Q1 2025 Commercial Vehicle Group Inc Earnings Call
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Good morning ladies and gentlemen and welcome to CVG's first quarter, 2025 Ernie's conference call
During today's presentation, all parties will be in a decent only mode.
Following the presentation, the conference will be open for questions with instructions to follow at that time.
Speaker Change: As a Reminder, this conference is being recorded. I would now like to turn the call over to Mr. Andy Chung.
Chief Financial Officer, please go ahead sir.
Thank you operator, and welcome everyone to our conference call.
Speaker Change: Joining me on the call today is James Ray, President and CEO of CVG. This morning we will provide a brief company update as well as commentary regarding our first quarter 2025 results.
After which, we will open the call for questions.
Speaker Change: As a reminder, this conference call is being grab cast and a Q1 2025 funding call presentation which we will refer to during this call is available on our website.
Speaker Change: Both may contain four looking statements, including a not limited to expectations for future periods regarding market trends, co-saving initiatives, and new product initiatives among
Speaker Change: This risk and uncertainties may include but not limited to economic conditions in the market in which CVG operates.
Speaker Change: Fluctuations in the production volumes of vehicles for which CVG is a supplier.
Speaker Change: Financial Covenant, Compliance, and Liquidity, with associated with conducting business in foreign countries and currencies.
and another risk as detailed in our SEDC Fireings.
James Ray: I will now turn the call over to James to provide a company update.
Thank you, Andy.
Speaker Change: I'd like to turn your attention to the supplemental earnings presentation starting on slide three.
Speaker Change: Our first quarter results reflect the strategic steps we have taken to refine our business model over the last several quarters
Speaker Change: More recently, we completed the shift to our new segment structure, which has provided enhanced clarity and focus within each business unit.
Speaker Change: while more closely aligning CVG with our customers and in markets.
Speaker Change: Enhancing that connection with our customers is critical, especially in the current market conditions.
Speaker Change: R3 operating segments, global seating, global electrical systems, and trim systems and components are now better positioned to serve our customers in a lower cost structure.
Speaker Change: We have seen early benefits from this segmentation and we continue to believe this structure will accelerate the operational momentum we have created year-to-date.
Speaker Change: Also highlighted on this slide is the 10.8% adjusted gross margin we achieved during the quarter.
Speaker Change: which is a 240 basis point sequential improvement compared to Q4 2024.
Speaker Change: This improved profitability was largely driven by the operational efficiency initiatives we executed and have spoken about previously, including but not limited to the divestiture of non-core businesses.
Speaker Change: We expect our gross margin to be supported by further operating leverage going forward as we continue to benefit from the strategic actions taken in 2024.
Speaker Change: Along with improved profitability, we also delivered an almost $18 million improvement in free cash flow compared to last year. As we alluded to last quarter, working capital management is a critical focus for us this year.
Speaker Change: And we expect to reduce our working capital closer to historical levels over the course of this year with a specific focus on inventory.
Speaker Change: I will provide more detail regarding our gross margin and free cash flow performance in a moment, but our strong performance on both helped to drive a net debt reduction of $11.7 million in a gross debt reduction of $18.1 million in the first quarter.
Speaker Change: Before I move on, I'd like to comment on our decision to discontinue reporting new business wins.
Speaker Change: Given the current macroeconomic environment, as well as our customers' challenges in predicting future program ramps.
Speaker Change: We don't believe we have the necessary clarity to accurately predict the timing and magnitude of total wins, particularly as to when they will begin flowing through to our revenue.
Speaker Change: For these reasons, we believe our annual guidance is the best way to contextualize and model our future results.
Speaker Change: Importantly, while we will not be providing forward-looking projections for new business, this does not mean we are any less focused on pursuing and securing new business awards.
Speaker Change: This remains the lifeblood of this company and we are still seeing a robust pipeline of new business opportunities.
Speaker Change: Turning to slide four, I want to take you through the Sequential Gross Margin Improvement we saw on the first quarter.
Speaker Change: Reflecting back to the strategic actions taken in 2024, we've been focused on reducing freight, labor, and overhead costs.
Speaker Change: In particular, we reduced our reliance on expedited freight, optimized our terms with suppliers and improved our lead times and order quantities.
Speaker Change: We are also flexing our deliberate labor to align with any customer volume changes and continue shifting our production to lower cost facilities.
Speaker Change: We're also addressing plant salaries and our new segment alignment allows for a more optimized overhead structure.
Speaker Change: As evidenced by the margin improvement, our focus on operational efficiency improvements as well as our restructuring and footprint rationalization efforts are clearly paying off.
Speaker Change: This focus on improving our operating model is clearly helping our performance in this lower demand environment but also positions us well into the eventual end market recovery.
Speaker Change: We believe we have the right approach for CVG to drive a creative growth, accelerate margin expansion, increase our capital efficiency, and ultimately enhance shareholder value.
Speaker Change: Now, moving to slide five, I'd like to revisit a graphic we shared in our Q4 earnings call.
Speaker Change: While we believe our strategic portfolio actions position us better for the future, they led to cash flow headwinds in 2024.
Speaker Change: Namely, through cashmurne and our discontinued operations, restructuring spend and inventory build. We mentioned on the Q4 call that we expected each of these three headwinds to ease, and in some case, reverse in 2025.
Speaker Change: Considering the decline in market demand, I am pleased to report solid progress in each area.
Speaker Change: In the first quarter, our discontinued operations were net cash generative.
Speaker Change: We also had minimal restructuring spend in the quarter at less than $1 million.
Speaker Change: And finally, we saw a $5 million improvement in inventory versus the end of the year.
Speaker Change: Improving in these three areas helped drive free cash generation of $11 million in the quarter and positions us well for further improvement in this key metric throughout 2025.
Andy Cheung: With that, I'd like to turn the call back to Andy for a more detailed review of our financial results.
Thank you, James, and good morning, everyone.
Andy Cheung: If you are following along in the presentation, please turn to slide six.
Andy Cheung: Consultative first quarter, 2025 revenue, was $169.8 million as compared to $194.6 million in the prior year period.
Andy Cheung: The decrease in revenues is due primarily to a softening in global construction and agriculture and markets, as well as North American Class A truck demand.
Andy Cheung: adjusted EBITDA was $5.8 million for the first quarter compared to $9.7 million in the
Andy Cheung: different primarily by lower volumes, but offset by reductions in SGNA expenses.
Andy Cheung: Interest expense was $2.5 million as compared to $2.2 million in the first quarter of
Andy Cheung: The increase in interest expense was primarily related to higher reflective interest rates during the current periods.
Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the
Andy Cheung: Net loss for the poorer was 3.1 million dollars, or a loss of 9 cents per dollar per share has compared to a net income of 1.4 million dollars or 5 cents per dollar per share in the prior year.
Andy Cheung: Adjusted net loss for the quarter was $2.6 million, or a loss of it sends per dilute share as compared to an adjusted net income of $2.8 million, or it sends per dilute
Andy Cheung: Let laws and the trusted let laws were impacted by higher long-caged tax provision, driven by the geographic mix of income in the court.
Andy Cheung: Free cash flow from continuing operations for the caller was 11.2 million dollars, compared to negative 6.5 million dollars in the prior year. The free cash generated in the caller was supported by better working capital management and reduced capital expenditures.
Andy Cheung: Based on that calculation, we remain below the net leverage provenance theft law in the credit agreement.
Moving to the Fettman Results, the Gingling on Slide 7
Andy Cheung: Our global seeding segment achieved revenues of $73.4 million, a decrease of 9% as compared
Andy Cheung: with the decreased priority driven by lower sales volume as a result of reduced customer demand.
Andy Cheung: While operating income was negatively impacted by lower sales volume and increased phrase cost, we saw an improvement in adjusted operating income margin thanks to the actions we took in 2024 to address our cost and manufacturing footprint.
Turning to Slide 8
Andy Cheung: Our global electrical segments, first-polar revenues, decreased 14% to $50.5 million, compared to the year of importer.
Andy Cheung: Deal primarily to lower sales volume as a result of decreased customer demand.
Andy Cheung: Adjusted operating income for the first quarter worth $0.2 million, a decrease of $1.3 million compared to the prior year.
Andy Cheung: Primarily, a trip with the wall to the lower sales volume and unfavorable foreign exchange
Andy Cheung: We took further restructuring actions, focused on reducing S-GNA and indirect headcount as we looked to right-side starting levels in this business to align with the current demand outlook while shifting production to lower cost facilities.
Andy Cheung: We remain focused on global electrical as a core business to CVG, and it remains a focal point for our team as we continue to reduce debt, improve free cash flow, and win new business at higher margins.
Moving to Floyd Martin
Andy Cheung: Our trim systems and components revenues in the first quarter decreased 17% to 45.9 million dollars compared to the year ago quarter due to lower sales volume as a result of decreased customer demand.
Andy Cheung: Adjusted operating income for the first quarter was $1.6 million, a decrease of $3.1 million compared to the prior year.
Andy Cheung: The decrease is primarily attributable to lower sales volumes and higher freight costs.
Andy Cheung: We believe we are working through the last of our operational efficiencies in this segment and that we are positioned for improved performance moving forward.
Andy Cheung: Along those lines, we did see strong sequential gross margin improvements in these segments, up to 290 basis points compared to the fourth quarter of June and June 4th.
Andy Cheung: as our remediation efforts are stabilizing operations and lead to improve operational efficiency and financial performance.
Andy Cheung: That concludes my financial overview commentary. I will now turn the call back over to James to cover our market outlook, key strategic actions being taken, and our updated guidance.
Thank you, Andy.
James Ray: I will start with our Keaton Markets Outlook on slide 10.
James Ray: According to ACT's Class 8 Heavy Truck Build Forecast, 2025 estimates imply a 23% decline in year-over-year volumes.
ACT forecast a 19% increase in truck builds anticipated in 2026
James Ray: We understand the EPA is evaluating a potential delay or pushback of the greenhouse gas phase for these three regulations for commercial vehicles.
James Ray: which would likely change the prebi dynamics ahead of the expected regulation change date in 2027. However, we believe this would ultimately represent a timing shift as fleet operators still need to replace equipment on a regular basis.
Moving to our construction and agriculture market outlook.
James Ray: Leaker housing starts, slower commercial real estate activity, and lower commodity prices continue to weigh heavily on demand.
James Ray: Despite market softness in these markets, which impact our global electrical systems business, we continue to remain optimistic about the long-term potential of both construction and agriculture markets as we see ongoing replacement needs and underlying secular trends driving a recovery in these markets in 2026.
James Ray: Turning to slide. I'd like to highlight some of the actions we have and are currently taking to mitigate the impact of tariffs and broader macroeconomic headwinds.
James Ray: First, the strategic portfolio actions we took in 2024 to lower our cost structure are already helping to lower decriminal margins and position us well to grow our earnings power as end market demand recovers.
Second.
James Ray: We remain focused on driving improved cast generation and aligning our S.G.N.A. structure with our current revenue base this year.
James Ray: Specifically, we expect a 50% reduction in playing capital expenditures this year. Along with $20 million of working capital reduction, focus primarily on inventory.
James Ray: Through the first quarter, we realized $5 million in inventory reduction. We also expect $15 to $20 million in cost savings this year, which should drive incremental margin expansion as our top line returns to future growth.
James Ray: Third, we are in constant communication with our customers, which has improved our line of sight to production schedule changes and will allow us to implement corresponding cost actions in the event of future changes.
James Ray: Furthermore, as soon as the initial round of terrorists was announced, our teams immediately took a number of actions in the effort to mitigate potential impacts.
James Ray: We are actively negotiating price recovery terms with our customers while building contingency plans to create flexibility across multiple scenarios.
James Ray: All with the end goal of securing our business competitiveness and meeting our customers' needs.
James Ray: In addition, we are diligently assessing our relationship with suppliers, including evaluation of reshoring and near-shoring opportunities to mitigate the potential impact of tariffs.
James Ray: which reflects the current estimated impact of tariffs, trade policies, and economic uncertainty, as well as the aforementioned actions that we are proactively taking in this current uncertain environment.
James Ray: Reflecting recent macroeconomic developments, prevailing truck-build forecasts, and ongoing weakness in construction and agriculture markets.
James Ray: We are lowering our quantitative annual guidance for revenue and adjusted EBITDA and tightening the revenue range. We are also introducing a free cash flow metric to our guidance this quarter.
James Ray: Given current demand pressures, we are adjusting our full year 2025 Revenant Gardens range to $660 million to $690 million, which is down from $670 million to $710 million.
James Ray: We are also lowering our adjusted EBITDA guidance expectations to the range of 22 million to 27 million dollars for 2025 which is down from 25 million to 30 million dollars.
James Ray: Based on this updated outlook, we still expect EBITDA growth and margin expansion compared to 2024. At the midpoint of the ranges, supported by our focus on STNA costs, the lower end of our guidance ranges encompasses a scenario where the EPA pushes back the 2020-70 mission standards for classic vehicles.
James Ray: We expect to build on our free cash flow progress generating at least $20 million of free cash flow in 2025, which will be used to pay down debt, our focus on reducing working capital and lowering capital expenditures underpinned this outlaw.
James Ray: Net leverage is expected to decline throughout 2025 and 2026 as we work toward returning to our target at two times level.
James Ray: With that, I will now turn the call back to the Operator and open up the line for questions. Operator?
Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press this part followed by the number one on your touch on phone. You will hear a prompt that your hand has been raised.
James Ray: Should you use the decline from the polling process, please press star followed by the number two. If you are using a sticker phone, please leave the answer before pressing any case. One moment please for your first question.
Speaker Change: Your first question comes from the line of Joe Gomes, from Noble Capital, your life's
Good morning and thanks for taking my questions.
Morning, Jordan Joe.
Speaker Change: So, a nice work again on the cost improvements and everything, and just on the gross margin improvement. And I wonder if you could just remind us in a normalized environment, how high you think gross margin could be.
Yeah, John , we talk about that.
Speaker Change: Overall, we see the entire business get to a high single digit EBITDA margin.
Speaker Change: I think right now we still have a long way there, but as you pointed out, that with 15% will likely be returning to a more normalized end market demand.
taught some of our own self-help.
Speaker Change: So, as you can see in Q1, obviously, the weapon is pretty low in the corner, but we demonstrated that we were able to prove through some of the self-help. And then as you continue to see through the rest of the corner, hopefully both the self-help and the end market recovery will start to show more towards the end of this fiscal year. Yeah, Joe, I'd also add, us being able to anticipate plan and manage
Speaker Change: The headwinds of tariffs and inflation, global freight costs and those things, we feel like we have...
Speaker Change: line of sight to mitigating actions and our ability to flex quickly depending on what the end outcome is in those areas will give us an ability to continue to drive expansion and a gross margin.
Okay.
Speaker Change: and then it just on the end-market side, the way you guys can...
Speaker Change: Give us a little bit more color. I know you guys quote the ACT truck build outlook. I also look at some other stuff. If you look at FTR for class 8 orders.
Speaker Change: In April , they were down to levels of May 2020, which was during COVID when everything was shut down.
Year-to-date, orders are down 30%.
Speaker Change: which, if I'm looking at that type of, those types of numbers, it would say yes.
that it's going to be very difficult.
Speaker Change: to hit the ACT numbers of build numbers in 2026.
and that's, you know, without...
if the EPA decides to pull.
Speaker Change: The deadline of 27 for new admissions, which we had another wild card.
Speaker Change: And then, if I look at the construction and ag markets that they are, the ads accurate, they are going to be down 5 to 15% each this year. I mean, over two years...
Speaker Change: You know, I'm just trying to get a better handle on how we're going to get through that.
Speaker Change: and have you ever seen these types of downturns?
Speaker Change: previously in the length of these downturns because they just seem to be extended, especially in the construction and ag markets. Any additional color you can give is greatly appreciated.
Speaker Change: Yeah, that's a really good question and thanks for asking because I think what you're seeing
Speaker Change: not only to take cost structure actions as well as discretionary spending in the SDNA line
Speaker Change: as we expect these headwins to continue. So, I have an experience of...
Speaker Change: In my overall professional experience, this type of year over year, two years in a row stacked.
Speaker Change: downturned, but we took some tough measures last year which created some inefficiencies and now that they're stabilizing, we still see a line of sight to continue the opportunity for gross margin expansion even in the headwind of these market dynamics and you're seeing that flow through in our Q1 and we expect throughout the year to continue to harvest those opportunities.
Speaker Change: to maintain our updated guidance range with consideration of EPA push out, with consideration of continuing down end market demand and connect and some of the
Speaker Change: Successful will be determined by our ability to mitigate.
Speaker Change: The end result of tariff actions, working with our customers and suppliers [inaudible]
Speaker Change: as well as our commodity prices and our footprint on nearshoring, ensuring resourcing to continue to improve our capital utilization, as well as be prepared to support customer demand, and then finally just the
Speaker Change: People are pausing. Organizations are pausing whether it's fleets or connect dealers.
to see where the-
Speaker Change: Okay, great. Thank you very much for that. It was much appreciated. I'll get back in queue. Thank you
Thank you.
Speaker Change: Thank you. Your next question comes from the line of Gary Prestopino of Barrington Research. Your line is now open.
Good morning, James and Andy. How are you guys doing?
Good year, good morning, Gary.
There's a couple of questions here.
Speaker Change: First of all, as I look back on the stats that he gave,
Speaker Change: for a Class A truck build when you report it in March.
Speaker Change: ACT was at, I believe, 316,000 of production. Now it's down to 255, and that's just really in a two month span. So, is that a reaction to...
Speaker Change: The possibility of the EPA conserving delaying some of these emissions.
Speaker Change: or is that just really a function of that they felt that the economy is really slowing dramatically? And this is where they think production is going to be. I mean, it just seems like in a two-month period that's a huge gap down.
Speaker Change: Yeah, it is. And based on information we receive from our customers and also that they've presented publicly, they're in market demand is...
Speaker Change: Someone in the wait and see mode with respect to tariffs, freight rates have gone down and I think some of that's with respect to tariffs as well as geopolitical issues with the supply chain.
We expect to continue to align there, but...
There is...
Speaker Change: Volatility and customer built due to their pipeline inventory correction, so they've scheduled down weeks.
Speaker Change: within quarter and out quarters that we've adjusted in our Outlook and Forecast. As they modulate their production, so their inventory pipeline of what's it dealers and what's going
Alliance, and they're not over producing, so we have to...
Speaker Change: Adjust accordingly, and that's how we are able to continue to address our inventory reduction.
Speaker Change: as we're changing our terms of conditions on lead times and M.O.Q.s with suppliers as well as
Speaker Change: looking at all alternative sources that have shorter lead times, which is giving us inability to reduce inventory and also our labor planning and plant scheduling it's been very disruptive but we are focused both on variable and fixed and I think that's going to give us
The appropriate countermeasures to balance this uncertainty and volatility but
Speaker Change: as you've seen these dynamics before, there does come a point of stability and recovery and I think that we are well positioned.
Speaker Change: for that time, but we're not waiting until markets recover to expand our gross margin and expand our EBITDA and cash flow.
Speaker Change: We're taking the actions accordingly but not being very conscious, we don't damage our ability to be ready to respond.
Speaker Change: So, it's a dicey set of initiatives that we're balancing, I call it a set of sound up to any instant equations we're balancing, but so far we're seeing positive results as we look.
Speaker Change: where we were in Q4 and Q1, and our outlook for Q2 is, again, we'll hear more about that in our guidance, so you've heard about that in our guidance, but we do expect volatility in these build rate 10 order rates.
Speaker Change: and can you just explain where these inputs are coming from in terms of if you're importing stuff from China, Europe , whatever, can you just help us out a little bit with that?
Speaker Change: Yeah, I would say our largest exposure is on the Mexico and Canada.
Speaker Change: tariffs and we are currently the majority of our business right now. And those that set of tariffs are under USMCA, which we've had some relief from.
Speaker Change: So, I believe there's a 90-day pause on some of that. So, we're working with customers to make sure that we're aligned with them. We have their appropriate recovery mechanisms in place. We are starting to see tariff recovery come in from customer invoices and POs.
on the amounts that we've experienced today.
Speaker Change: The China tariffs are on a lower percentage of our spin and it's primarily related to our global seating business.
Speaker Change: and we are working closely with the OEMs to make sure we have recovery mechanisms there, but also they expect us to implement mitigating actions from the standpoint of near-suring.
onshoring. Thank you.
Speaker Change: and also renegotiations with suppliers to make sure that they're doing all the things that they have to do similar to our customers expecting us to do that. So there are a lot of moving pieces right now, things still haven't settled down but we feel like we're making momentum both in the mitigating side and also the recovery side.
Speaker Change: and do you have any number of what percentage of your COG is affected by this?
Andy Cheung: Yeah, so if you think about from a construction standpoint, you really have to break that into the different segments, because they are very different.
New James Ponds, Our Electrical Business, is mostly a menu, fracturing, paint and practicality.
So, what he's describing is...
Speaker Change: Our finished goods products coming back to the US, but we believe that we will have some relief from the US MCA and our customer understand the dynamics, so we have a lot of very mature conversation already with our customers.
Speaker Change: on recovering that part. So that you can call it everything 100% of the products are subject to a terrible exposure, but we believe that with the regulation and the customers, we have that cover there.
Speaker Change: very related to imports components from overseas. That is mostly chemical, plastic, business with a little bit of components very tiny coming from overseas.
Speaker Change: The North America ceiling is the one that if you remember we talked about, we have some global platform, some metal components that come from China, but I'll call it, it would still be a tiny fraction of our core structure, I'll call it maybe less than 10% of our core structure is coming from China
Speaker Change: So that's the one that we are actively working with the customer, getting a distribution on the recovery. So far, a couple of our top customers have already indicated that they will be very helpful in collaborating. We're finding ways to reduce the cost while customers as well as the customer will be expected to support internal reading for us.
Speaker Change: Okay, thank you for that. And just the last question revolves around debt and cobbinence. I mean, your net leverage ratio is at five times. What are your cobbinant levels?
Speaker Change: Yeah, so if you remember, we talked about back in December , we have some of the men.
Speaker Change: to allow us to most be the amendment, to allow us to calculate our governance level, considering some of these one-time unusual calls that we incur during turn and turn before, because of all these strategic actions and one-time footprint actions.
Speaker Change: So overall, it's one four times and we'll gradually step down.
Jewing throughout the year.
Speaker Change: in 2007, in 2025, we all started looking for options for refinancing for our entire desk structure, so that's what we're doing right now.
Speaker Change: Thank you, and just a reminder, should you have a question, please press star, followed by the number one on your phone. Next question comes from the line of John Franzreb, from Sidoti Company. Your line is now open.
John Franzereb: Good morning guys, and thanks for taking the questions. I'd like to go back to the topic of the Revenue Profile for the current year. I'm curious how.
John Franzereb: April played out relative to March. Are you seeing the revenue profile decrease in line with the ACT numbers, or is it more or less aggressive than that forecast?
It depends.
John Franzereb: In some areas, it's in line, and some areas is not quite as low.
So the ACP forecast primarily impacts our global seating.
and our trim systems and components business.
and depending on the customer and depending on the platform.
John Franzereb: You see a mixture of what models they're continuing to build and what models they've put down weeks in in their production and we correspondingly do that with our plants but we feel like that we're aligned with them with our increased interaction with their organizations on the planning and supply standpoint as well as production supply.
John Franzereb: and they've been very helpful in communicating to their supply base when they expect to have down weeks.
in the-
John Franzereb: 3, 12 week to 13 week outlook, so that does give us time to flex a bit.
We don't exactly know [inaudible]
When things will stabilize
and I think they're watching you closely as well.
John Franzereb: So we're just remaining flexible and agile to make the adjustments necessary and as it relates to April versus March we don't really see a significant shift in revenue profile. It's coming in as we expected back in the February March timeframe for April .
Speaker Change: Okay, and James, you just referenced it now, and you referenced it, and you're preparing marks about scheduled downtime. That scheduled downtime, it sounds like it's in the current quarter, and then not giving you visibility beyond that, is that a fair assessment?
Speaker Change: It's usually in the 10 to 12, 13-week range. They have production schedules that they manage. So we have about a two to three month visibility. It becomes more firm.
the 4-8-week range, and it's become a pretty formative range. So knowing what they're planning in the June and July timeframe helps us prepare accordingly and seasonally with Class A truck production.
Speaker Change: A lot of the customers have model change and they already have downtime scheduled in the July period
but they had originally planned to be down, so we're-
Speaker Change: evaluating how we correspond our production and schedules as well as inventory build, safety stocks and those things to make sure we continue on our inventory reduction path, but also make sure that we continue our focus on on time delivery with those customers.
Speaker Change: It's managing a lot of fluctuation right now, but I feel like we have a somewhat of a better handle on it than we did in Q4.
I don't know. You're in.
is what we currently seeing.
once we...
started to see the rebound of our electrical system business.
Speaker Change: So you see a higher incremental because right now we are also burdened by the additional fixed costs that we talked about with the two new plans.
Speaker Change: If you look at the trim business, you will see a little bit more incremental there, but the trim business I would like to also add a little bit with the new segments and since you ask about what the impact and what we see with the class 8.
Speaker Change: So, when you think about modeling our weapon use movements with the end market, that one has the most correlation with North America Class 8.
Speaker Change: Global seating now, well with the new segments you can see is truly a global law of America, Europe and APEC.
Speaker Change: So you can see even in Q1, the correlation with the MRK Law of America drop is a little less co-related. Now with Law of America, you can see the drop is less than the trim business, and obviously now you look at the electrical business, it's mostly follows the construction and
Speaker Change: and what cost-saving measures remain to be implemented in 2025?
Remain our largest lover
Speaker Change: Continuing improvement in operational excellence, labor productivity, plant efficiency, supply chain optimization with lead times and MOQs as well as terms of conditions on payables with our suppliers.
Speaker Change: is also non-going focused. So with our new C-O-O's got read in.
Speaker Change: He's building an organization that we're already seeing the benefit of.
Speaker Change: The functional subject matter expertise in putting in someone that's over both manufacturing operations and procurement, we have better alignment and there's also reducing some of the inefficiencies that we had previously.
Speaker Change: as we're looking at the plants more in a product segment versus the segmentation we have previously. So for example, all the seeding...
Speaker Change: plants in North America are now under one operational executive and we're leveraging some of the synergies looking at it from a product that's applied change standpoint which helps improve our costs too.
Speaker Change: So those are the primary areas that we're focused on as well as inventory reduction to generate more cash so it's both on a PNL side as well, as well as the cash flow side.
John Franzereb: And James, if I recall properly, and prepare every mark, you mentioned freight costs a number of times, can you quantify how much freight costs impacted you in the first quarter, say, versus a year ago?
John Franzereb: I would say there was a higher impact as compared to a year ago, but we had different initiatives going on where we were doing the vestitures and planking solidations a year ago versus now a more stable environment, also some of the freight dynamics from last year with potential
John Franzereb: Canal and shipping disruptions increase container rates as well as in this year we're seeing
John Franzereb: Great demand, so we're also seeing lower container rates and container usage. So it's looking at all those elements, and year over year, I don't really have a specific number, but it's...
John Franzereb: so John , I think the most important message here is if you look at our
Q4 and Q3 performance last year.
John Franzereb: So, when we think we are under a lot of operational inefficiencies because of the footprint changes and the strategic actions, a lot of that came in the form of expedited freight.
James Ray: Right, because when we move things around, it becomes very difficult to manage the supply chain and we have to keep the customer production schedule on time. So, what James?
James Ray: is that if you look at our 240 basis pawned improvement,
James Ray: A third of that keeps on our stabilization of those footprint changes.
James Ray: and now we were able to get rid of those expedited freight and we are not fully done yet. We still have some actions to do as we continue to optimize our infantry positions. So this is going to be continued to be a source of our margin expansions of the year.
James Ray: Thank you. That was actually very helpful. Thank you guys. I'll go back it to Q.
Thanks, John.
James Ray: Thank you, there are no further questions at this time, turning over back to Mr. Ray for closing remarks.
Thank you all for joining today's call.
James Ray: We are remaining agile to support our customers in this dynamic environment, and we are highly focused on continuing to execute our long-term strategy. We look forward to discussing CVG's progress next quarter. Thanks again for participating, and your questions, have a good day.
James Ray: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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John Franz, Gary Prestopino, John Franz, Douglas Dethy, Chung Cheung