Linamar Corp (LIMAF) Q2 2024 Earnings Call Highlights: Strong Growth Amid Market Challenges
Revenue: $2.85 billion, up 12% from prior year.
Normalized EPS: $3.06, up 17% from prior year.
Normalized Net Margins: 6.6%, showing margin expansion.
Mobility Segment Earnings Growth: 59%, with margins at 6.4%.
Free Cash Flow: $67 million generated in the quarter.
CapEx: $174 million, or 6.1% of sales.
Industrial Sales Increase: 14.1% or $109.3 million.
Mobility Sales Increase: $186.6 million or 10.5% over Q2 last year.
Gross Margin: $424.8 million, an increase of $62.9 million from last year.
SG&A Costs: Increased to $153.1 million from $131.2 million last year.
Finance Expenses: Increased by $21.9 million due to new private placement notes and term loan facility.
Effective Tax Rate: 25.7% for the second quarter.
Cash Position: $759.9 million as of June 30, 2024.
Net Debt to EBITDA: 1.2 times, expected to decline to one times in the next 9 to 15 months.
Available Liquidity: $1.3 billion at the end of Q2.
Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Linamar Corp (LIMAF) achieved its long-term goal of reaching $10 billion in annualized sales, marking a significant milestone for the company.
The company reported double-digit top and bottom line growth for Q2 2024, with sales reaching $2.85 billion, up 12% from the prior year.
Linamar's mobility segment showed strong performance with earnings growth of 59% and margins improving to 6.4% from 4.5% last year.
The company has a strong balance sheet with leverage improving and free cash flow moving back to positive, generating $67 million in cash this quarter.
Linamar's strategic leadership changes, including the promotion of Jim Jarrell to CEO, are expected to bolster future growth and value creation.
Negative Points
The global market for battery electric vehicles is experiencing a dial back, impacting Linamar's EV-related business and necessitating capital reallocation.
The access equipment market is facing declining demand globally, with mid-single digit declines in North America and Europe, and more significant declines in Asia.
The agricultural market is predicted to decline this year, with combines and related equipment seeing reduced demand, affecting Linamar's agricultural segment.
Linamar's mobility segment is experiencing delays in new program launches, particularly in EV programs, impacting expected incremental sales growth.
The company is facing pricing pressures in the access equipment market, particularly in Europe, due to increased competition from Chinese imports.
Q & A Highlights
Q: Can you provide an update on Skyjack's geographic expansion and capacity in China and Mexico? A: Linda Hasenfratz, Executive Chair of the Board: We are not yet at full capacity in those regions as we added capacity to allow for growth. The teams have made great progress, especially in Mexico. Jim Jarrell, CEO & President: We now have all the infrastructure in place globally, with capacity available for growth, so no additional capacity is required.
Q: Are there additional areas within the agricultural sector that Linamar plans to expand into? A: Linda Hasenfratz, Executive Chair of the Board: We have a strong lineup across the crop cycle. There might be some product gaps, but we are focused on supporting OEMs with our current lineup. Jim Jarrell, CEO & President: We may focus on filling product gaps within our existing sectors to support OEMs.
Q: What is the rationale behind the timing of the CEO succession? A: Linda Hasenfratz, Executive Chair of the Board: The achievement of $10 billion in sales marked a new phase for Linamar, and Jim Jarrell's transition to CEO has been in progress for five years, making this the right time for the change.
Q: How is Linamar addressing the market slowdown in the agricultural sector? A: Linda Hasenfratz, Executive Chair of the Board: Our initiatives, such as cross-selling and market share gains, are helping offset the declining market. We expect to have a better understanding post-harvest season. Jim Jarrell, CEO & President: We are capitalizing on dealer network growth and monitoring dealer inventory and early order season closely.
Q: What are Linamar's priorities for short to medium-term growth? A: Jim Jarrell, CEO & President: Our focus remains on maintaining culture, building a global team, growth opportunities, waste elimination, and being the employer, supplier, and investment of choice. We see a lot of opportunities for growth, including potential M&A activities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.