and new entrants to the vehicle field theories successfully and finally, we're open to a variety of scale.
<unk> solutions for our customers from individual components for SAP assemblies to pull system and I feel like the strategy is really paying off as we win business in all of these different areas and.
With a variety of different combinations of such once again the flexibility one of my strategy is key to our success.
Our addressable market across a range of vehicle propulsion types continues to look excellent with a total addressable market for us today around 80 billion growing to more than $300 billion in the future an increase of more than three times.
As you can see the market potential for each type of vehicle propulsion really starts to even out with most opportunity of course in the battery electric and fuel cell electric areas in the Audi gears. This is driving from the higher potential content per vehicle that we now have in electrified vehicles. Thanks to continued product development in areas like assembled.
Battery trays hydrogen fuel tanks and others.
With respect to launches we are back to seeing ramping volumes on launching transmission engine and driveline platform, which are predicted to reach a 40% to 50% of mature levels. This year generating incremental sales of $500 million to $600 million.
These programs will peak at more than $3.7 billion in sales, we saw a shift of around $30 million of programs moving from launch to production last quarter, which was well off fat by more than strong business wins in the quarter.
Next year, we should see growth of 35% to 45% for launches to generate additional incremental sales of 600, you started out as guidance.
As usual we are summarizing all of these expectations of market changes on our outlook slide that's now being displayed both markets recovering as described we're expecting to see double digit growth on the top line and strong double digit growth on the bottom line. This year, we will see continued.
Double digit growth in 2022.
This drives from double digit growth at Skyjack and knocked on this year as well as significant market growth in our auto business and continued ramping of launching business. There next year should see continued growth of all three businesses based again on growing markets growing marketshare and launching business.
Margins will be back into our normal range of 7% to 9% at the net level. This year driving from mobility segment margins expanding back into the normal range.
Amid normal range and industrial margins getting close to being back to normal levels.
Next you should see continued margin expansion and normal margin ranges for both segments and overall.
Leverage levels will continue to improve based on continued positive free cash flow in both years.
Now looking specifically at Qs two three as mentioned you should be prepared for a bigger chip impact in terms of lost vehicle builds than is currently forecast by the industry folks out there.
We couldn't be being overly cautious here, but we are concerned by the pattern of underestimation that they've seen.
Aegean accessible both see solid growth driving everyday are strong with backlogs and again, a much stronger market than last year. The growth in comparison to Q2 will be modest given the strong quarter that we just had.
Supply chain and logistics cost impacts will continue as will the impact of labor shortages and importantly, we are not forecasting any additional government subsidy past Q2 continued given continued recovery.
All of that means conservatively a fairly similar Q3 to what we just delivered in Q2.
I'll highlight a few far more interesting wins this quarter first we picked up several more programs for next generation battery electric vehicles and in aggregate they represent nearly $65 million in annual sales and can be and will be produced and there is plans in both Canada and China our customers in there.
Bruce include a Chinese domestic OEM, which is very positive as this is a target customer group for us.
Next is the theories about political programs awarded for various high efficiency transmission programs with well over $100 million in revenue. These are for our plant in Canada.
In a similar vein we won several components for an all new next generation eight speed transmission again for our Canadian plants. This one where it's more than $80 million year as a package in revenue and finally several wins for highly efficient highly fuel efficient cylinder had programs that are going to be produced in Mexico and in Frac.
<unk>, whereas in aggregate almost $100 million per year in revenue.
Turning to an innovation review I would like to highlight a few great technology developments launched in the quarter.
Firstly I'd like to show you our recent new product offering from the Skyjack portfolio that was named Editor's choice from rental magazine. The S. J 'twenty is a new vertical math lift the skyjack launched into the market. This spring and features and all electric drive and improve duty cycles and superior battery life.
The award illustrates that the product has captured the attention of end users as well as rental professionals and of course until magazines team of editors I mean, it's a great example, I think of one of our Earth skybox commitment to providing the aerial work platform industry with simple reliable equipment solution.
Next marathon is very excited to announce the launch of the App V to head or the two suezmax Draper builds on Knockdowns leadership, and harvesting technology with significantly improved cutting capacity increased operating speeds and more flat for improved ground. Following the FTC begins.
Action in the spring of 'twenty 'twenty, two and is another Great example of innovation and R&D that marathon has long been known for in the agricultural equipment industry.
Next our R&D efforts continue to prepare for the electrification transition in the mobility segment. We now have actual product solutions for the commercial vehicle market covering class one all the way through plastics segments. The.
The commercial vehicle segment is an area, where Atlanta might be actual technology has garnered a lot of attention our sales and engineering teams are showcasing that product it will be at the advanced clean transport Expo in California later this month.
And lastly, our innovation hub is excited to announce a new partnership opportunity with an early stage start up I've heard of the technology, how each initiative Linda Moore has signed an agreement with innovative mechatronics systems or I am system out of the Netherlands, I am systems has developed a promising.
New friction thrive gearbox system for use in the industrial robotics industry. The design is more accurate, it's more robust and efficient and what that means is the robot can work a lot faster and do more than traditional design for a lower investment we feel there's huge opportunity in this large and growing market.
For an innovation like this we will aid with design for manufacturing testing and prototyping and will be the production manufacturing partner for the system. Once the technology is fully proven we've also taken a small equity position and I am system as part of their most recent capital raise.
Finally, we continue to execute on our global Digitization journey with more and more connected machines data connections and robots being commissioned in our global plants everyday with that I'm going to turn it over to our CFO Dale Schneider to lead us through a more in depth financial review.
Thank you Linda and good afternoon.
There's been a known in Q2, and the strong Florida personnel and structural work for earnings.
Results with recovery from the COVID-19 shutdowns that occurred last year. It was also a great quarter for cash generation as of January 30 million of free cash flow.
Rooms grow our strong level of liquidity $1.7 billion.
Current quarter sales were $1.6 billion up $652 million from 900 million last year.
Earnings were normalized for FX gains or losses.
Valuation of the balance sheet.
The third quarter.
Quarterly earnings were normalized for FX gains related to revaluation of the balance sheet.
Impacted EPS by two cents per share.
Normalized operating earnings for the quarter were 152 million. This compares to a loss of 19 million from last year increased about one 2 billion were 808.
Okay.
Normalized net earnings increased by $129 million or five 6% in the quarter to $170 million.
Fully diluted normalized EPS increase.
At $1.97 for 510.
79% to $1.63.
Included in the earnings for the quarter was a foreign exchange gain won't work.
Which is fully associated with the revaluation of operating balances.
You mentioned, the net FX gains impacted the quarter.
My two cents.
From a business segment perspective, the Q2 gain of $1.5 million was a result of $7.4 million of genius industrial.
$9 million loss.
Okay.
Okay.
Looking at the segments.
<unk> sales increased 52% or $134 million to reach 394 million this quarter.
Sales increase for the quarter was due to the additional or excess equipment sales due to the market recovery from COVID-19. In addition to market share Gary.
Sure.
Likewise strong demand and market share gains drove the agricultural.
It was as well.
These were partially offset by the negative impact on sales from the change in tax rate.
Since last year.
Normalized industrial operating in the quarter increased $30 million or <unk>, 82% over last year to 66 million.
Primary drivers impacting in industrial.
Increased contribution from strong access equipment.
Yeah.
The reversal of an error provision due to the amounts that were collected in the quarter.
These were partially offset by reduced government support with COVID-19.
You didn't do the recovering market.
The negative impact of foreign exchange rates since last year.
Supply chain issues going back to raw materials and freight costs.
Turning to mobility sales increased by $570 million over Q2 last year to $1.2 billion.
The increase in the second quarter was driven by.
The increase in volumes due to recoveries in Q2 last year and into 2020 shutdowns that did not recur this year.
The increasing volumes on launching programs.
These were partially offset by the impact of the semiconductor chip shortage, which is impacting our customers and the negative impact from Q3 last year.
Q2 normalized operating earnings for mobility were higher by $142 million for 254% over last year in the quarter mobility earnings were impacted by the increase in sales net of the semiconductor of issues, which were partially offset by the reduced government support related to COVID-19.
And then David.
Countries.
Great.
Last year.
Okay.
Returning to the overall result becomes gross margin was $229 million.
Kris.
Compared to last year and this was due to the same factors that drove this.
Okay.
Scott.
Amortization expense for the second quarter was 109 million.
Caused amortization.
As a percentage of sales decreased to six 9% due to the strong recovery in sales last year.
Selling and general administration cost increased in the quarter to $77 million from $60 million last year.
The increase is primarily the result of the reduced government support and the increased cost supporting the sales growth, which were partially offset by the reversal of provisions.
Yeah.
Finance expenses decreased $17 million since last year.
Due to the Q2.2000, twenty's make whole payment related to the prepayment of the current plan.
We did last year did not reoccur.
In addition, the lower interest rate as a result of a significantly lower debt levels since last year as well. These are partially offset by the lower interest earned on the declining long term receivable balances.
The consolidated effective interest rate for Q2 remained flat at 2% since last year.
Effective tax rate for the second quarter increased to 25, 9% compared to last year.
Primarily to prior period adjustments.
Q2, 2020 that did not reoccur in 'twenty one.
As a result, we are expecting.
21 full year tax rate to be in the range of 24% to 26% and consistent with full year 2023.
I don't know if cash position on the $732 million on June 30, an increase of $356 million compared to June 2020.
Second quarter generated 186 million in cash from operating activities, which was used mainly to fund capex and debt repayments.
It also resulted in a free cash flow generation of $138 million in the quarter.
As a result of that definitely EBITDA decreased significantly to 0.17 times in the quarter for one eight times, a year ago and down from Q1 levels 031 times.
So on our current estimates we are expecting net debt to EBITDA to continue to improve into 2021.
The amount of available credit on our credit facilities with no.
$158 million at the end of the quarter our availability at the end of Q2 remained strong and grew to $1.7 billion. As a result, we currently believe we have sufficient liquidity to satisfy our financial obligations.
To recap sales and earnings for the quarter.
Stories professional performance driven by strong market recovers from Covid, 19, and strong market share growth driving normalized.
586%.
None of them are under great cash generation quarter, as we generated 138 and free cash flow.
While growing our liquidity to $1.7 billion.
That concludes my commentary and I'd like to open up for questions.
Thank you at this time.
I would like to remind everyone in order to ask a question you will need to press star one on your telephone to withdraw.
You're already a question.
Keith.
Yeah.
Your first question comes from the line of Peter Sklar with BMO capital markets. Your line is open.
Afternoon, I have a few questions here.
First can you.
Tell us how much was the total amount of government support you received in the quarter.
Sure. So our after tax government support was around 16 million.
And the quarter.
Is down substantially obviously from last year I think last year was at least double that level.
And we do expect Q2 is going to be the last quarter for subsidies.
Sure.
I just want make sure I heard you correctly.
The million one six after tax provision.
Correct.
Okay, Great and then in the industrial segment, you said there was a reversal for some provisions can you, let us know how much spot work.
Yeah, we haven't disclosed the specifics.
Around that but I can tell you that it was certainly a factor and driving the margins a little higher than you might have expected. If we strip it out the margins would drop back down to sort of the level that were guiding for the year.
Yes, Hello, and just under the normal range that we would like to.
Okay.
I noticed that like your interest expense really went down like not year over year versus Q1, I think in Q1 your interest expense was about seven.
$6 million and now it's effectively zero.
What what happened there.
Sure.
Pay down or are there other is there other noise in there.
It's a combination.
That coming down.
The lower interest rates, but we also had a foreign exchange.
Loss in Q1 that did not happen in Q2 this year.
Okay.
And then next I wanted to ask you when you look in your Mcdonough.
Mcdowell business.
The skyjack business like our the box like I'm, just wondering how stretched out.
Like is that the situation now where you've got these big stretched out backlogs.
Youre struggling through.
To meet that demand because of supply chain issues, but so.
What are you doing as the orders come in you just push them out and so are you kind of beyond six months for backlog is does that kind of a situation.
Well I mean, the backlog is indicative of the level of demand. So an increase in backlog is not indicating that our inability to supply is indicative of market demand.
Sharply rebounding, so when I say that.
The the backlog was up so significantly over last year, it's really to do with we've got a lot more orders. So normally lead those orders would translate into sales and in the near term.
Certainly the supply chain issues are constraining, our ability to add to execute on these customer orders as expeditiously as we normally would but you shouldn't interpret the bigger backlog as being indicative of our inability to produce it it's much more indicative of.
The market rebounding.
It's a little bit more information on so with the backlog we have.
Skyjack, let's say would be sort of very close to what we said at the beginning of 2018, So that's probably a boat.
Six months backlog to your point that you brought them. So again people are placing orders knowing that.
We're delivering Q1 of next year and Thats another big one no big.
Orders for 2022, both Skyjack and backed off both Skyjack.
For this year.
Complete right, we know the plan of attack, what we're going to.
To do this year.
The orders are getting strong income.
Sure.
And then exacerbated Peter.
The supply chain, which is exactly what limit as highlighted.
We're trying to keep up with the demand and the backlog or trying to eat away at it but as we go.
Okay.
Deliveries for supply chain.
A potential bigger backlog down the road.
Right.
Jim and Linda typically like in a normal year, what the business is more stable usually like theres a seasonal pattern for the industrial segment at least in terms of profitability, where the second half is weaker than the first half but.
It sounds like what Youre, saying that the backlog is so healthy.
Hmm.
Q3.
Q3, and Q4 profitability.
Kind of be like Q2 profitability may be a little bit more.
Is that what you're saying, yes, it could be to this pent up demand and what happens is you just keep sort of pushing it down the road a little bit if you can't get enough will be.
Enough of the person, it's sort of like if you look at what limited commentary on the inventory and the auto side right. If you go back to 2019 June there would've been a boat I don't know March 65, 68 days of inventory in 2006 now to eat up that we got to create another 40 days over the next you know.
How do you pick up the 40 day range of consumer demand stays up you've got to make it better right. So again, it's sort of pushing the pushing it down the road a little bit so that pent up demand is there.
That was getting caught up with the supply chain.
Right.
Okay. Thank you for your comments.
Okay.
Your next question comes from the line of Kristen Susan with CIBC. Your line is open.
Hi, Thanks for taking my question.
I just was wondering on the labor costs should we expect to see.
Some margin pressure from that through the back half of the year and into 2022.
I mean, the the labor issue is.
Less of an inflationary issue and more of an availability issue. Although obviously the two are linked because if you continue to not be able to attract people you may have to make some changes in that regard.
Wouldn't say, we're expecting to see a big spike in in labor cost, but I wanted to illustrate that.
The labor side is certainly an issue that we're struggling with to try to fill open positions, which is impacting also our ability to produce at just at the supply chain side, I think the incentives or something that please.
This too.
Tapers off I think we're going to get.
A better read on that but I mean, certainly there is competition for labor in the marketplace. So we'd have a very specific formula for labor percentile, and we stick to that and we are monitoring labor.
<unk> all the time because the different disciplines.
Okay, great. Thanks, and I was just wondering more on the guidance that you provided for 2021.
More reflective of IHS.
Expectations on.
The chip shortage or your more conservative stance on the impact of the chip shortage.
I mean, our forecast currently based on what our customers are saying, which is generally aligned to what IHS says.
So I.
I mean, that's what we normally run with a forecast, but we are suggesting that you'd be a little more cautious.
In terms of what your.
What you're expecting.
In terms of volume so there could be additional.
The pressure.
Okay that makes sense and then just as far as Capex is concerned I know, you're saying that Europe.
Returned to a more normal levels in 2022.
For the remainder of 2021 should we just assume that it stays.
This more.
At this lower level.
Yeah, I mean, we are expecting to stay under our normal range for the year.
Okay, Perfect and then just lastly, I was wondering.
If you can comment on how youre thinking about your buyback given how strong your balance sheet.
At this point.
Yeah, I mean, that's absolutely dividends and buyback or both questions that are on the table. We got some discussions today about it and that will continue.
This GAAP.
Scott that.
You know it is something that we talked about with the board every every quarter.
In terms of where we're at in our cash position, which as noted is obviously very good at what our expectations are.
And cash.
Cash needs are coming up I mean, we are conscious of the fact that we've already raised the dividend twice in the last nine months. So.
Conscious of that and always trying to balance out the needs of our shareholders and those of other areas of the business. So its something thats always an option and we're of course, where you would consider and something that is certainly on the table for discussion.
With that with us.
Okay, great. Thanks, I will jump back in the queue.
Again, if you would like to ask a question. Please press star one on your telephone.
Your next question comes from the line of Brian Good morning, gentlemen.
Your line is open.
Thank you good evening.
Follow up on the buyback question.
Maybe if you can explain.
Lord conversations against me back on the buyback your balance sheet is extremely strong the guidance is pretty good free cash flow was positive maybe just what would be against buying back stock.
Yeah, I mean, obviously expectations around needs for for cash. So I mean, it's and it's got to be a holistic conversation that looks at.
Every every piece.
It is a topic that we discuss regularly and we will continue to do.
Okay, if I can turn to industrial maybe a question for Jim.
Maybe just help me understand you talked about no pass your posture with respect to commodity costs can you just remind me of the price reset opportunity when does that happen and what would your approach do you think it happens in the fall.
Yes.
Yes, Brian.
Timing is sort of now.
Sort of estimate of where things are on the commodity side right of course.
I think.
She hot rolled sheet metal was like 800 per ton a year ago was probably 700 a ton.
We now need to figure out where the sweet spot will be for that and that will drive driver.
Lifting and our discount level.
And we will do that for both industrial companies knocked on Skyjack.
Yeah.
Right now the pricing models or next year.
Okay. Thank you and then sticking with industrial.
It's almost a 17% normalized margin industrial despite your pre quarter.
Presentations highlighted.
Shipping cost so maybe just reconcile this it sounds to me like AWS and receivable reversal.
Peter you're down to about 12, 13% maybe just.
Give us some context of what the margin pressure from shipping and logistics wise.
Well I think linda's slide 10 shows that pretty well shipping cost.
In some cases, we're paying up to $20000 in shipping container.
A couple of years ago that was like three red.
So that is really impacting.
The industrial side, because they are looking at.
Raw materials globally, and not just within the U S.
On the auto side, most of our raw material suppliers.
If you don't play out the same shipping issue and they also share.
Our finished goods products around the world from well to well.
It's a great example.
Our margins.
Yes.
Yes, I think it's been a while another push on March two.
Could be also the supply.
Impact on our efficiency at our facilities right. So if we're waiting for parts and you've got to run over time on the weekends and things like that to get things done there.
Deficiency or do you have to disrupt lines as well so that also puts a little bit of pressure on our.
Earnings guidance.
Okay and then last question for me. Thank you there.
In terms of the auto margin forecast for 2021 'twenty two could you just clarify for me you've got this 2021.
The normal range in 2022 normal range, what does that mean that sounds to me like it's down more volume should be much higher and if that's the case is that simply because of the CDW that's it.
So I'm sorry, you're you're thinking that the 2021 should be higher I didn't quite understand your question no Im just understand trying to understand what the what that means 2021, you say mid normal range in 2022, its a normal range for the 2022 should be lower than 2020.
One.
Despite volumes should be much higher.
No in fact, we are specifically, saying that we expect margins to expand.
Next year.
For the mobility segment right. So we expect margins to expand this year and will be in the kind of mid mid range and then we expect further expansion next year.
Understood well done very challenging quarter.
Thank you.
You have a follow up question from BARDA with BMO. Your line is open.
Slide Theres a.
Slide in the deck slide.
Slide <unk> page.
Page 31, and I'm just wondering if you could I mean, you did touch on it but I'm just wondering if you could spend a little more time on it I just wanted to make sure I understand exactly what youre showing there.
Right.
Electrified vehicles key growth opportunity for limbach.
The GAAP three three lines there.
Right. So this is showing our book.
And actual content per vehicle.
For different types of propulsion. So trying to show you that we are rapidly growing our content per vehicle that.
Is forecast out a few years out.
Based on actual book.
So this is not a there's no potential visits in here. This is based on things that have actually been awarded.
Our expected sales revenue for the for those propulsion type.
Product for those propulsion types divided by the number of.
That particular type of vehicle that is expected to be built in that year.
Okay, and then under the electorate.
Evs and plug ins.
Yes.
And what are the well either for you. So sorry, hi brands are separate pardon me.
The brands are separate so.
Plug in hybrid electric vehicle would be under the hybrid.
Mine, so that dotted gray line.
The electric line is a battery electric vehicle pure battery electric vehicle I mean, you're obviously quite limited dark long, but it's not a plug in hybrid.
Okay, and then on the electric volume.
You're like you're kind of getting up to about $60 of content.
Mid decade decade.
What is the major product categories is it <unk> or is it.
Structural parts or is it all of the above.
Pretty well either or both of the key ones there.
Okay structural them.
T systems.
Okay, and the structural that's out of Europe.
Dodge has joint venture that you have in the U S.
Yes, yes, but also part of our low low pressure gravity.
If you remember the Montpelier acquisition that I'm sorry.
All right.
What's the sort of components.
Part of that so it would be.
Lockheed's in there too.
Okay. Okay. That's great. Thank you.
There are no further questions at this time.
Turn the call back over to Mr. Hudson for closing remarks.
Thank you very much so to conclude this evening I'd like to leave you with three key messages first it is great to see such dramatic sales growth in the quarter, which is significantly outpacing the market growth secondly, it's great to see our balance sheet in such fantastic shape. Despite the pressures of last year.
Here with consistent free cash flow, giving us a war chest to drive continued growth and finally, it's great to see strong market demand, indicating that we will be entering a period of strong sustained performance once supply issues are behind us. Thank you very much everybody and have a great evening.
This concludes today's conference call you may now disconnect.
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