Q2 2023 Linamar Corporation Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the linear more second quarter 2000 statutory earnings conference call.
This time all lines are in a listen only mode.
During the presentation, we will conduct a question and answer session.
Any time during this call you require assistance please press star zero for operator.
This call is being recorded on Wednesday, the 19th of August 2023.
I would now like to turn the conference over to Linda Hudson Fracs Executive Chair and CEO . Please go ahead.
Thanks, very much and good afternoon, everyone and welcome to our second quarter Conference call. Joining me. This afternoon are members of my executive team, Jim Gerald Dale Schneider Elliott Berger <unk> chartered in some members of our corporate marketing finance HR and legal.
Before I begin I will draw your attention to the disclaimer currently being Brad.
I'll start off with a review of sales earnings and content.
Sales for the quarter were $2 55 billion up 29% to last year on recovering market and supply chains as well as market share growth.
Normalized net earnings for the quarter were $160 8 million and normalized EPS $2 61.
EPS is up 55% over last year on stronger sales and launching business.
Our industrial segment had another excellent quarter with sales in OE significantly up at both Mcdonald's Scott back on stronger markets and market share growth in targeted product.
<unk> had a particularly strong quarter and easing of supply chain issues helped our teams get product out the door are Salford acquisition also played an important role in both sales and earnings.
Pricing increases and a favorable exchange rate helped offset higher cost that this segment has been experiencing.
Our mobility business had a strong quarter on the top line, thanks to stronger markets in all global centers and strong launch performance.
Higher costs continue to drag on result, notably energy and freight cost in Europe , although customer pricing relief is helping to offset part of the cost. The segment did see some improvement in earnings compared to Q1 as we expected we do expect to see continued improvement sequentially in Q3.
<unk> of this year for this segment despite normal seasonal slowdown as cost improvements continue and we see further pickup in Asia as well as the impact of our Dura Shiloh battery enclosure business acquisition.
It's great to see the continued trend upwards in terms of normalized net earning margin that we've been seeing since the recent low point in the fourth quarter of 2021. This quarter has been an excellent. Another excellent example of Lindmark diversification strategy again paying dividends and driving consistent sustainable.
Earnings growth for us.
We saw another quarter of market share growth in our mobility business with global content per vehicle up over last year, both Europe and Asia Pacific content per vehicle growth on launching business with North America flat.
Commercial and industrial sales were up 50% with solid growth at both Skyjack and Mac dawn on market growth and market share growth in key targeted product Mac, John had a particularly strong quarter. Salford also played a key role in growing sales in OE in this area.
Capex continued to run at a more <unk>.
Normal levels <unk> seen in recent years to support global launches and growth.
Capex as a percent of sales was 8% in line with the level of spending of 6% to 8% that would support our targeted double digit growth level, we do expect capex to be significantly up this year over last year and at the high end of our normal range next year Capex will grow again still staying at.
The high end of our 6% to 8% range.
Free cash flow was $56 $1 million in the quarter on strong earnings despite heavier capex.
We have $1 $8 billion of liquor.
The liquidity available to us, noting we will use an estimated 325 million U S for the <unk> shallow acquisition.
Our net debt position has remained strong at just $493 million. Thanks to continued positive free cash flow leverage remains very strong and remarkably consistent at just 0.42 times net debt to EBITDA.
Our strong balance sheet and liquidity means we have the ability to continue to pursue acquisition opportunities as they arise in the dynamic market and drive even more growth.
I'll turn now to a market outlook market demand is continuing to look good with growth in most regions and business is expected for this year and next year.
Why chain issues do continue to constrain the industry's ability to deliver on the demand, but it does feel less volatile.
Turning to the specific markets industry experts are predicting growing light vehicle volumes globally. This year to $15 5 million $17 4 million or $48 7 million vehicles in North America, Europe , and Asia, respectively that represents 810 and 3% growth.
2024, I will see Europe flat and further growth of one five to two 5% in Asia and North America.
And just to be experts are predicting on highway medium and heavy duty truck volumes to grow moderately in Europe . This year, but more strongly in North America and double digit growth in Asia. After a tough couple of years next year, we're going to see continued growth in Asia that flat to down market in Europe and North America.
Industry experts predict double digit growth in the access market globally. This year with North America, and Europe expecting high single digits and Asia low double digit growth next year, we will see further growth of another 5% to 10%.
Lastly, the agricultural industry is predicting growth in the combined Draper header market this year and mid single digits in North America, but reasonably flat in other parts of the world. The window market will also see single digit growth globally. This year driving mainly out of Europe , and Australia. There is a positive outlook for market growth.
And both tillage and crop nutrition equipment this year as well.
Looking at the access market in more detail you can see first strong double digit growth in all of North America Asia and Europe in the second quarter. All three regions are expecting solid growth this year and more moderate growth in 2024 as already noted.
Rental companies demand for equipment is strong as companies continue to look to counter fleet aging experience during COVID-19.
Shipment and utilization in North America is well ahead of 2022 throughout the first half of the year in line with or exceeding peaks that we saw in 2019 utilization levels in Europe are well above 2022 levels as well and also exceeding 2019 peaks.
Our backlog at Skyjack is solid and with some relief on the supply chain side, we are increasingly enabled to deliver on such with market and market share growth. We feel confident we can again grow skyjack can double digits. This year and next year. We're of course, keeping a close eye on potentially shifting market conditions.
In the event of an economic slowdown.
In the agricultural business Q2, combined combine retail in North America were up 25% over prior year and high horsepower tractors up 13% as noted we expect to see market growth primarily in North America for both segments.
Inventory at equipment retailers remains below historical levels driving demand dealer sentiment remains positive, but with a cautious outlook.
We have a significant backlog at <unk>, which is up over prior year supply chain issues, though still a challenge are improving and helping the team get product out the door. Our current forecast is for double digit growth. This year again for <unk> with continued growth in 2024, Salford is seeing a strong backlog in all products.
As well in conjunction with the market growth referenced also mainly in North America. Salford is also predicting double digit growth in 2023 was continued growth in 2024.
Looking at the mobility side, you can see vehicle inventory levels in North America has slipped back a little to 34 days, so well below historic levels refilling the pipeline with vehicles will still be a major priority for the automakers and will take some time to get done.
And looking at production levels compared to what was forecast at our last conference call. You can see a slightly stronger Q2 in all regions and being at 22 million vehicles, which was up 16% from last year, which was $19 million.
Q3 is forecast to be $20 8 million units down a little from prior year, but up a little from what we had forecast to you back in April the full year as noted is predicting overall growth at 5% over 2022 well.
Well he had launches for the mobility business, you'll be pleased to know we had another strong quarter in new business wins and once again, a very strong quarter for wins in the electrified and propulsion agnostic space, which is really dramatically shifting the landscape.
Our mobility business, we've had a solid first half of the year in terms of business wins for both battery electric and hybrid electric vehicles year to date wins are 58% for electrified vehicles and propulsion agnostic work out of our total new business wins.
Nearly 60% of our mobility sales as soon as 2027 are now for electrified vehicles or our propulsion agnostic and this figure is growing every quarter. Our strategy is to continue to grow this percentage to minimize the concentration of our business at risk as internal combustion and.
Vehicles ramp down over the next decade overall, our launch book has grown now to nearly $4 5 billion.
We are seeing ramping volumes on launching programs, which are predicted to reach 30% to 40% of mature levels. This year generating incremental sales of $700 million to $800 million, we'll see further growth of another incremental $800 million to $900 million next year. These programs will peak at nearly four and a half.
$1 billion in sales only.
Only about $5 million of program moved from launch to production last quarter, which was more than offset by business wins in the quarter launching business in conjunction with growing markets will result in double digit sales growth for the mobility segment this year and next year.
So, let's turn to a summary of that top line outlook and also look at the bottom line margins in next quarter in a little more detail as illustrated on this slide with strong markets and market share growth, we're expecting to see double digit growth on the top line in 2023 and 2024 for <unk> overall.
This drives from double digit growth in both our industrial and mobility businesses.
Net margins will expand in 2023 on growing sales, we expect significant growth in margins in the industrial segment, where margins will expand back into their normal range mobility margins will contract for the year, noting stronger margins are expected in the back half than we saw in the first half.
<unk> of 2023.
This will mean significant double digit earnings growth.
The industrial segment, coupled with reasonably flat OE performance in the mobility segment, which will combine to drive significant double digit growth in earnings per share in 2023, and 2024, we expect continued expansion in overall margins driving out of expansion in margins in both.
Segments. This will mean double digit growth in earnings in both segments and another year of double digit EPS growth in 2024.
We will also see continued positive free cash flow this year and next year, leaving us in an excellent position from which to drive further growth looking specifically at Q3, you should expect OE up from prior year, but seasonally down from Q2 of 2023 the mobility.
We will see OE up sequentially over Q2 of this year, despite normal seasonal slowdowns in North America, and Europe , Thanks to our new battery and closure plants as well as improvements in Asia and in terms of cost overall on pricing, but flat at best performance to Q3.
Last year, the industrial segment will see OE down sequentially versus Q2, 'twenty three outperform due both to seasonality of the business and a stronger than normal Q2, this year for <unk>, but up in double digits compared to last year.
Moving on to an operational update we are we're very excited to announce the acquisition in the quarter of three battery and closure of facilities from Dura Shiloh the acquisition add complementary technology to our existing capabilities around cost and aluminum welded battery enclosures with a multi.
<unk> battery enclosure design, including high speed steel composite materials and a unique bonding process.
The three facilities in aggregate are generating approximately $330 million in sale purchase price is estimated at 325 million U S. Operating earnings levels are a little under our normal target range of 7% to 10% of sales for our mobility business, but we anticipate to see.
[noise] them reach that level within 18 months, the financial results will be consolidated into our existing mobility segment results.
The transaction closed last week and integration efforts are underway, we have already had the chance to spend some time with the teams on her impressed by their capabilities and the efficiency of their operations. We welcome the team to the <unk> family.
These three facilities will join our new Giga casting facility that we announced last quarter, our existing Mills River high pressure die cast facility and an existing Lamar battery and closure facility to form our newly created fully easy and propulsion agnostic group, which is the linde.
Our structures, where we are very excited about this new global group at <unk>, which is growing rapidly and will play a pivotal role in the future of our mobility business with just the facilities business won to date. This group has already poised to be approximately $1 billion in sales and has additional <unk>.
Michigan opportunities under pursuit move.
Moving on to new business wins on the mobility side I will highlight a few far more interesting wins this quarter first I'd like to highlight more than $110 million worth of wins in a variety of driveline components that are going to be used in battery electric vehicles production of these components is going to.
Later this year in the facilities in all of North America, Europe and China.
Secondly, we had a very strong quarter for our commercial vehicle wins with more than $30 million of wins for transmission and driveline components for commercial vehicles. These will launch next year at plants in Canada, Spain, and France, it's great to see our commercial vehicle business starting to gain some traction.
Again, it's a highly opportunistic market undergoing enormous technological change, which will create many opportunities for us.
Lastly, I'd like to highlight a significant structural win for a European based OEM, adding to our growing portfolio of propulsion agnostic structural components. This will be used in the next generation battery electric vehicle and will launch in 2024 in the U K.
Turning to an innovation update I'm happy to share that Skyjack is continuing to update its fleet with more purely electrified products. The E series Scissor lifts with AC electric drive have been launched into production. This follows on the heels of our S. J 16, and S. J 20 mass lift launches.
Last year this electric direct power drive.
The electric direct drive powers, the wheeled directly and removes hydraulic actuation from the drivetrain at key customer expectation when operating answered and indoor work environments.
Pure electric system features improved run time for charge and lower operating cost, which means better return on investment for our fleet rental customers.
And from the mobility side, we once again are thrilled to highlight the battery and closure systems, we add to our portfolio from the acquisition of the three during Shiloh manufacturing sites. This battery and closures product line enables us to offer our customers modular designs in multi material structures.
With integrated cooling channels, using either welded or bond. Good assembly techniques. This product line is built on modern state of the art equipment utilizing a highly optimized single piece flow manufacturing process. This is an exciting addition to our electrified vehicle content offerings.
Finally, we continue to execute and execute on our global Digitization journey with more and more connected machines data connections and robots being commissioned in our global plants every day with that I'm going to turn it over to our CFO Dale Schneider to lead you through a more in depth financial review.
Yes.
Thank you Linda and good afternoon, everyone.
Yes.
As Linda noted Q2 was an exceptional quarter for sales and earnings growth.
<unk>.
Yes.
Sales and other cost issues there for you.
Yes.
Of course now.
For recovery.
Q2 was another positive quarter for cash generation was strong reaching $1 8 billion.
For the quarter sales increased 28, 8% to $2 6 billion.
Earnings are normalized for FX gains or losses related to revaluation of the balance sheet and potentially other items that may occur.
Sure.
In the quarter earnings were normalized for FX losses related to the revaluation of the balance sheet.
Which impacted EPS by 2010 for sure.
Net earnings were further normalize in Q2 as a result of the net withholding taxes paid related to the repatriation of cash from our Chinese operations are moving this net loss impacted EPS by <unk> 22 per share.
All of these two issues impacted EPS by <unk> 42 per share and as a result of normalized EPS for the quarter was $2 61.
Normalized operating earnings for the quarter were 238 million. This compares to $149 2 million in Q2, 2022, an increase of $81 6 million or 54, 7%.
Net earnings normalized net earnings increased $51 5 million or 47, 1% in the quarter to $168 million.
Fully diluted normalized EPS increased by 90 345.
<unk> 55, 4% to reach $2 61.
Included in earnings for the quarter was a foreign exchange loss of $16 6 million, which was a result of the $16 $7 million loss related to the revaluation of our operating balances and a $100000 gain due to the revaluation of our finance expenses.
As I mentioned, the net FX loss impacted EPS for the quarter by 20.
From a business segment perspective, the Q2 FX loss of $16 seven related to the revaluation of operating balances resulted in a 11 $8 million loss in industrial and a $4 $9 million loss in mobility.
Further looking at the segments industrial sales increased by 54% or $272 7 million to reach $777 3 million in the quarter.
The sales increase for the quarter was due to the higher agricultural sales driven by growth in both global markets and our market share growth in our core products.
Higher access equipment sales driven by growth in the global markets and also with market share growth in our European boom products.
The acquisition of Salford last year also added additional sales this year.
Higher sales prices achieved to help relieve some of the current supply chain costs also impacted sales and finally, we had a positive impact from changes in FX rates since last year.
Normalized industrial operating earnings for Q2 increased $102 2 million or 206, 9% over last year to $151 6 million.
Primary drivers impacting industrial earnings where the increase in contribution from the strong agricultural equipment volumes increased contribution from the higher access equipment volumes.
Positive impact from changes in FX rates since last year and the increased margins from the Salford acquisition.
These were partially offset by increased SG&A cost center supporting this growth.
Turning to mobility sales increased by $298 5 million or 22% over Q2 last year to $1 8 billion.
The increase in the second quarter was driven by increased volumes on launching programs the positive impact from changes in FX rates since last year and cost countries, we were able to achieve in the quarter.
Okay.
Q2 normalized operating earnings for mobility were down over last year at $79 2 million in the quarter mobility earnings were impacted by the increased labor material freight and utility costs net of any customer recoveries.
The increased SG&A costs that are supporting the growth.
And these are largely offset by increased contribution on the higher launch volumes.
Returning to the overall Dunmore results gross margin was $361 9 million, an increase of $112 million compared to last year due to the same factors that drove the segment results that I just discussed.
Cost of goods sold amortization expense for the second quarter increased slightly to $116 6 million compared to Q2 last year caused amortization as a percentage of sales decreased to four 6%.
Selling general and administration costs increased in the quarter to $131 2 million from $107 million last year the.
The increase was primarily the result of increased management and sales management and sales cost or unit growth incremental SG&A costs from our acquisition of Salford last year, an increase cost of travel that is also supporting the growth.
Finance expenses increased $10 5 million from last year, mainly due to the additional interest expense from the bank of Canada and U S fed rate hikes since last year.
<unk> debt due to the 2022 acquisitions and share buyback programs that were completed last year.
And to a lesser extent the new private placement notes issued in June 2023, which were partially offset by increased interest earned by the interest rate hikes from last year.
Consolidated effective interest rate for Q2 2023 was four 3%.
The effective tax rate for the second quarter increased to 32, 1% compared to last year, mainly due to the nondeductible expenses.
In the quarter and the net withholding tax on the repatriation of funds from China.
For Q2, the effective tax rate would have been 25, 3% with the repatriation of the cash in from our Chinese operations did not occur.
We are expecting the 2023 fully your tax rate, excluding the net withholding tax in Q1, and Q2 to be in the range of 24% to 26% and higher than 2022 full year rate.
<unk> cash position was $1 4 billion on June 30, an increase of $515 3 million compared to December 2022, mainly due to the private placement note issuance in June 2023, which was partially used to fund the closing of the acquisition of the batteries closer.
Plants last week.
Second quarter also generated $269 million in cash from operating activities being used primarily to fund capex and debt repayments.
As a result net debt to EBITDA remained flat at 0.42 times in the quarter from last year.
Based on our current estimates we are expecting 2023 regions to maintain our strong balance sheet and leverage is expected to remain low.
The amount available credit on our credit facilities was $465 8 million at the end of the quarter our available liquidity at the end of Q2 also remained strong at $1 8 billion. As a result, we currently believe we have sufficient liquidity to satisfy our financial obligations throughout the year.
To recap sales and earnings for the quarter was a story of improving markets and increasing market share in both segments, which drove overall sales up almost 30% in normalized EPS was up 55%.
Supply chain shortages that had been hampering the OEM production requirements have continued to see improvements, adding additional mobility sales.
<unk> related cost increases continue to impact both segments earnings.
<unk> continued to.
<unk> has continued the discussions with our customers for price increases and cost recoveries and those negotiations are ongoing.
Despite these challenges in the quarter, we were still able to maintain our strong liquidity at $1 8 billion.
That concludes my commentary and I'd like to open up for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.
You will hear at rebound prompt acknowledging your request.
If you would like to cancel your request please press star two.
Please ensure you lift the handset if you're using a speaker phone before pressing any keys.
So your first question comes from the line of Tami Chen from BMO capital markets. Your line is now open.
Okay.
Thanks for the question I wanted to start in the mobility segment. So just looking at.
You did last quarter in Q1 versus this quarter and.
I'm, sorry, I don't really see a sequential improvement.
Flat sequentially and I think you were saying in Q1, you were expecting some sequential improvement. So could you just talk a bit more about specifically what happened in Q2 I think your peers have largely reported stronger results in this quarter industry production was stronger I think in your.
Your press release, you had called out some lost volumes on certain programs did that contribute to a lower margin than expected.
Yes.
Yeah I mean.
I would say mobility earnings were a little softer than we expected last quarter, but they are up from Q1, I mean, I guess, maybe we have different definitions of apps.
But we are higher in terms of our earnings in Q1 in the mobility segment than we were last quarter. So we are sequentially up.
I will say Europe and Asia Pacific.
Although nicely up from last year.
We're a little slower than we had expected.
Last quarter or.
So that impacted a little bit or.
What we were expecting.
Mix was an issue as well, but nothing really popping out that I think was very unusual earnings are up we expected them to be up we expect them to be up a little bit more about there still nevertheless, up and we do expect to see a continuation of growth in there.
Mobility segment sequentially again in the third quarter.
This year, despite what would normally be a seasonal slowdown.
And in the quarter and not think too a couple of things more improvements in Asia Pacific.
Which is starting to get a little bit more traction continued improvement on coffee.
And pricing and size and of course, our new battery trade plants as well.
Okay, and so what are the factors such as the mills river's business and also when it comes to the E. Drives for example, I'm not sure to what extent, you're you're in launch mode for those but could you talk a bit about the margins on that side and how they are sort of panning out.
Initially here.
Yeah, I mean mills member continues to make improvements month over month. So they are proceeding. According to plan. So I mean, we're obviously not at targeted levels, yet, but we are.
We are seeing improvements I'm glad to see that.
And with respect to margins on launching business I mean, when business is newly launching it never is.
Never.
<unk> has a positive margin, but it does obviously reach reach a level of what we would call mature profitability.
Year or two of launch and I would say that that launch curve is not too different I am.
In our electrified vehicle program, then it would be and any other type of program.
And how quickly you can get to a profitable is highly tied to how quickly the volume ramps up so a super slow ramp is probably going to take a little longer than a quick ramp is going to be quicker. So it's really not about the type of work and more about the launch.
Again underscore the volumes on the DC.
Certainly there are different.
No.
Changes more rapidly than traditional program, because we started off and this is not a peak.
A decrease in the marketplace.
So we are certainly seeing that.
The sector and then with Mills River I would say certainly linda's comments are accurate, we made tremendous progress on the company.
We're making plans.
Product lines going on there.
Paul.
Go ahead.
And sorry, lastly, just on that comment on on Evs is to take rate is not expected to get ratcheted back youre seeing that right now so.
I mean, essentially what happens are there offsets you could do it I don't know if theres pricing you could go back to the Oems to discuss is the volume or the take rate isn't what was initially expected.
100%.
Definitely talk to these customers specifically about the program.
Certainly wouldn't disclose any specific contract issues, but we do have those specific customers globally, depending on them.
Product line.
Yes.
The shortfall in volumes you do sit down and talk just like a commercial economic purchases.
Dale and Linda highlighted that.
Sure.
Discussions and negotiations.
Mobility on many.
Economic hardship issues that have come out of this.
Here as well and typically the back half of the year.
Relief.
Where you see the cost first.
First couple of quarters, and then we deal with customers and go through all that.
Details.
Okay. Thank you.
Okay.
Okay.
Your next question comes from the line of Chris <unk>.
From CIBC. Your line is now open.
Hi, Thanks for taking the question and congrats on a great quarter. I was just wondering if you could maybe talk a little bit about the batteries battery and closure acquisition and and how you expect that to impact margins through the back half of the year.
Yeah. So just recapping some of the figures on the AD business is generating about 330 million U S of revenue operating earnings level. It is a profitable business.
But it is running a little under our normal target range of 7% to 10%. So it is a little sub that level, but we do expect to be able to get ourselves into that level within the next year and a half 18 months.
So it is going to be positive positively impacting the back half of the year and as noted it closed last week, so really it'll be two months worth for IV.
Our third quarter.
Okay.
Great and then sorry, sorry go ahead.
I think the other thing.
It is worthy to note.
The opportunities have now.
Going forward.
Acquisition of ROE includes of course.
I'll conclude facilities.
But the size of this exposure into the marketplace offers a lot of opportunities.
Huge amounts.
Yes, right now.
The closures.
Right, Okay, perfect and then I was wondering if you can just speak to him just more broadly the operating environment and how that improved through the quarter. It sounds like things are better than maybe we had all expected them to be at this point.
When we were looking at it earlier this year, just kind of what the call off situation is like and what the Oems are saying.
DB the entrance of what volumes, we're seeing and are we seeing unexpected.
<unk> downs from our customers.
Yes, yes, exactly yeah, yeah, I would agree that.
I think theres certainly more stability now than we would have seen last year for instance, so I think I am.
More predictability.
Round, what's happening with that with volume so we're not seeing as much in the way of the unexpected shutdowns less supply chain disruptions and I would say that for sure in the mobility sector and I think bill highlighted as well Linda.
The industrial sector as well, we're seeing a lot less supply chain disruptions, which equals less.
OEM volume changes that happen right.
That's a positive.
Thanks, and maybe just one more question just on the labor front.
I'm sure you can't comment on that.
Yeah.
If you're hearing anything from the Oems, but just what you're seeing in terms of labor. Obviously costs are up are you expecting that to continue to increase through the back of the this year or just what are you thinking there.
Yeah, I mean, I think that late labor wage inflation as acquired 100% tied to labor availability.
So what is what will happen in terms of wage cost is going to be tied to how much demand there is and how much availability of people, so and thats really depending on where we are in the world. So.
Here in Canada, I feel like we're seeing a little bit better.
Labor availability, we are starting to see definitely more folks showing up for job fairs, and and it's feels definitely easier to find folks here than it did last year. So that's a positive sign from a wage inflation perspective, I would say in the U S is still a lot.
Tighter labor markets, and you'll probably get us feel more.
Wage inflation pressure there yes.
Dan as well.
In Europe .
Tighter now for labor.
And Mexico was tighter.
We have not really seen over the last couple of years.
Thanks, I really appreciate your comments and congrats on a good quarter.
Thanks, so much.
Your next question comes from the line of Michael Glen from Raymond James Your line is now open.
Hey, good evening, so maybe as a starting point when I look at the 24 guidance in industrial.
Sure.
Calling out.
Kind of double digit type growth in Skyjack growths in agriculture.
Oh.
You are up quite a bit this year on top line in both of those businesses.
Significant double digit growth in.
Double digit in Skyjack.
Oh, how like when you're seeing what's happening in the market like it just feels like those are.
A very high hurdle rates for 24, and just trying to get some insight into what youre seeing in the market that that's leading to that type of guidance.
Yeah, I mean, we're basing that on current order levels.
Some of these businesses have much better visibility on the order book than others Mac on for and as an example tends to book out.
You know almost their full year ahead of time, so we've got a pretty clear picture of where theyre going to be over the next 12 months. Our other businesses don't have that same level of visibility that you.
Do you also broke out.
A fair ways. So we base these estimates on our order book.
Backlog, what we're hearing from.
From dealers and from our folks out there at our sense for where the market is going so the current expectation is for skyjack to see double digit growth next year.
And.
The agricultural businesses are both expecting continued growth as well so I mean, that's our outlook at the moment of course, you know that.
That can change if things start to change dramatically on the economic front, but that's their current yes current outlook and keep in mind that Scott.
The increase.
Yes.
In Asia as well as in North America added more capacity. So that is very helpful as well.
And on that just on that Skyjack can you remind us.
What you've added in terms of capacity for Skyjack the locations and the products.
And I don't know if you've disclosed this at all but if youre able to indicate what that.
What that could potentially add overall from a capacity perspective that skyjack as well.
I don't think we've disclosed the overall, but we are in China.
Tien tsin for Stryker product lines.
As it is today.
Okay.
In China.
Mexico's telecom.
<unk>.
Okay.
Yes.
And both of those plants are ramp.
Ramping right now.
Yes, they're both ran.
Okay.
And can you are you able to say at all like how far along they might be.
In terms of the ramp.
Yes, I think we're in.
Is it just sort of.
He started as soon as that can be.
19 months for full ramp.
Mexico again.
Wrapping on a couple of product lines and all of those product lines.
One of those six to.
10 months okay.
Mexico.
Okay, and then on <unk>.
<unk>.
Yes.
If I, if I'm thinking of the the LINTA Maher.
There were a shiloh acquisition so the basically the business we had in Q1 and Q2.
What improves exactly in the back half of the year from a margin perspective is there.
I'm, just trying to get a better sense of what changes in Q3 Q4 that helps provide some lift to the legacy.
Pre dura Charlot business.
Yeah, I mean, obviously the growth in Q3 compared to Q2 is partially due to the acquisition, but it's not all due to it. So we are expecting sequential earnings growth for the segment on the let's call it organic side as well of our existing business.
Really dropping out of a couple of things improve improvements on the cost side continued improvements on the cost side, which we've been seeing over the last 12 months.
Continued improvement.
Improvements on the pricing front again as Jim noted commercial.
Discussions are underway.
And continued improvements in Asia Pacific, which had a rough start to the year I mean Q1 in particular, but it did kind of hangover into Q2 as well. So we are expecting Asia to be performing a little bit better. So those things are also asking to help offset what is a normal season.
No slowdown in North America and Europe .
Okay.
And.
Just another one.
What do you are you taking any steps right now in your North American business like how are you planning.
Around the potential for a.
What could be a <unk>.
Sizeable UAW strike in <unk>.
Through the through the back half of Q3.
Yes.
HR is working with.
For sensitivity analysis on that and we're preparing around that for you.
If something happens we don't have any more information than you would have won.
Risk factors.
Certainly we're taking precautions to.
To get into that mode.
Quickly.
We will take the company.
Sure.
In the past.
Many years ago.
Okay.
Yeah, I mean, I would say that situation.
Situations like that are actually <unk> is particularly good at handling were very responsive, we're very nimble organization and we act quickly. So in the event of an extended situation we would.
Worked very quickly to try to mitigate risk.
Risks and reduce the impact.
Okay. Thanks for taking the questions.
Okay.
As a reminder, if you have a question. Please press star followed by the number of partner going forward.
Your next question comes from the line of Brian Morrison from TD Securities. Your line is now open.
Okay. Thanks, very much good quarter I want to go back to mobility side of things. So I'm not sure I completely understand what caused the guidance revision on the margin. The sales are there. So is this inflationary impact on costs, such as labor or is it the launch costs the launches aren't going as well as possible.
Is this revision is it just for the Q2 results or is this revision also.
<unk> is going to be a bit lower than your expectation.
You mean in my guidance for being flat for the year.
Is that your it is.
Is that the question.
That is it but I am more focused on the operating margin going from modest contraction to contraction.
Oh I see so I mean, you know as noted Q2 was a little softer than we had expected because again you both Europe and Asia Pacific, Although they were up from last year quite a bit were a little slower than we had actually anticipated.
So Q2's impact Q2 will impact the overall year.
And Youre right were guiding a little more conservatively for the segment given that a softer Q2 and a more conservative outlook for the back half of the year end and in Europe in particular.
But I mean of course, there is potential for that pricing relief to help offset but we think it's better to have a conservative conservative outlook.
For the time being and we are expecting to see second half growth over prior year for the mobility segment.
Okay. So I guess, it's like fast forward to 2020 score why are we back to 7% margins in 2020 for I know, it's unchanged guidance for that but like what are the key headwinds here or is it still <unk>.
<unk> is it is it launch costs why are we getting back to 7% in 2024.
Yeah, I mean, it's.
It can take continued improvement is certainly going to lead us to an expansion into.
On the margin side.
We could very well be.
And back into the normal margin range next year.
Yeah.
Depending on how things play out so I'm not excluding it I am saying that I am planning on expanding margins next year. So I'm certainly not excluding getting into the seven to 10, but.
Again, I think it's prudent to be conservative at this juncture I think there's a lot of fluid.
<unk> got a lot of losses.
Earlier on the EV side, some volumes a lot of economic purchases skews, Brian that are being dealt with.
And Theres still a lot of cost increases coming that we don't have them.
And along because they are coming up all the time right. So.
Dan.
Those to me would be the key things.
Haynes back.
Okay. I guess last question on Sky Jack I. Appreciate what you said about China, and Mexico, I guess, the other three facilities I guess Guelph.
And golf and one in Europe .
How many shifts are you currently operating what would what capacity you're running there and can take on.
Additional shifts or is it just too tightened labor.
The labor is working.
Pat.
I mean, they're running multiple shifts.
Six days a week at times seven days a week to week.
Can't really.
Good much more.
Of course.
The supply side two of time, we still get them.
Better for sure, but certainly.
We are pretty well matched.
Okay. Thank you very much.
There are no further questions at this time I will now turn the call back to Linda for closing remarks.
Thanks, very much well to conclude this evening I'd like to again leave you with three key messages.
First of all we are thrilled to deliver another fantastic quarter of earnings growth of 55% driving off of our industrial segment earnings tripling lots of focus on mobility, but don't forget industrial is hitting it out of the park and driving double digit earnings growth for us This year second.
We are excited about our new completely EV propulsion agnostic focus Linda Moore structures group, which is really changing the landscape of our mobility business and finally, we're excited to welcome our newly acquired battery closure plant to the LINTA My team, they're making a meaningful mark in terms of our market share and electrified vehicles.
And expanding our technology, Scott, Thanks, very much everybody and have a great evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.