Q3 2024 Linamar Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the linear Mark Q3, 2024 earnings Conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
If at any time during this call may require immediate assistance. Please press star zero for the operators. This call is being recorded on Tuesday November 12, 2024, I would now like to turn the conference over to Linda Hudson, Perhaps executive Chair. Please go ahead.
Thanks, So much good afternoon, everyone and welcome to our third quarter conference call before I begin I'll draw your attention to the disclaimer that is certainly being blackhawks.
Joining me this afternoon as usual are members of our executive team Jim Gero, our CEO.
Our CFO, both of whom will be addressed on the call formally alcohol available for questions or remarks charter, Kevin Callaghan as well as some members of our corporate marketing finance and legal team.
I'm going to start us off with some highlights and strategic update.
First that youre going to notice a new format for our slides Tonight.
We've been doing some work over the last six months around streamlining shareholder communications and improving shareholder engagement to that end I'd like to thank those of you who have participated in our outreach program to gain insight on the needs of our shareholders. It was extremely valuable today youre going to see some are afraid of that where we are.
Difficultly streamline has shortened the formal presentation and in Africa, only key messages and information regarding the quarter's results and then we're going to proceed to questions.
I'll start us off with a quick reminder of the key value drivers that make <unk>, such a great investment and I think this quarter was a great example of all of them first of all the Newmar has a long track record of consistent sustainable results driving out of our diverse business, we've grown top and bottom line Linda Moore, 80% of the last 15 years.
With almost every one of those growth youre seeing double digit growth both top and bottom line. How do we do that we have a diversified synergistic business model that balances, our mobility and industrial businesses, which are highly complementary and Ron on somewhat different cycles, which does allow us to be always driving growth almost everything.
For the last 15 years.
The second key point is our flexibility to mitigate risks our equipment is programmable flexible equipment that can be used on a large variety of types of products in fact more than 85% of our equipment is flexible and can be easily reprogram so different job.
We've purposefully chosen to focus on products in our mobility business, regardless of what type of propulsion vehicles that might be used in that utilize similar processing and therefore use that same equipment, we have pockets, where internal combustion vehicle programs that are manufactured using the exact same types of processes and equipped.
Minutes parts, we make for battery electric or hybrid or electric vehicle programs. We have a strong portfolio of products for every type of vehicle propulsion and propulsion agnostic system, giving us maximum flexibility to pivot whichever direction that the market growth. So that's the best flexible equipment suitable for wide body parts and every time.
Vehicle propulsion and costly Ignostic systems as well as how we can control our capex as you have seen this quarter.
We have always run a pretty conservative balance sheet, we target keeping net debt to EBITDA under one five times.
Allows us maximum flexibility to invest when opportunities come up whether that's acquisitions or new programs. We're investing at a conservative balance sheet also mitigates risks and the events of the slower economic cycle and I'm very pleased to see us hitting that one times EBITDA EBITDA as of this quarter and finally, we are.
Our focus on growth to drive our EPS and share price of course, but also returning cash to shareholders through our dividend program as well as common share repurchases more on that capital allocation framework in a moment.
Okay, turning to highlights for the quarter I went to identify at least that's our most relevant accomplishments first of all we had another excellent quarter in terms of financial performance with sales and earnings both up over last year in down markets, both our mobility and industrial segments saw a double digit operating earnings growth in <unk>.
Second I think the star of the show this quarter is our excellent level of free cash flow, putting us well on our way to an outstanding level of free cash flow for the full year.
We saw great market share growth in both segments, so key to offsetting down market.
That's on combined Draper market share growth was outstanding while exceeding a declining market and our mobility business also saw a double digit content per vehicle growth in our most important market of North America.
And finally, we're announcing a new capital allocation strategy framework, which also triggers initiating and M. CIB.
To return cash to shareholders as we have done this quarter.
Turning to the numbers, we saw sales get to six 4 billion up eight 3% over last year sales were up 24% and our industrial business largely unmapped on market share growth and our Borgo acquisition, well offsetting significant market declines on the AG side sales were up more modestly in the mobility.
<unk> at 2% with our structures group acquisition.
Content per vehicle growth and launches offsetting some pretty big declines in the market North America was down 5% in Europe down 6% on the mobility side, both really important markets for us.
Net earnings were $144 6 million or five 5% of sales that is up six 1% over last year EPS was $2 35 up six 3% over Q3 2023.
Summarize our overall bottom line results this quarter as being most impacted by our strong sales and earnings growth at Max on of course, our 2023 and 2020 for acquisition cost improvements in a variety of areas as well as launching business in the mobility segment, which was offset by the steep market declines.
In <unk> and the access market cash.
Cash flow as noted was very strong at $270 million and excellent increase over levels seen over the past couple of years. We are actively reallocating capital from program with less volume or restricted launches and terming our capital Bill as a result, that's got flexible equipment at work week.
Back to continue to generate significant free cash flow in Q4 quite strongly positive result for the year.
I mentioned, a moment ago, we've created a new capital allocation framework, which you can see illustrated here. The framework. There is also a direct result of the shareholder engagement work done this year already.
That we I already noted we heard a clear message that our shareholders are both looking for clarity around capital allocation and specifically are looking for share repurchases when our share price is undervalued.
Our our priorities when it comes to what to do with free cash flow. We are generating our top priority is to maintain that strong prudent balance sheet, one of our key value drivers at Lindbergh.
Our next priority is growth and investment in both organic and inorganic growth and innovation opportunities investing in growth is how we create top and bottomline growth at <unk>, which is critical to driving shareholder value.
Beyond these two priorities, we will use excess liquidity towards three areas first and MTI D. When the share price. The undervaluation is clear secondly to grow our dividend payments as we have historically done on a regular basis and finally towards continued debt reduction.
To that end given we have done an excellent job this year of reducing debt levels to get our net debt to EBITDA back into the one time range, we've decided to initiate a normal course issuer bid.
Speaker Change: Grant has been approved by the T effects and will give us the ability to repurchase up to 4 million shares, which is 10% of our public float with that I'll turn it over to our CEO, Jim Gerald to review industry and operations updates in more detail our region great. Thanks, Linda I'll start with an overview of each key industry we operate.
Jim Gerald: And then our own sales performance related to them.
Firstly look at the access or AWP market, which is coming down office posted historical high in 'twenty three.
Jim Gerald: On a full year basis, you can see the market is predicted to be down this year in the low to mid single digits in core markets of North America, and Europe and down more significantly in the Asia Pacific region.
Jim Gerald: Though nonresidential construction the primary driver of the access market remains robust the pushout of major infrastructure and Mega projects in the U S. As many of the equipment rental companies delayed we're pulling back on Capex spending after a robust period of re fleeting that happened during 2023, what's incurred.
Jim Gerald: Bridging however is that this is viewed as a temporary pause with modest market growth returning in 2025 and not the start of a more protracted cycle.
Jim Gerald: So this is certainly impacting demand at Skyjack you can see that we are still outperforming the market.
Jim Gerald: Total sales in the nine month year to date on a global basis are down five 9%, while the industry as a whole is down 12%. So skyjack is growing share in a very tough environment.
Jim Gerald: Looking at Skyjack business operations, we're seeing a stabilization of operating pattern pattern. Following our global manufacturing expansion efforts, Mexico production is achieving improved schedule attainment and previously outsourced fabrication and assembly that are now coming in house. This will result in improved cost.
Jim Gerald: Quality control and logistics efficiencies, our China factories, now fulfilling offices or product demand for the whole Asia region. So we will look to localize production. There in the next 12 to 18 months again, that's our in market for the market strategy on the product innovation side, our newest compact scissor.
Jim Gerald: The micro continues to add customer focused features and is up for best New product award at the upcoming AWP industry Conference, which we're very proud with next.
Jim Gerald: Next we'll turn to the AG industry volumes large AG represented by combine in high horsepower tractor retail deliveries are expected to decline in the 15% to 20% range across the board on a global basis full year 2020 for industry volumes are forecast to decline, 17%. The AG market has also come.
Our historical highs.
Jim Gerald: Cycle levels of volume in 2023 against this backdrop. However, our three core brands of Mac Dawn, Salford and Oracle are outperforming the general market trends year to date together Mac Dawn Salford with Oracle are seeing the overall unit sales volume increased six 1% over 2023.
Jim Gerald: <unk> levels what.
Jim Gerald: What I would call strong performance of the group in a very challenging market is a testament to our short lives OEM product strategy illustrates that firm, which is still willing to invest in equipment that offers a technology or productivity advantage for their businesses 2024 sales levels have been carried by a strong order book despite the <unk>.
Jim Gerald: History overall downturn next year, however, we expect a more meaningful impact as the market headwinds related to lower crop commodity price levels and elevated equipment dealer inventory inventory persist.
Jim Gerald: History continues its cycle within the AG group from our strategy and operations standpoint, Theres, a great deal of activity and progress the integration across the three core brands is going extremely well. The group is leveraging their collective assets to gain efficiencies and increased market reach in both the new products and after sales support.
Jim Gerald: On the technology development side, we have several new and exciting offerings coming to the market to ensure we maintain our market leading position versus intelligence.
Jim Gerald: Part of our overall tech stack, which is a wireless interface software for enhanced implement to OEM attractive controls next borgo unveiled its new <unk> flex family, apparently hole drills last week at a dealer convention in Phoenix.
Jim Gerald: $35 45 model comes in width of up to 100 feet, which offers maximum fueled products typically without compromising on road transport facilities due to its seven flex Holden design.
Jim Gerald: And lastly, salt this portfolio expansion.
Jim Gerald: Ross Nutrition segments continues now with the release of the newest chassis Mount spinner Spreader field application coverage with those up to a 120 feet offering productivity advantages to both producers and commercial operators across our entire little more AG group Theres, a high level of commitment to investments in leading technologies that deliver.
Jim Gerald: Higher ROI to our customers and next an update on our mobility segment first I'll walk through the expert industry forecast for global vehicle production for each of the key regions. We operate as you can see on the left for full year 2020 for North America Asia Pacific and globally overall markets, a slight flat to down.
Jim Gerald: Versus 'twenty three for Europe, the market declines a bit more pronounced down 5% currently the experts forecast for calendar year 'twenty fives is mostly flat across the board with only modest year over year changes when compared to 24 for a little more on the quarter our content per vehicle on a global basis reached $80.
Jim Gerald: It is nearly a 6% increase quarter over quarter was compared to <unk> 23 in a market that saw a $4 four industry production decreased overall the growth in the global market share compared to last year is driving mainly out of North America, where we saw higher volumes from launching programs as well as incremental sales from the <unk>.
<unk> structured group acquisitions in the mobility segment from an operation standpoint, I'm very pleased with how the integrations of the little more structures group I just mentioned have come together the dura Shiloh facilities are completely integrated in the <unk> operations will be finalized by year end, we're particularly proud what.
Jim Gerald: The <unk> team was able to achieve with mobile within just one year, we acquired a business with a great portfolio, but was distressed both financially and operationally today any customer concerns over delivery or quality issues have been resolved and conversations have turned to pursuit of new business in terms of new business opportunities overall no.
Jim Gerald: Surprised but the transitional period of I used to EDI is creating some pause in the marketplace EV launches are delayed and resulting in current platforms being extended.
Jim Gerald: In Europe I'll note that the industry overall is facing several challenges, including decreased OEM volume distress in the supply chain and a need for more permanent restructuring as we've been in the past when <unk> is well positioned for this and remains on call to help our customers with business takeover opportunities that can be a win win for both.
Speaker Change: Next I'll turn it over to Dan our CFO for more financial review.
Dan: Thank you Jim and good afternoon, everyone.
Dan: Then Nick covered at a high level the excellent financial performance in the quarter for both sales and earnings growing over last year, when our markets where gas therefore, I'll jump directly into the business segment review, starting with the industrial segment.
Industrial sales increased by 24, 3% from $164 7 million to $841 3 million in Q3.
Dan: The sales increase for the quarter was primarily due to the strong agricultural sales driven by market share growth on the Mac on drinkers. Despite a market that was significantly down.
Dan: The additional sales from the embargo acquisition.
Dan: The favorable change in FX rates since last year.
Dan: And these are partially offset by lower demand on access equipment.
Dan: Normalized industrial operating earnings for Q3 increased by $18 3 million or 15% over last year to $142 million.
Dan: The primary drivers impacting industrial earnings where the increased contribution from the.
Dan: The increase back on volumes and the increased contribution from the acquisition of barbell and material changes in FX rates, which were partially offset by the impact of the lower market demand.
Dan: For access equipment.
Dan: Yes.
Dan: Turning to mobility sales increased by 36 million.
Dan: Million or two 1% over Q3 last year to $1 8 billion.
The sales increase in the third quarter was driven by the additional sales from our 2023 of them are structured acquisitions the increased.
Dan: <unk> volumes on launching programs and the favorable changes in FX rates. Since Q3 2023. These are partially offset by lower volumes on certain mature programs and on certain other programs internationally winding down to end of life.
Dan: Q3 normalized operating earnings for mobility were up 12, 6% over last year to $88 4 million in the quarter mobility Ernie.
Dan: And by the increased contribution from the higher volumes on launching programs and the added contribution related to the 2008 2023 structures acquisitions.
Dan: And the favorable FX rates.
Dan: Changes since last year.
Dan: We offset by lower volumes on.
Dan: Mature programs and any programs.
Dan: Q3 was another quarter of mobility margin expansion compared to the same period last year in 2023, despite the market declines in each of the regions that we operate in.
Dan: Starting with our overall cash position, which came in at $824 4 million on September 30, an increase of.
Dan: $171 1 million compared to December 23.
Dan: The third quarter generated $374 million in cash from operating activities, which was used primarily to fund the Q3 Act with Capex and debt repayments.
Dan: Turning to leverage net debt to EBITDA did increase to 1.07 times in the quarter from a year ago, mainly due to the three acquisitions that we completed in the last 12 months.
Dan: But down from the high of $1 two four times after the acquisition of Fargo.
Dan: Based on the current estimates as of today, we're expecting 2024 to gain Cain our strong balance sheet and we're confident that leverage will decline to one times or under in the next six months.
Dan: The amount available credit on our credit facilities with $602 4 million at the end of the quarter.
Dan: As a result, our available liquidity at the end of Q3 remained strong at $1 4 billion.
Dan: As a result, we currently believe we have sufficient liquidity to satisfy our financial obligations.
Dan: During the rest of this year.
Dan: Yes.
Dan: Looking towards the next quarter industrial segments will see sales decline in OE decline in the double digits when compared to Q4 2023.
Dan: Sales are declining a market on down markets expected in both AG and access equipment, which is more than offsetting the added sales from the acquisition of Argo This year.
Dan: OE is down double digits as a result of the decremental impact from the change in sales. In addition to our products niche mix, which is currently projected to be unfavorable in Q4.
Dan: Although this segment will also see sales decline with a double digit decline in OE sales declined.
Dan: Decline is being driven by the sharp declines in OEM production schedules from the Oems plans, the extended shutdown and plans to reduce vehicle inventories this year.
Dan: Yes.
Dan: The OE will be down double digits from our contribution impact on the production cuts from the Oems.
Dan: Unfortunately in the short term.
Dan: We cannot adjust our fixed cost to help mitigate the negative contribution on the revenue declines.
Dan: Okay.
Speaker Change: Excuse me.
Speaker Change: As a result, we expect the expectation on the consolidated results for Q4 is to have a decline in sales at a double digit decline in OE for your reference depending on product mix landmark will typically see detrimental impact to be in the range of 27% to 33% on sales declines at the operating earnings level.
Speaker Change: Even with the reductions in the markets free cash flow remains strong in the fourth quarter.
Speaker Change: Despite the tough market conditions in Q4, the full year 2024, we'll see still see sales and earnings growth in both segments and therefore on a consolidated level as well.
Speaker Change: So we will see double digit sales growth regardless of the market issues, we will still see growth for.
Speaker Change: For the full year as well.
Speaker Change: Similarly mobility will have sales growth for 2024, but always growth will outpace outpaced our sales growth.
Speaker Change: Oh, it will grow at double digits as expected my tomorrow, and we'll still see free cash flow strong free cash flow generation for the full year as a result.
Speaker Change: The cash strong Ashford.
Excuse me and as a result of strong cash generation in Q3, which will continue into Q4.
Speaker Change: Turning to next year industrial will see significant market declines in eggs and access markets will be up modestly.
Speaker Change: Which will drive an overall net decline in both sales and OE.
Speaker Change: 24 levels of margins will still remain in a normal range of 14% to 18% for this segment.
Speaker Change: For mobility industrial forecasters are predicting continued market softness in 2025.
Speaker Change: Notwithstanding the market softness sales will continue to grow and OE will grow faster than a double digit rate.
Speaker Change: We will see launching programs, adding between 500 and 700 million that will help mitigate the market declines.
Speaker Change: As a result, we are still expecting to see market expansion, which will push mobility back into its normal range of 7% to 10%.
Speaker Change: Overall for 2025 sales will be flat, but EPS will grow in double digit free cash flow generation will remain strong which will ensure our balance sheet will also remained strong.
Speaker Change: Thank you and I'd now like to open it up for questions.
Speaker Change: Thank you ladies and gentlemen.
Speaker Change: Again the question answer session. If you have a question. Please press star followed by the number bonding or Touchtone phone.
Speaker Change: He was here a problem.
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Speaker Change: Your first question comes from the line of Tami Chen from BMO capital markets. Your line is now open.
Speaker Change: Hi, good afternoon. Thanks for the question.
Speaker Change: I wanted to start with the mobility segment here, so I understand the OEM production schedules.
Speaker Change: Quite volatile right now.
Speaker Change: I just wanted to better understand this sequential decremental margin is higher than I would've thought had very strong margin expansion in the first half of this year and kind of looking like Q4, you are more auto margin not much better than last year Q4. So can you just talk a bit about that.
Speaker Change: Like I would've thought OEM recoveries and whatnot, what is structurally increase your mobility margin a bit even with the volatile production schedules.
Speaker Change: Yeah, I mean, I think the biggest issue is it.
Speaker Change: Actually what <unk> was describing I mean, we're seeing some pretty big cuts.
Speaker Change: Q2 volumes and you just can't react that quickly when it comes to adjusting fixed cost and overhead so.
Speaker Change: This is something we sort of long guided to that if you see a rapid drop in Sam T. Connect that expect a 25% that 25% of that is going to fall to the bottom line. So that sales are up 10% you can expect 25%, but that Sam and your net earnings and in that.
Speaker Change: 30% to 33% range at the OE level and Thats, just a straight reflection of this isn't easy calculation. That's what are all your fixed costs, whether it be overheads or amortization or other areas of fixed costs that are obviously going to stay the same and only your variable costs are going.
Speaker Change: To reduce.
Speaker Change: It's a pretty standard formula we've actually used three years can you describe what happens when sales costs down as quickly obviously with time that readjust right because you reallocate capital. So your amortization normalize as you make adjustments on the overhead side if the situation is protracted.
Speaker Change: Or you shift people around someplace else so.
Speaker Change: It's completely different one sales are coming down and when they're going out.
And how do we think about the.
Speaker Change: Reiterated guidance for mobility margin next year moving back to the normal range are you.
Speaker Change: Are we assuming that provided the production schedules do not change materially for next year that you'll get there or is it that you thought you this visibility.
Speaker Change: The types of programs that are maturing next year you can see that that is the margin that will get you to the normal range. It's just.
Speaker Change: It's a larger jump right into next year. So I just wanted to understand the bridge.
Speaker Change: Yeah, I mean I, yes, that's our current expectation is based on what we're currently seeing for market volumes next year. So that obviously could change if volumes are higher or for that matter lower but our current expectation is just the earnings growth in the mobility.
Speaker Change: Segment, despite more modest top line growth and that's really driving at is solid operational efficiencies that we're seeing play out in our mobility business, which we started already.
Speaker Change: This quarter and will in Q4 around labor costs with pure o'clock utility cost you know all improving thanks to the efforts of our of our global team and of course, you know rising.
Speaker Change: Volumes on on launches notwithstanding that there are lower than what we thought they were going to be.
Speaker Change: It still does still makes out and making them.
Speaker Change: Overall, we see the market mobility, probably flat to a little bit next year, Tammy. So we sort of know where the water line right. So now we can sort of give ourselves around that which of course means we can cost reduce which we're actively engaged in certainly the flexibility of the capital that we can redeploy is.
Speaker Change: As another key issue and really look at the right sizing up to that level in the mobility side. So I think all of those play out.
Speaker Change: Improved earnings next year.
Speaker Change: Got it and switching to industrial for a second here I'm just wondering how I think you just concluded or are you might still be in it that the critical eye peer.
Speaker Change: Period can you comment on how that's been going is it in line with expectations doctors and.
Speaker Change: It sounded like as you talked about the Ais business next year I got the sense that the Euro U.
Speaker Change: The degree of outperformance versus the industry like should we think that that those versus how well you've done year to date versus the industry.
Speaker Change: Yes, I think.
Speaker Change: <unk> business for.
Speaker Change: The rest of the year is certainly showing some negative trend in the next year, it's sort of a question Mark right.
Speaker Change: When you when we listen to some of the OEM customers DNA.
Speaker Change: Their outlook is really a bit uncertain. They don't want to comment on it but I would say, we typically are outpacing the market as you saw in my slides earlier the market slides were $6, 1% up in the markets, 17% down on unit sales. So I think we will definitely.
Speaker Change: Outpace the market and that's just driving through dealer expansion and the synergies that we're that we're making and the pre buys that are going on right now are to sort of our expectations and that's something we really watch in the next 30 days through the through the end of November I guess.
Speaker Change: Further along than I thought so that's 15 days.
Speaker Change: Can I squeeze one more in I'm curious why do you believe the access industry. It's a temporary pause what are you seeing there that makes you confident its not a more pronounced downturn. Thank you, yes, yes, I guess I mean, when we started 2024 I think there was a real high level of optimism right in regards to.
Speaker Change: Company's rental companies look for improving on their fleet age so.
Speaker Change: I think the interest rates and things like that the Mega projects really.
Speaker Change: The delays on the interest rates coming down further in the Mega projects getting delayed really created a little bit more of a delay.
Speaker Change: And the rental company take rates right and so we think that.
Speaker Change: With some of the changes going on there will be a little bit of an uptick next year.
Speaker Change: I think Theres also hope that with the election behind us.
Speaker Change: They just settle some uncertainties in and see some optimism.
Speaker Change: Surfacing I and the last that and as well as interest rates coming down that we're going to see some of those mega projects getting back on track and driving some moderate market growth next year. Yeah. I think also the volumes are still good right. I mean, it's just not hitting the expectations that everybody thought based on interest rates and Mega.
Speaker Change: Yes.
Speaker Change: For us ourselves.
Speaker Change: Seen some cancellations.
Speaker Change: More so postponements, which means that they're just getting ready to buy so that those signals fueled positive so.
Speaker Change: Again, our view I think for next year is a little bit of an uptick.
Speaker Change: From where we're sitting today.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Michael Glen from Raymond James Your line is now open.
Michael Glen: Hey, good evening I, just wanted to circle back to <unk>.
Michael Glen: Mac, Don I'm, just trying to understand the sales cycle for Max on.
Michael Glen: Because it sounds like the business had a really strong Q3, but we've been reading about.
Michael Glen: These excess combine inventories for a few quarters right now so to do.
Speaker Change: Does that sound sales lagged the combine cycle I'm, just trying to understand what's happening there if that's kind of how we should think about.
Speaker Change: How the business business moves.
Michael Glen: No Michael.
Speaker Change: You know in the past if you look at the combined sales of the headers as kind of a one to one ratio.
But really what we've been seeing is.
Speaker Change: Theres concern, where we've been seeing farm income coming down, but it's still overall at a fairly healthy pace, but there's some concerns with farmers. So theyre not looking at buying the big ticket items regs or theyre not looking at spending $800000 for a new combined but there definitely were they.
Speaker Change: The productivity.
Speaker Change: <unk> and a return on their investment that are willing to buy new patterns and that's what we've been seeing from Exxon.
Speaker Change: Just again, the superior product that they have better yield able to run the product faster.
Speaker Change: They are the farmers are getting a return for their investment and Thats not a significant investment like we are seeing buying a brand new combined so that's one of the factors.
Speaker Change: A unique dynamic.
Speaker Change: We've been seeing in this situation I think the other thing is.
Speaker Change: Watched aggressively the dealer inventories right.
Speaker Change: We monitor sort of the pre sales with inventory levels, and then commodity pricing as well and so and then listen obviously to the Oems they are.
Speaker Change: Typically the ones that give you the lead on working we'll be doing.
Speaker Change: And I think in terms of a cyclicality on on our AG business I mean, it's interesting how.
Speaker Change: As we've acquired the various businesses, that's actually helped to kind of even things out <expletive> to some extent for AG sales like for Magna on Q2's typically.
Speaker Change: A strong quarter. So this year, notably they did have quite a strong Q3 for Salford trial. This quarter is Q1 Borgo at Q1 dials back in Q2, and then Q3 so.
Speaker Change: And in the end.
Speaker Change: Q1, two three and not terribly dissimilar.
Speaker Change: But I will say that Q4 is the seasonal low point for all businesses. Unfortunately, so it does.
Speaker Change: <unk> definitely come off in Q4.
Speaker Change: Okay and for for Mac Dawn as well that the orders that you are shipping now would that really be for orders placed are like nine to 12 months ago.
Speaker Change: Yes, I mean, some of them would be for <unk>.
Speaker Change: Months ago for sure.
Okay, and then dealer.
Speaker Change: You mentioned dealer inventories do you have any how did dealer inventories for.
Speaker Change: Product.
Speaker Change: You're right product right now sit relative to.
Speaker Change: Historically is it higher than you would typically like to see it.
Speaker Change: Yes, Michael I would say that kind of across the three businesses, maybe maybe salford.
Speaker Change: Product line is a little bit kind of elevated.
Speaker Change: But again.
Speaker Change: With Mac Dawn and probably the same with cargo is that I would say that they're shipping more closely to more of a <unk>.
Speaker Change: Normal inventory, maybe even shifting below.
Speaker Change: But from from a dealer standpoint that we have to watch it start overall inventory levels and that includes all of the brands that they carry including their mainline brands.
Speaker Change: Holiday hold that against their overall credit lines for what they'd have to floor plan. That's the things that we kind of.
Speaker Change: Watch.
Speaker Change: Okay, and then just one more for me can you just provide an update though on the well and facility is that now completes its all of the equipment and just looking to see the timeline associated with well into and what we should expect to see out of that plant over the coming year.
Speaker Change: I mean, the equipment is not all in I mean.
Speaker Change: We're in discussions with our customer on.
Speaker Change: Where the activity will be long term.
Commercial agreements.
Speaker Change: Okay.
Speaker Change: Should it will well and contribute to sales next year.
Unlikely I mean, as we've discussed before the product for Welland is and electrified vehicles. So it shouldn't be surprising that the program's future has been impacted.
Speaker Change: As Jim just talked about we're working through the issues with our customers around delays and what may or may not end up happening around the program.
Speaker Change: And also as we've talked about before when it comes to some of these more risky.
Speaker Change: <unk> programs were definitely taking a risk sharing approach with our customers.
Speaker Change: We need to work through the issue, but I can tell you that we don't expect to see a large negative financial impact from the facility.
Speaker Change: As a result of what's happening around that launch.
Speaker Change: Got it thank you.
Speaker Change: Your next question comes from the line of Chris <unk> from CIBC. Your line is now open.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: Oh Jeez, if you spoke to this earlier, but can you speak to the results of the acquisition in Q3, if you were to strip out Borgo.
Speaker Change: And just not are not looking at kind of the incremental sales bump you got there.
Yeah, I mean, obviously a barbell.
Speaker Change: It was a key factor in driving the performance, but at the same time Mac Don had a very strong quarter as well so they had solid growth.
Speaker Change: It's over a prior year or so.
Speaker Change: They were driving some great growth in the in the segment and swap.
Speaker Change: Yes.
Speaker Change: Okay, Great and then maybe just starting with 2025.
Speaker Change: Outlook for industrial.
Speaker Change: Modest decline versus I believe previously.
Speaker Change: I mean between Skyjack and egg it was either modest growth or flat. So is the change in guidance being driven by.
Speaker Change: That being driven really by egg or for Mark.
Speaker Change: Moderating expectations from Skyjack as well.
Speaker Change: Let me describe that we're thinking there's a little bit of an uptick.
Speaker Change: We're predicting a little bit of them.
Speaker Change: Yes.
Speaker Change: Okay. Thanks, and then just a last one for me on the on the consolidated guidance.
Speaker Change: EPS growth is.
Speaker Change: Is that assuming a successful execution of.
And CIB.
Speaker Change: That's not considered.
Speaker Change: Okay.
Speaker Change: Thank you I'll jump back into queue.
Speaker Change: Your next question comes from the line of Jonathan Goldman from Scotiabank. Your line is now open.
Jonathan Goldman: Hi, good evening, thanks for taking my questions.
Jonathan Goldman: The first one on I know this is a broad question. So you can do whatever you want with it but do you have any high level thoughts on how potential tariffs might impact your business or the auto supply chain generally.
Jonathan Goldman: Yeah.
Okay.
Jonathan Goldman: I mean.
Jonathan Goldman: Obviously tariffs had a negative impact on that on the supply chain I mean, the supply chain in North America is highly integrated.
Jonathan Goldman: Thanks Cross the border on average seven times, where they land in a in a vehicle. So if we're going to slap tariffs on each.
Jonathan Goldman: Each water crossing that's going to create a lot of cost.
Jonathan Goldman: When it comes to to vehicles so.
Jonathan Goldman: I think that.
Jonathan Goldman: The results of the election last week. It is clear that Americans are looking for a focus on the economy on inflation and on jobs and adding tariffs might help on the job cross that it's going to have a huge negative impact on inflation and Americans can afford higher costs and.
Jonathan Goldman: Then theyre already seeing so in my opinion is that for all of us to make the case to the new administration that North American cooperation and collaboration to optimize our assets and strengths in all three countries make us more globally competitive and when you think about the fact that 80% of our vehicle markets.
Jonathan Goldman: Were actually outside of North America, when we all be better off focusing on that market then.
Speaker Change: She add costs and.
Speaker Change: Richie Insufficiencies within North America.
Speaker Change: My view on this Jonathan would be that.
Speaker Change: I think the focus is going to be on Asia, specifically, China in regards to tariffs.
Speaker Change: And I think Thats, where most folks are headed we're around the world. So.
Speaker Change: I think thats from <unk>.
Speaker Change: Our side, where we think most of the impact would be.
Speaker Change: And Jonathan Jeremy.
Speaker Change: Negotiations of the original Usmc.
Speaker Change: The Detroit three leadership brought that up to the administration in regards to what Linda said above par.
Speaker Change: Parts traveling across the border in numerous times.
Speaker Change: There was a lot.
Speaker Change: Put more back into the United States, but the administration understood and I think that's still fresh in their minds in regards to how integrated.
Speaker Change: The supply basis here in North America, and how difficult it would be for the Detroit three to have it all in the United States.
Speaker Change: It doesn't really interesting points thanks for that.
And then I guess my second one how are you thinking about balancing capital allocation priorities next year, and I guess, specifically what circumstances.
Speaker Change: What caused you to lead to exercising more of the NCI.
Yeah I mean.
Speaker Change: We laid out the capital allocation framework pretty clearly right so balance sheet as top priority our growth is the next priority.
Speaker Change: And then Tom I N T I D and dividends, so I you know avia.
Speaker Change: Obviously, we think that there is room for an M. CIB because we've just initiated one.
Speaker Change: And at the same time, there's a lot of opportunities out there I mean, notwithstanding the negative news as markets softened.
Speaker Change: Softening I think one of the most important things for you guys to walk away with today.
Speaker Change: And the knowledge that there is huge distress in the supply base, which is going to create significant takeover opportunities, whereas in fact, we're actively quoting hundreds of millions of dollars of work right now from suppliers that are distressed and actively winning that business. So I see that.
Speaker Change: That as huge.
Speaker Change: Upside for us as well in terms of our growth and growth is always going to be the priority I mean, if we've got an opportunity to grow.
Speaker Change: Whether it be new business at or potentially an acquisition that is going to be the priority for us for sure.
Speaker Change: Okay that makes sense, thanks for taking my questions.
Speaker Change: Okay.
Speaker Change: As a reminder, if you have any questions. Please press star one on your telephone keypad.
Speaker Change: Your next question comes from the line of Brian Morrison from P. D. Cohen. Your line is now open.
Speaker Change: Thanks, very much I just have a couple of follow up question from first the comment the presentation. It's a welcome too much concludes our presentation.
Speaker Change: My first question has to do with the margin decrements for Q4, if I recall correctly I think they're typically on average around 20%.
Speaker Change: And I'm just wondering if the refinancing of 27 to 33 because of the seasonality of the business in Q4.
Speaker Change: Yes.
Speaker Change: Now I would say, Brian if you go back and I know you've been around a while as well we have always talked about two and half times increment that if sales are down 10% effect our earnings to be down 25%. So we have typically talked about that 25% at the end.
Speaker Change: That level, which for sure is going to be closer to 30 or so at the operating earning level. So I think that it is pretty consistent with what we've typically gotten a chance for a rapid declines in sales.
Speaker Change: Okay I appreciate that and then I guess a little bit more.
Speaker Change: You know people, who are focused on ESG I mean, clearly Q4 results that we can hit the ball into the park here.
Speaker Change: I'm wondering if you can comment how active you'll be in if you won't comment maybe give us a target leverage number that you're aiming towards so by the end of the year.
Speaker Change: For the M T I D.
Speaker Change: Well, yes.
Speaker Change: That's the question Yeah, 100% I mean, we are we've got it approved and speed days from now we can start buying and we're going to.
Speaker Change: Okay and do you have a target leverage number you can share with us I mean, obviously you throw off a tremendous amount of free cash flow.
Yes, I mean as I mentioned at the outset. Our goal is to have to see net debt to EBITDA in the one to one and a half times range and so you know we're we're definitely in that zone right now, which is great and it was a rapid delevering from my from our purchase.
Speaker Change: Bob carve outs, so that's where we like to set.
Thank you very much.
Speaker Change: Sure.
Speaker Change: Alright.
Speaker Change: There are no further questions at this time I will now turn it back to be in the Hudson for closing remarks. Please continue.
Speaker Change: Okay, great. Thank you so much so I'm going to conclude the same way we started the call with summarizing our key accomplishments for the quarter.
Speaker Change: Excellent financial performance double digit AOI growth in both segments.
Speaker Change: Second excellent pre tax free cash flow in the quarter excellent market share growth in both segments and a new capital allocation strategy framework and M CIB initiated.
Speaker Change: So a great quarter overall, thanks, very much everybody and have a great evening.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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Yes.
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