Q1 2025 Visteon Corp Earnings Call
Speaker Change: Good morning and welcome to Visteon's first quarter to end 25 results call. Please note that all lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time, simply press star then the number one in your telephone keypad.
Speaker Change: If you would like to read our question, please press star followed by the number one again. At this time, I would like to turn the call over to Mr. Crook's door, Vice President of the Relations. Please go ahead.
Speaker Change: Good morning. I'm Chris Doyle, Vice President of the Vester Relations and FPNA. Welcome to your earnings call for the first quarter of 2025.
Speaker Change: Before we begin this morning's call, I'd like to remind you that today's presentation contains forward-looking statements within the meeting of the private securities litigation reform act of 1995.
Speaker Change: The statements are not guarantees a future performance in our subject to various risks, uncertainties and assumptions they could cause actual results to differ materially from those expressed.
Speaker Change: Please refer to the page titled Forward Looking Information in our earnings material for more detail.
Speaker Change: Presentation materials for today's call were posted this morning on the Investor Section of Visteon's website.
Speaker Change: You can download them at investors.visteon.com if you haven't already done so.
Speaker Change: Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer.
Speaker Change: We schedule the call for one hour, and we'll open the lines for questions after Sachins and Jerome's prepared remarks.
Please limit your participation to one question and one follow-up.
Sajan: Thank you again for joining us, now turn the call over to Sachin.
Sajan: Thank you Chris and welcome back to investor relations. Good morning everyone and thank you for joining our first quarter of 2025 earnings call.
Sajan: Visteon delivered another quarter of strong operating and financial results, illustrating the strength of a business and wrong-term strategy.
Sajan: Net sales of $934 million for essentially flat to prior year but outperformed underlying customer production volumes, equating to a growth over market of 10%.
Sajan: Atjusted to bidda was $129 million, representing a margin of 13.8% another record for us.
Speaker Change: An adjusted free cash flow was $38 million. Our performance in the ski financial metrics represents an outstanding star to the year.
Speaker Change: The performance of a display product line was a standout in the quarter, both in terms of sales and new business wins.
Speaker Change: and Visteon has emerged as a top supplier of large displays to the industry.
Speaker Change: And while we're laying the base for a solid long-term future, we also had significant traction in the near term.
Speaker Change: New business winds came in at $1.9 billion for the quarter, which is a great start to the year, led by displays and digital cluster product winds with car makers in Asia and US.
Speaker Change: Operation Lee, Q1 was also a strong quarter. On a year-over-year basis, we grew margins by two hundred and ninety basis points, despite a muted production environment.
Speaker Change: And lastly, we ended the quarter, maintaining one of the strongest balance sheets in the industry, positioning us well to navigate potential pair of related industry headwinds.
Turning to page 3
Speaker Change: The company did very well in executing our strategy for long-term growth in the first quarter. Just as a reminder, our strategy is based on product and customer expansion with the focus on faster growing technology domains in automotive, supported by an industry-leading cost structure.
Speaker Change: This page highlights some proof points of the progress we made in Q1 in executing our strategy.
Speaker Change: The trend of software-defined vehicles continues to evolve, with AI driving the next round of innovation in voice-invasion technologies for the cockpit.
Speaker Change: In addition to high performance electronics, this trend is also driving the need for larger
Speaker Change: With the increasing number of sensors, such as cameras, radar and radar, in and around the vehicle, displays are the primary interface to show safety, convenience and entertainment content to the driver.
Speaker Change: Moreover, our growing capabilities in design and industrialization of large and complex displays are now recognized as industry leading.
We also made progress on our customer and market expansion.
Speaker Change: We have built a strong book of business with Toyota over the past couple of years and in Q1 we extended our collaboration with this customer.
Speaker Change: We won a new digital cluster business that will launch on five different vehicle models plus a displaced business for the luxury brand.
Speaker Change: And reinforcing our strategy of expanding our business with targeted growth customers in rest of Asia outside of China, we won new business with six different OEMs in that region in the first quarter.
Speaker Change: For China, we secured our first businessmen with Cherry, one of the fastest-growing domestic
Speaker Change: With a slowing domestic market, Chinese OEMs are increasingly looking for opportunities outside of China and Visteon is well positioned to support them.
Speaker Change: We're also carefully expanding our business with Chinese OEMs to offset the decline in market share of global OEMs while ensuring profitable growth.
Speaker Change: In Q1, we secured digital cluster events with Hero Motor Corp and Royal Enfield, two large two-wheeler oeons in India.
Speaker Change: This means illustrate the growing trend of digitalization, transforming the two-villa market, offering instrumental growth opportunity for Visteon.
Speaker Change: As we advance a growth strategy, we are doing it in a disciplined way. We continue to leverage our platform-based product development and best cost global footprint to drive margin expansion and cash flow generation.
Speaker Change: As noted previously, a strong balance sheet differentiates us from many of the suppliers and allows this flexibility in our capital allocation approach.
Turning to page 4
Speaker Change: Industry production volumes increased 1% in Q1, while production at our top customers decreased 4% on a revered weighted basis. The largest decreases were in North America and Europe , where customer production was down approximately 6% in both regions.
Speaker Change: Sales for Visteon were up 1 million dollars compared to prior year with all regions increasing except for China.
Speaker Change: We saw strong performance in the Americas and Europe driven by the ramp up of recently launched display and infotainment products that drove significant market or performance.
Speaker Change: In Europe , we also benefited from the continued growth of our commercial vehicle business.
Speaker Change: In Asia, our footprint in India continues to expand driven by the success of our partnership
Speaker Change: In China, as expected, we saw a year over here decline mainly due to the market share loss of global OEMs and the lower sales with a domestic OEM due to lower export volumes. On a
Speaker Change: It was encouraging, however, to see that in Q1, the market share for global OEMs didn't decline further on a sequential basis and, in fact, modestly improved.
Speaker Change: Overall, a Q1 sales performance underscores strong demand for our technology, our ability to execute successful launches and meaningful progress against a strategic priorities with target growth customers, commercial vehicles and two wheelers.
Turning to page 5 [inaudible]
Speaker Change: We booked $1.9 billion in new business in Q1, led by displaced and digital cluster product
Speaker Change: The right-hand side of the page highlights some of the key wins in the quarter.
Speaker Change: This digital cluster will be equipped on several mass market and luxury brand vehicles with that OEM.
Speaker Change: We also won a separate 12-inch driver display business for a luxury brand vehicle with Pevata, illustrating the growing relationship with this important customer for Visteon.
Speaker Change: This platform will initially launch with two vehicle models in the US in 2027 and adds a new
Speaker Change: V1 825-inch curved display module business with Cherry for two SUV models that will be sold in different regions of the world.
Speaker Change: Cherry is a large domestic OEM in China with vehicle production estimated to cross three million units this year as they continue to expand globally.
Speaker Change: We expect to leverage this first win into a bigger business with this OEM over time.
Speaker Change: The two wheeler vins were with two major Indian OEMs, including one program for the premium segment and another mass market program. The mass market program is for a multi-color LCD cluster with integrated connectivity and will be used on three high selling models.
Speaker Change: This BMS system is for a new EV platform that is expected to launch in 2028 and will support 400 and 800 volt systems for maximum flexibility.
Speaker Change: The first quarter provided a great start for a new business bookings for the year, highlighting the market fit of our products and technologies.
Speaker Change: The pipeline of new opportunities for the rest of the year also looks robust.
Turning to page 6.
Speaker Change: The first quarter was also strong in terms of new product launches, with our digital cockpit and BMS products launching on 16 vehicle models across the world.
Speaker Change: This page highlights some of the key launches. It's notable that 10 of the 16 launches were on mass market vehicles and included a mix of power trains with hybrid electric
Speaker Change: In addition, our launch of BMS on the Buick JL-8 was for a hybrid electric vehicle and the customer also launched two all electric models in the quarter with the same product illustrating the flexible nature of our BMS technology
Speaker Change: With $1.9 billion in new business lens and 16 new product launches in the quarter, we are well positioned to drive continued growth of the business in the future.
Turning to page 7.
Speaker Change: Our manufacturing plants that supply parts to auto customers in North America are in Mexico.
Speaker Change: As of today, USMCA compliant parts are not subject to tariffs when crossing the Mexico U.S. border and nearly all our products brought into the U.S. from Mexico approximately 97% are USMCA compliant.
Speaker Change: Thus far, the 25% tariffs on cars imported from Mexico and Canada and other non-auto tariffs have had a minimal impact on the industry and on Visteon.
Speaker Change: However, while our customers have not updated the production schedules as yet, we are starting to see industry production forecasts for the remainder of the year being revised downwards.
Speaker Change: In addition, the Executive Order of April 3rd directs the Secretary of Commerce and the CBP to establish a process to apply 25% tariff to non-US content of auto parts that are currently exempt under USMCA.
Speaker Change: These terrors are expected to go into effect on or after the third of the
Speaker Change: This proposed tariff would impact approximately 10 million dollars of Visteon products imported from Mexico into the US on a weekly basis, and depending on the final definition and scope of this tariff, it could equate to a weekly cost of approximately 2.5 million dollars.
Speaker Change: However, more recently, the administration has indicated that they are evaluating options to reduce the disruption to the auto industry.
Speaker Change: In the event, the administration allows USMCA compliant automotive components to be exempt from tariffs as they are today we would not incur the additional weekly costs.
Speaker Change: We anticipate that tariffs on currently exempt automotive parts will add to the uncertainty in the industry and will further impact industry production volumes and vehicle and product mix.
Speaker Change: As we work through various scenarios, we've seen a variety of forecasts attempting to estimate the negative impact on industry vehicle production volumes this year.
Speaker Change: The range is quite wide from 1% down compared to prior to a high single-digit decline.
Speaker Change: As OEMs react to this highly dynamic and fluid environment, we expect significant change to our customers' production volume and schedules as the full scope and cost of the head of becomes clear.
Speaker Change: Jerome will provide more information on a tariff playbook later in the presentation.
Turning to Pichet Peter.
Speaker Change: And while tariffs present new uncertainties, I want to remind everyone that this is not the first such cycle that we have been through.
Speaker Change: We face similar levels of uncertainty at the beginning of the COVID-19 pandemic in the subsequent global supply chain disruptions. Each cycle reshapes global production volumes and mix for the short term before the industry begins to stabilize.
Speaker Change: We again find ourselves at the beginning of another cycle and we are working closely with our customers to mitigate tariff impact in the near term while remaining focused on a long-term strategy.
Speaker Change: I'm confident that our global manufacturing footprint proven supply chain management capabilities and industry leading cost structure and balance sheet will deliver us to emerge stronger from the cycle just as we have done previously.
Now I will turn the presentation over to Jerome.
Jerome Rouquet: Thank you, Sachin and good morning everyone. We had a solid start of the year, both operationally and financially, with all our key financial metrics coming in strong.
Jerome Rouquet: Sales were 934 million, with robust market outperformance, of setting edge winds from lower customer production, normal annual pricing, lower customer recoveries and unfavorable effects.
Jerome Rouquet: Majority bidar for the quarter was 129 million, reflecting continued operational execution and cost discipline.
Jerome Rouquet: OJCDB Dammargin for the quarter was robust at 13.8% and benefited from some favorable one-time
Jerome Rouquet: On a more normalized basis, our margins are slightly above 12% and in line with our original expectations for the foodier.
Jerome Rouquet: Joseph Ricanschlo was 38 million, driven by solid EBDA performance and a modest inflow from working capital.
Jerome Rouquet: Lastly, we return 7 million to shareholders at the beginning of the quarter in a form of sharey purchases before posing all activity due to the uncertainty related tariffs and their impact on the overall economy.
Jerome Rouquet: We remain committed to our balance and flexible capital allocation framework and have shifted our focus to preserving cash and further fortifying our balance sheet in the near term. Overall, we delivered a very strong first quarter, turning to page 11.
Jerome Rouquet: Sales were 934 million for the quarter, a 1 million increase compared to the prior. Our market outperformance of 10% was partially offset by lower customer production of 4%, lower recoveries, as well as normal price downs for customers, which were in line with prior years levels.
Jerome Rouquet: Finally, FX negatively impacted sales in the quarter by 2% mostly driven by a strong dollar.
Jerome Rouquet: Our growth of a market was driven by recent product launches combined with strong demand for our display products, excluding customer recoveries, base sales grew approximately 2%.
Jerome Rouquet: On a regional basis, sales growth was driven by the Americas and Europe where we have ongoing benefit from recently launched programs, including several four programs which were originally delayed at the beginning of 2024 but are now ramping up.
Jerome Rouquet: China was the one region which was down, consistent with our original expectations for the quarter and for the full year.
Jerome Rouquet: On a product line basis, the highlight for the quarter was around our display products, which grew 50% despite customer production volumes being overall down mid single digits.
Adjust Cdbda for the quarter was 129 million million.
Jerome Rouquet: Compared to prior, just a little bit improved as a result of higher volumes, favorable timing of commercial items, manufacturing efficiencies, lower engineering and S-GNA, partially offset by foreign exchange.
Jerome Rouquet: Net Engineering as a percentage of sales was 5.6% and includes the recent German acquisition
Jerome Rouquet: On a year of your basis, net engineering costs were down due to lower personal costs and and favourable timing of program expenses and engineering recoveries.
Jerome Rouquet: We continue to leverage our platform approach, our best cost footprint, and have unborked as well on many initiatives that improve engineering productivity, while continuing to invest in critical engineering capabilities, including vision, speech and AI.
Jerome Rouquet: Adjusting as GNA, also lower on a year-over-year basis, benefits from our cost optimization and resources rebalancing initiatives started in 2024, ongoing cost controls, all-while investing in key technologies that will further improve productivity.
Jerome Rouquet: As mentioned, we also benefited from several one-time commercial items in the quarter, which are related to cost incurred in prior quarters. Excluding these one-timers, our normalized margin is coming in slightly above 12%. Turning to page 12.
Jerome Rouquet: Visteon generated 38 million of adjusted free cash flow in the quarter. We continue to benefit from a robust adjusted EBDA, and we're able to convert EBDA into cash flow at a rate of approximately 30% in the first quarter, in spite of the traditional Q1 personality that we normally experience.
Jerome Rouquet: Trade work in capital was a slight inflow for the quarter and included a modest inventory built early in the quarter in our U.S. warehouses.
Jerome Rouquet: This temporary inventor increase allowed us to minimize tariffs that went into effect for a few days in early March.
Jerome Rouquet: Cash taxes were higher this quarter. Reflected our continued improvement in profitability in most jurisdictions as well as timing of cash payments.
Jerome Rouquet: Net interest continues to be a modest positive, as the interest income earned on our cash slightly exceeds the interest expense paid on our debts.
Jerome Rouquet: We also had an outflow in Q1 related to our 2024 annual incentive program which was paid out at higher levels due to the strong financial and operational performance Visteon posted last
Jerome Rouquet: Capital expenditures were 35 million, representing 3.7% of sales, and slightly below our original full year expected run rates.
Jerome Rouquet: In Q1, we continue to invest in several in-sourcing initiatives in addition to our ongoing investments to support customer programs. We ended the quarter with 658 million of cash and the net cash balance of 343 million. Turning to page 13.
Jerome Rouquet: We're not reaffirming full-year guidance at this stage due to the uncertainty created from tariffs and the range of potential outcomes it creates for the automotive market, most likely in the second half of the year. I would like to provide some additional context.
Jerome Rouquet: Absent the announced tariff and the latest economic developments we would be tracking in line with our original guidance.
Jerome Rouquet: Our recent outlook for the second half of the year was consistent with our expectations when we originally said guidance.
Jerome Rouquet: Putting all this together, we were confident we would be within our original guidance and likely towards the midpoint [inaudible]
Jerome Rouquet: However, the level of uncertainty has increased significantly since our last earnings call. The first round of automotive tariffs went into effect on April 3rd with a tariff of 25%
Jerome Rouquet: Although we have seen minimal changes in customer production schedules so far, we anticipate OEMs will begin adjusting production schedules based on a range of variables, including their manufacturing footprints.
Jerome Rouquet: To further compound the insurgency, there is the potential for another round of tariffs, expected on or after May 3rd, in which the non-U.S. content of U.S. MCA parts could begin to incur
Jerome Rouquet: This would increase the cost to build a vehicle even further and create another layer of authority on vehicle production schedules.
Jerome Rouquet: If these additional tariffs are implemented as announced, the direct impact could be approximately 2.5 million per week based on volumes assumed in our original guidance.
Jerome Rouquet: As one data point, S&P issued their monthly industry production forecast of date last week. For 2025, their forecast was reduced by 1.6 million units, assuming tariffs remain on imported vehicles and the additional tariffs on auto components goes into effect.
Jerome Rouquet: In this scenario, our customers production would decline in the high single digits compared to prior year, a three percentage point decline from our original expectations with most of these decline in the second half of the year.
Jerome Rouquet: Using this scenario, our financial outlook for 2025 would be near the bottom end of our original guidance.
Jerome Rouquet: This assumes that the incremental margins on lower volumes are in the mid 20% range. It also assumes we would begin incurring tariff costs which we intend to pass along to our customers to better reflect the new cost of producing a vehicle.
Jerome Rouquet: Given the uncertainty, not reaffirming guidance is prudent. However, we intend to provide updates as visibility improves.
Jerome Rouquet: In this environment, we have taken many actions to ensure we can navigate through various scenarios.
Jerome Rouquet: Earlier in the year, we created a cross-functional task force to work closely with our customers to reduce the impact tariffs could have on our business and our customers, simplifying for example our supply chain where possible.
Jerome Rouquet: Following these actions about a third of our sales from our Mexico plans will be shipped within Mexico, reducing the direct tariff exposure.
Jerome Rouquet: We are also in discussions with suppliers and looking at options to resource based on the components contrary of our region.
Jerome Rouquet: In parallel, we continue to evaluate the optimal location for production utilizing our existing
Jerome Rouquet: We're keeping all options open and we'll be ready to operationalize some of these options depending on the nature and size of the potential tariffs that will be in effect.
Jerome Rouquet: However, there will be limits on how much we can reduce the direct cost of tariffs and we intend to pass along any remaining cost to our customers.
Jerome Rouquet: In addition, we are working to minimize the potential flow through on volume, leveraging our best cost footprint and ongoing focus on cost controls, and we will be ready to implement some of the past playbooks that allow us to emerge stronger in similar situations.
Jerome Rouquet: We have also pivoted our capital allocation priorities, temporarily posing sharey purchase activity to shift our focus on building our cash position and further fortifying our balance sheet.
Jerome Rouquet: We ended the quarter with over 650 million of cash on our balance sheet and have access to an additional 400 million of liquidity without revolver.
Jerome Rouquet: With a dead balance of 315 million, that doesn't mature until 2027, our net cash position is a robust 343 million.
Jerome Rouquet: We will also continue to opportunistically look for technology-acredive acquisition. And as the market gets more stable, we will reassess our position and may look to restart shareholder distributions. These illustrates our flexible capital allocation approach that is supported by strong casual generation and one of the best balance sheets in the industry.
Jerome Rouquet: Finally, I would like to echo the comments from Sachin. This is not the first industry headwind we are facing. Over the last few years we have demonstrated our ability to emerge from previous challenges in a strong position and I am confident we will be able to overcome this challenge as well. Turning to page 14.
Jerome Rouquet: Visteon remains a compelling long-term investment opportunity despite some of the current market uncertainty.
Jerome Rouquet: We expect to benefit from higher demand for more digital content in the cockpit, regardless of powertrain. Visteon is well positioned for long-term top-line growth, margin expansion and free cash flow generation, what our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities.
Jerome Rouquet: Thank you for your time today. I would like now to open the call for your questions.
Speaker Change: First in an answers motion. At this time, if you would like to ask an odd question, please press star then the number one on your telephone keypad. Again, that is star and the number one. We will pause just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Mark Bellany from Goldman Sachs. Sure, please go ahead.
Mark Bellany: I guess good morning, thanks for taking my question and thanks for all the details you've provided in the presentation this morning.
Mark Bellany: You mentioned you're looking hard at your supply chain and would expect to offset any remaining tariff costs, but you must understand you're at your confidence in being able to achieve that with the exception for tariffs on USMCA compliant parts that go away based on some of the conversations you're having with customers at this point.
Mark Bellany: Alright, thanks, Mark. So yes, so let me first start by saying that we have not been impacted by that as yet as we mentioned earlier.
Mark Bellany: And we have at the same time started discussions with customers.
Mark Bellany: in terms of the recoveries, but our primary focus so far has been on working with our customers to reduce exposure to tariffs. And I would say on both fronts, those discussions have been very constructive.
Mark Bellany: We expect that we would be able to reduce our exposure by working together.
Mark Bellany: But as as Jerome mentioned earlier in his remarks, there is going to be a limit to that and depending upon what happens in a post May 3rd, we will have to approach the customers to recover the extra 10 costs. We fully intend to recover those costs.
Mark Bellany: which we believe if the status stay will reflect the true cost of building those products and ultimately building the vehicle and as a result will have to be passed on to the customers.
Mark Bellany: Anything you would like to add to Luke? Yes, thanks Sachin, Mark, maybe just to clarify the Q1 impact.
Mark Bellany: on Tariff. It was very immaterial for us. As you know, the tariffs weren't to affect for three days, the full tariffs. And we had built inventory, we had essentially built inventory that had crossed the border, and therefore was not subject to tariff. So we were able to use the inventory during these three days, and that has minimized the tariff impact in Q1. So, very immaterial for us in Q1 assertions. [inaudible]
Speaker Change: Thank you both for that helpful context. My other question was just around bookings and the bookings environment. You're also a very good start with bookings in the first quarter relative to the prior six blame.
Speaker Change: Plus Target for the full year. Maybe help us better understand what the current engagement environment looks like. Our customers are still active with working on new vehicle designs and conducive to getting additional awards this year or has there been any pauser delay and some of those engagements given the macroeconomic and tariff environment that perhaps is
Speaker Change: Taking up more of your auto OEM customer focus at the moment. Thank you.
Speaker Change: Mark, I think that's a very good question and as part of our engagement with customers especially in this time
Speaker Change: I have been personally in front of almost all of our customers in Asia, Europe and in
North America, and I would say that the environment,
Speaker Change: has been remarkably stable both in terms of just the operating environment as well as the longer term plans of customers and that's reflected in our Q1 performance as you can see both in terms of sales but also new business lens.
Speaker Change: And I expect that as customers are working through this sterif-related challenges that they will continue to look through the cycle and want to make sure that they are positioned.
Speaker Change: Well, when this thing does come to a conclusion, which our way it does, so I expect that new business activity will remain robust throughout the year. The pipeline of opportunities that we see is pretty robust.
across all of our product lines. So, we feel that...
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Dan Levy from Barclays, sir, please go ahead.
Thank you.
Hi, good morning. Thank you for taking the questions.
Speaker Change: First, can you just give us a sense, to what extent there's been?
Speaker Change: Any sort of impact to the production schedule you've seen, any call-off activity?
Speaker Change: And maybe you could get a sense how much pull forward of volume there's been. We've heard about some customers sort of building up some excess inventory in preparation for May 3rd.
Speaker Change: Yeah, yeah, so it's really interesting that then that we didn't really see [inaudible]
Speaker Change: Any meaningful pull-ahead from our customers. In fact, customer orders were remarkably stable throughout Q1 to the levels at the beginning of the quarter, almost to the end, were both the same.
Speaker Change: And yet, we did see that dealer inventories did get pulled down, which probably suggests that some of the consumer cooler head might have been managed through the existing dealer inventories.
Speaker Change: I would say that the order scenario looks pretty stable even for what we would consider as the eye confidence range in Q2.
Speaker Change: So it doesn't reflect any reduction in production. So we will have to look wait and see but so far so good.
Thank you.
Speaker Change: If you've seen any incremental cost hitting, I know that you're mostly manufacturing in Mexico. Has there been any impact on your supply chain?
Speaker Change: You know, any cost hitting you. And then should we look at the extent that you do incur costs? How much was the chip crisis of 21, 22 and your negotiations with OEM done a comp for how discussions may play out with your customers?
Speaker Change: Yeah, yeah, so the short answer to the supplier question is that we have not seen any meaningful increases in cost. In fact, I would say virtually none.
Speaker Change: and I think part of the reason is that our sub-lives...
Speaker Change: Their direct cause have not been impacted as far as we can tell from what has happened with respect to the global
Speaker Change: So again, just to be clear, we really don't have any supplier driven costs increases that anticipate that we would have to work through. So that's the situation.
Speaker Change: In terms of your question about in what can we learn from the last phases, there's a lot that we have learned and we're put in place.
Speaker Change: One of the things that we have done very well is to diversify our supply fees and where we have now many more options.
Speaker Change: In terms of finding a delayed process or components, obviously there will be some that will always be more challenging than others, but we are in a much stronger situation now, we are able to deal with any sort of a supply related situation as compared to the last cycle.
Thank you.
Okay. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Jones back from UBS, sir, please go ahead.
Jones-Pack: Thank you, and I just want to commend you for all the detailed information, especially given all the uncertainty. It's I think supremely helpful.
Jones-Pack: Jerome, just in your example, you gave about, if it plays out like S&P.
Speaker Change: Says, and you know, you think you'd be sort of the lower end of your your guidance range. So if I'm following your math, right, that's, that's, that would be 130 million.
Speaker Change: You know, annual impact show about 65 for the back half of the year, one that when the tariffs come in.
Speaker Change: So to get to the low end of your guy in Transverse, the midpoint you said you were tracking to are you sort of assuming like you know 80% sort of offset to that cost or like you know what what is your plan to sort of price like what would you baking in on that in terms of that outlook. Okay.
based on your conversations with your customers.
Speaker Change: Yeah, thanks, Joe. So, SMP and we wanted to give this in our prepared remarks is just one scenario and there are many out there, but just on that one, your math is correct, our...
Speaker Change: Or with decline of further 3% and that's about 130 million dollar of impact in terms of sales. We are using and assuming, based on what we've seen in prior years, a 25% incremental impact.
Speaker Change: We would assume as well that we are recovering 1% of the tariff impact which at 2.5 million times 4 weeks, times 8 months would be about 80 million so
Speaker Change: The impact would be essentially on the volume. We would be able to offset some of that with a good head start that we had in Q1 and with some minor adjustment as well to our spending so that we. [inaudible]
Speaker Change: gave us essentially a 450 number for the food year, which is at the low end of our original guidance. Now it's just one scenario and we are going to have a little bit more clarity on tariff and visibility on production schedules before we...
Jerome Rouquet, Jerome Rouquet, Ryan Wentling
Ryan Wentling: I appreciate that there's a lot of moving parts. I just wanted to get a better sense for what you guys were trying to assume on your end in a potential scenario understanding there's many. The second question is
Speaker Change: You know, I think in 24, about 7% of your sales were in China but not 4 China exported to other markets, but I don't think was any of that destined for the U.S. or is that really more for
Ryan Wentling: The Rest of Asia Pacific in Europe , and is there any impact from, you know, the business I guess you do in China for export, not for domestic consumption?
Ryan Wentling: Yeah, I think very little of what we do in China actually makes its way to the US. I think specifically there are some Nissan vehicles that carry some content that we manufacture in China, but it's very small.
Thanks so much.
Speaker Change: Thank you. Our next question comes from the line of Emmanuel Rosner from Wall Free Search. Sir, please go ahead.
Speaker Change: for a lot of companies, but certainly including Visteon. Can you remind us?
Speaker Change: Your strategy there where you are in your efforts to sort of rebalance, you know, customer makes and I guess from a timeline point of view when would you anticipate to sort of really improve this, you know, growth on the market situation. Thank you very much.
Speaker Change: Yeah, yeah. No, that's a great question. And China does remain one of the challenges that I think we will be working through this year and
Speaker Change: Probably also into next year. But one thing I would like to say is that the whole trend of global OEMs losing market share which has continued.
Speaker Change: In Q1, although from a year-over-year perspective, it looks like they have lost one's account. At least from a sequential basis, we are starting to see some sort of a floor developing. Now it's just one quarter's worth of data, so we will not...
Klee, many relief just yet.
Vartis, encouraging Nandalus to see that.
Speaker Change: So what is our strategy? Our strategy is to work with a mix of domestic OEMs that are doing well in China, they have scale but also global ambitions and that's important.
Speaker Change: And then with Global OEMS, we will be working with those that we believe will still have a meaningful share in that market over the next few years.
Speaker Change: In the letter group, we believe those would be the German OEMs in particular Luxury OEMs and some Japanese OEMs in particular Toyota. If you look at Toyota's performance in China in Q1, it will actually be positive again that they had in that region.
Speaker Change: And they have recently announced that they will have their first fully-owned manufacturing plant for Nexus brand in China and that's a very good sign. And as you know, we have been growing our relationship with Toyota and that has progressed very well.
Speaker Change: Now, with the Chinese domestic OEMs, we mentioned on this call our very first win with Cherry. And Cherry is a great example of the type of OEMs that we want to support is the Swith.
Speaker Change: The Royal Yams that have scaled, it will probably hit 3 million units this year of vehicle production with a significant portion of that to stand for exports and that's where we can help them and in turn we expect that that would help us with them also to a certain extent in China.
Speaker Change: So that's our strategy. Now in terms of when would they start to actually look that way in the numbers? They expect this year to be kind of our transition year for our business in China. We expect to start to slowly grow next year onwards.
and our expectation is in that time frame.
Speaker Change: 27-28, that we would be back to where we used to be at, say, in 2023 and 24 at the beginning of this down cycle that we saw during 24. So we hope to be able to recover the lost sales in China
Yes, that's Grace Collar. My second question is around the...
Can you just, maybe, [inaudible]
Speaker Change: Tell us what this involves. I think there was some mention of reducing some discretionary expenses and curious how to think about other spending such as capex. So just probably what's in this year's strategy from a cash preservation point of view.
Yes, and I would say, Manuel, well, I'm-
We are...
Continuing, as we've done in the past, to focus on-
Speaker Change: Cost, Controls, as well as cash generation, so nothing really fundamentally changes here.
Speaker Change: And we've done a good job in executing very well, quarter in, quarter out, and this quarter is also another demonstration that we are able to do that very well. So we've got a few scenarios whereby...
Speaker Change: Depending on the volume change severity, we would action different plans.
Speaker Change: So I won't go into details, but it would go from minor discretionary spending reduction to a little bit more structural changes, again without...
Speaker Change: Geoproducing the future investments that we've been making in both CAPEX, but as well in engineering, especially as we are making sure that we are supporting our strategic objective. So, nothing maybe to discuss in...
Speaker Change: Great details during this call but we are again scenario planning.
Great, thank you.
Speaker Change: Our next question comes from the front line of Colin Langan, from Wells Fargo Bounce. Please go ahead.
Colleen Langan: Oh great, thanks for taking my question. Just a basic question. I believe your comment was that margins in the quarter.
Colleen Langan: Normalize would be slightly over 12%, I think there is 13.8. It sounds like there's 16, 17 million of unusual items in the quarter. Is that right, and what are those unusual items?
Colleen Langan: That is correct, yeah. So we had close to $15 million of...
Colleen Langan: what I would characterize as one-timers. Most of them were commercial items.
Colleen Langan: that we were able to close out in Q1. Many of these are, in fact, we're expected to close throughout the year but thanks to the diligence of the team, we're able to close them out early and very late in most cases to cost recoveries that we have negotiated with our customers.
Colleen Langan: For example, when the program changes, we potentially incur costs and we are recovering this cost. So a lot of this cost, in fact most of them were related to prior and were able to successfully close these items. You'll find the impact of these one-timers.
Speaker Change: Pretty well spread on the PNL, so just a minor amount in sales in manufacturing as well as in engineering recovery. So it's a kind of spread all over our PNL and you're correct. Our normalized margins without this would have been slightly over 12%.
Got it.
Speaker Change: If we think about tariff, any view on how the competitive landscape could change particularly if maybe tariff on...
Speaker Change: Stuff out of Mexico are lower than what maybe ends up around the rest of the world. Are all your competitors also in Mexico or is there potential that other competitors are more disadvantaged if they face a higher tariff and some other part of the world?
Speaker Change: That's a very good question and the answer is that not all of them are in Mexico and some have been shipping product from Asia, which certainly would be a disadvantage in this situation.
Speaker Change: You know, that that turns out to be the case like you discussed, it would certainly be an advantage to the ones that are operating out of Mexico, such as us.
Got it. All right. Thanks for taking my questions.
James Picariello, James Picariello, James Picariello
Hello Mr. Federico, I guess you're on mute.
Let's move on to the next discussion, please.
Speaker Change: Our next question comes through the online all of them. Itay, Michaeli, from Tiddy Cowan.
Great thanks, good morning everybody. Just going back to...
Speaker Change: The new business wins in the quarter of the $1.9 billion. Sachin, was that above your internal expectations and could you exceed the $6 billion target for the year? And then a bigger picture questions tied to the new business wins, as you've been working kind of 6 plus billion that the last few years, does that set up the company to potentially... [inaudible]
Speaker Change: See some revenue acceleration beyond the 5% that you've laid out through 2027 in a mid to longer term as these wins translate to revenue in the future.
Speaker Change: Yeah, you know, to answer the second question first, the stronger we perform new businessmen's.
Speaker Change: You know in the earlier portion of that period that you mentioned clearly it helps us perform better and our plan obviously is to exceed what we have communicated so that's clearly the objective here.
Speaker Change: What I would say is that coming into the year, we had seen the pipeline to be very robust. In fact, this is one of the strongest pipelines of new business opportunities I've seen.
Speaker Change: I would say over the last five years because the last few years we have been impacted by some sort of a crisis or the other and it was really refreshing to see the industry kind of getting back into the mode of innovation and design.
Speaker Change: Very strong displays opportunities driven by the larger displays starting to migrate into the mass market which is exactly what we had been anticipating.
Speaker Change: and we are set ourselves up to take advantage of that trend by equipping all of our plans in different regions to be able to build displays that makes us pretty unique in terms of our capability versus the competition.
Speaker Change: We also see a very strong pipeline in CDC's copy domain controllers and instrument clusters, even which we thought would start to taper down but we see a robust activity especially in Asia.
Speaker Change: And so I would say that it sets up very well for this year. Maybe this is also an indication of what we will expect to see the industry get into this new cycle coming out of the last few years.
Speaker Change: That's really helpful. Thank you. Just a quick follow up, Sachin. I hope you give a bit more color on the conquest win with the domestic Chinese OEM, and maybe just talk about potential further opportunities for additional conquest wins going forward. Thank you.
Speaker Change: I absolutely and I think we mentioned that the customer there is Cherry and they've not done business with Cherry in the past and this is a customer that also has evolved quite a bit. If you know Cherry from our set ten years ago
Speaker Change: They're not anything like, you know, they used to be now. They have a very broad range of products. They've been very successful in exporting their vehicles and they are now focused on Europe and export market in South America. We're going to go on.
Speaker Change: So, our first win with them is for a large display that is going into the European market.
Speaker Change: and we have subsequent opportunities following up with them. In fact, our team is in China this week for the Shanghai Auto Show, as you may know, and there have been follow-on discussions with Sherry and with other customers as well.
Speaker Change: We certainly expect that this first win will translate into subsequent or business opportunities with that.
Speaker Change: But, you know, we will have to first execute this one very well. It's a very aggressive timeline in terms of production which also helps us because it impacts our revenue positively earlier.
Speaker Change: and I think this is kind of the example that you will see more of.
Speaker Change: especially with those OEMs who are moving very quickly. They have their targets for exports and we are in a great position to support them in their export ambitions. So we hope this would be first of many with this OEM and others that we have targeted in China. Thank you very much.
Terrific, that's all very helpful, thank you.
Speaker Change: Thank you. Our next question comes from the line of Luke Junk from Barrett. Please go ahead.
Luke Jung: Good morning, thanks for taking questions. Sachin, maybe we could start just with some additional context around your expectations for display growth this year, in terms of what's...
Sasha: Pretty easy in the first quarter here that normalizes to some extent going forward so just want to don't want to over extrapolate what we saw here in the first quarter of year and year.
Speaker Change: Yeah, yeah, so super for fall in terms of new product launches, you know we started the year pretty strong with system launches
and we have a pretty robust
Speaker Change: We expect this to continue because we have a strong pipeline of new launches coming through and the displays will grow in terms of...
Speaker Change: are the share of the revenue. Today, there are already a couple of points greater than last year, and we expect them to continue this year to improve, and also next year. So we have...
Speaker Change: I think set ourselves up well for this place to emerge as one of our leading product growth categories in addition to digital clusters.
Speaker Change: Got it. And then follow up question, maybe a little bigger picture in nature, but just like to get your thoughts on working with China Local OEMs on export business. And to what extent, it is or isn't maybe fundamentally different in terms of...
Speaker Change: Different, engaging in terms of X-Warp business, or is it more so that there's a different quality expectation as they're exporting into the West, which gives you some advantage versus local peers. Thank you.
Speaker Change: Absolutely, and as you know, there are very distinct differences in quality expectations for product sold in China versus outside of China, which is one of the reasons why we believe we are in a very good position.
to support these OEMs. So, what doesn't change, however.
Speaker Change: Typically a year or at most a year and a half [inaudible]
Speaker Change: and Visteon have been anticipating this and especially for displays, very able to leverage the capabilities that we have put in place.
Now, in terms of cost and pricing,
Speaker Change: In China, it is also a lot more challenging. And again, it goes hand in hand with the technical requirements. If the requirements are a little more flexible than we put it that way, then that...
Speaker Change: also takes a different direction in terms of pricing and cost but as you export you have to meet different requirements than what are the case in China and so we are able to defend our pricing a little bit better for exports.
We're helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Tom Ryan from RBC. Please go ahead.
Yeah, thanks for taking the question.
Speaker Change: Yeah, I just want to understand how the contracts you guys have with the OEM customers work, so if there are production cuts.
Speaker Change: Presumably, they'd be a portion of makeup that are already designed within the contracts. Or is this all negotiated? Just I'm trying to understand how that works.
Discussion and negotiation on the cost recoveries.
Speaker Change: And with some of the commercial items that we have been negotiating, not necessarily this quarter but it past quarters were related to these kind of topics where volumes were lower and we went back and were able to negotiate.
Speaker Change: The sounds of normal range would not obviously include what's happening here. So will it be in the safe to say that the SMT Global numbers happen? Okay, so most of the news is news.
Speaker Change: Okay. And then, you know, prior to all these terrorist announcements, they were quite serious in deal announcements for across-the-tier ones, some of them, anyway. Investiture, stuff like that.
Speaker Change: The invention in the appropriate comments about potentially doing M&A once clarity is gained, but just curious if how you would characterize the M&A environment, you know, presumably it might be a good time to do deals given to trust.
Alibation, Thor is the uncertainty kind of...
H. Trump's card.
Speaker Change: on that kind of stalked you for maybe contemplating that in nature, thanks. Yeah, no, no, I think that's a very good question, and...
Speaker Change: We do think the same way that this is a very good environment to be on the lookout for adding some capability or perhaps, you know, even different product lines. But I'll.
Speaker Change: First priority, as you can appreciate, is to ensure that we are able to safely negotiate the current environment of tariffs.
Speaker Change: Assuming that that is something that we can address in the next couple of quarters.
Speaker Change: I think Visteon is in a very good position to continue to grow and some of that will happen through M&A.
Speaker Change: So, we do continue to look and we do agree with you that.
Speaker Change: It's a good time to be looking and we should look at what opportunities that might present to ourselves. And maybe as mentioned in prior quarters as well, we have a pipeline, bolt-on acquisition so we are pretty active on this topic.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ron, Josika from Gaganheim. Please go ahead.
Ron Josico: Oh, yeah. Good morning, Sachin Drum. Thanks for taking my questions.
Ron Josico: None of that was in advance of kind of potential future tariff procurement costs and then also that bucket in the 10Q looks like it was a $30 million dollar.
Speaker Change: Top line benefit this quarter, but that does include design changes. I'm just kind of curious if there's anything else worth calling out that kind of throw that line this quarter.
Speaker Change: Yeah, to your first question, nothing is obviously in anticipation, everything is well related to past.
Speaker Change: and the cost that we've incurred when we've covered it in Q1. So again, it's outside of Q1 from the cost and point and therefore is truly a one-timer.
Speaker Change: Maybe back to your first question, if you don't mind repeating it.
Speaker Change: Just that bucket in the 10Q, where that sits, I think it includes design changes as well. It was plus 30 million versus the same quarter last year. Is there anything worth calling out just I think with annual price reduction to things like that, it does look like a pretty big source of top line
The Spirit, so we... we...
Speaker Change: We always have design changes, so that's bizarre, I would say, regular items.
Speaker Change: So, they were in the $15 or $16 million one-timers that we had this quarter.
Speaker Change: you did have some impact to engineering recoveries but it's different from design changes. So again these were truly one-timers that are truly outside of the normal course of business and that's why we wanted to highlight them.
Speaker Change: I do think has been quite surprising and maybe a bit under-reported for the industry, I guess. Is your sense that that is kind of the start of a new trend or a bit of an aberration? Because I guess just with-
Speaker Change: Kind of the price cuts we seem to see every quarter from Chinese local OEMs, it's tough to imagine this trend continues but I imagine you're a bit more connected than we are to that.
Speaker Change: Yeah, no, no, I do believe that the rapid decline that we saw in 2024, that was bound to at some point.
To the corner.
Speaker Change: are primarily because the global audience are also not just standing still right so they are launching new vehicle models and there has been there has been a slew of announcements, a shangai auto show this week about the models that they are launching exactly in response to some of the things that they have learnt about the Chinese market.
Speaker Change: So as those changes and those launches flow through, we expect that there would be some more stabilization of their market share in that region and Toyota's performance really is a good indication.
Speaker Change: Toyota mostly sells ice vehicles in China, just to have a few EVs but that's not what's thriving the sales.
Speaker Change: and yet they have been able to hold their own, which is a clear indication that
Speaker Change: The consumers there do look for quality or brand in that regard.
Speaker Change: I would not count the global OEMs, especially those that have strong branch, reputation for quality.
Speaker Change: Customer Service, etc. I wouldn't count them out just yet so I do believe it's an under reported story like you said but again I think there's just one quarter in the making so maybe it will catch more traction as we go forward.
Thank you, I really appreciate you taking my questions.
Speaker Change: Thank you. Our next question comes from the line of Edison U from Deutsche Bank. Please go ahead.
Hi, thank you. This is Winion for Edison.
Speaker Change: I was wondering if you can walk us through, you know, the facilities in North America outside of the U.S. and potentially how relocations narrow my look like. Is that in the playbook, eventually, we see these terraces gaining or is the direct hit from terms.
Speaker Change: Jillian Manage, Rossini, you know, recovery from costumers that it's not something that you would have to think about.
Speaker Change: I guess if you're asking whether we would consider a plant in the US away from Mexico, I would say that it really depends on how the tariffs are settled out and
Speaker Change: What our customers production plans are as a result of that. So our focus always is to be a good partner to our customers. Number one, right? And if it means that if we have to make change in our manufacturing footprint. We're going to be able to make change in our manufacturing footprint.
Speaker Change: As long as the business case is there to justify it, we would be fully prepared to do so.
Speaker Change: At this point in time, the way it is currently set up, it's not clear that there would be any benefit.
Speaker Change: of making a change, but that can change at any moment as you know. So,
Speaker Change: I think the key takeaway for you is that we are fully capable of doing it. We have a tremendous execution, competence here at Visteon. They are extremely close and working closely with our customers to figure this out.
Speaker Change: But it will depend on ultimately what the at least a midterm visibility looks like if not long term for us to be able to make this kind of decisions.
Speaker Change: And it has been echoed by our customers as well saying don't make harsh decisions until very clarity on the tariff and that is essentially our position for now.
Speaker Change: Gotcha, thank you very clear. And in my follow-up is, I was wondering if you can comment on the BSVMS cells and if you want that how that did go up to two.
Speaker Change: Expectations, and then you mentioned a fourth year can't even know the end, just wondering how the one came about and what if you can help us size sort of like the revenue opportunity there.
Speaker Change: Right. As I mentioned, I think in the last quarters running school, our customers for BMS in North America had built.
Speaker Change: A pretty robust level of inventory with anticipation of a higher self-through of EVs and while EV sales have gone up.
R in the US, Chris,
Speaker Change: Supply Chain, and then the channel for those of you. So, we were anticipating our BMS sales to be lower this year than last year.
Speaker Change: and there was a factory shut down also in Q1 at GM that was also planned by the way so nothing that was a surprise to us.
So our Q1 sales reflects all of that.
Speaker Change: Now, with the TERF related uncertain, developed to see how that develops and if you notice
Speaker Change: S&P Global has pulled down their expectation for GMEV sales perhaps acknowledging some level of impact there. So we'll have to see how that develops now on the other question, right, the fourth customer that we want.
Speaker Change: Our side of China, what we see with respect to electrification is that customers are taking a step back but validating.
Speaker Change: and revisiting their plans to build electrified vehicles. And I say electrified because combination of fully electric as well as plugins and with a lot of focus on cost. First and foremost, but also performance.
Speaker Change: because it's become very clear therefore EVs to be successful and they have to be there will be a bigger portion of the powertrain mix than it is so far.
Speaker Change: Good feeling from the win because it was a win of a very high profile business out there that was computed
Heavily by every supplier.
Speaker Change: and our capabilities with respect to technology and cost were very well recognized and that's why we were successful. So, it tells you that our power electronics products and we are both competitive and technology leading.
Speaker Change: And for us in particular, we need to be present in those types of products because TVs are the ones that will drive the electrification related innovations in the industry.
Speaker Change: And that's what will impact ultimately how cockpit electronics will look like. So all of those things are related and in our presence in those segments are very important for us to have that capability that can impact a broader portion of our business.
Great. Thank you so much.
Speaker Change: This concludes our earnings call for the first quarter of 2025. Thank you everyone for participating in today's call and your ongoing interest.
Speaker Change: These concludes the sealant's birth quarter 2020-25 results earning scholarly may now disconnect.
Please wait, the conference will begin shortly.