Garrett Motion Inc. (GTX) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows strong fundamentals with a raised 2025 outlook, significant share repurchases, and dividend increases. The Q&A highlights promising partnerships and growth in zero-emission technologies, despite some uncertainty in specific future projections. The market cap suggests a moderate reaction, leading to a positive outlook.
Key Financial Performance
Q4 Net Sales $891 million, a 6% increase year-over-year (1% on a constant currency basis). Growth driven by gasoline share demand gains and a slow recovery of commercial vehicle, partially offset by continued weakness in aftermarket.
Q4 Adjusted EBIT $122 million, equating to a 13.7% margin. Down 100 basis points year-over-year due to unfavorable product mix and onetime headwinds.
Full Year Net Sales $3.58 billion, reflecting gasoline growth across most regions and commercial vehicle off-highway sales expansion. Partially offset by lower diesel sales in Europe and aftermarket declines in North America.
Full Year Adjusted EBIT $510 million, with a 14.2% margin. Unfavorable mix driven by increased light vehicle gasoline and softness in aftermarket, partially offset by increased commercial vehicle sales.
Full Year Adjusted Free Cash Flow $403 million, demonstrating disciplined execution and operational rigor. Free cash flow conversion of nearly 80%.
Term Loan Repayment $50 million voluntarily repaid in 2025, reducing net leverage ratio to approximately 1.9x.
Share Repurchases $208 million worth of shares repurchased in 2025, reducing share count to 191 million shares outstanding by year-end.
Dividends Paid $52 million paid in dividends in 2025.
Q4 Adjusted Free Cash Flow $139 million, reflecting efficient conversion of earnings into cash.
Tariff Recovery $40 million recovered for the full year 2025, including $10 million in Q4.
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Operating Highlights
New light vehicle turbo awards: Secured significant awards driving demand in gasoline VNT applications and hybrid and range-extended electric vehicle platforms.
Diesel applications: Won important awards for light commercial vehicles and trucks, emphasizing lower emissions, fuel economy, and high torque.
E-Cooling compressor portfolio: Introduced oil-free, high-speed centrifugal refrigerant compressors for HVAC applications, offering over 10% real-world energy savings.
Industrial cooling: Expected to scale quickly to more than 5% of revenue by the end of the decade, driven by ultra-low global warming potential refrigerants.
Strategic collaboration with Trane Technologies: Launched collaboration to integrate Garrett's compressors into Trane's commercial HVAC applications, with broader production starting in 2027.
Adjusted EBIT: Achieved $510 million for 2025 with a 14.2% margin, demonstrating operational rigor.
Adjusted free cash flow: Generated $403 million in 2025, reflecting disciplined execution.
Capital allocation: Voluntarily repaid $50 million of term loan, repurchased $208 million of common stock, and paid $52 million in dividends.
Diversification outside automotive: Expanding into industrial cooling and zero-emission technologies as deliberate growth strategies.
E-Powertrain and E-Cooling technologies: Secured first production wins, generating traction in power generation and industrial applications.
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Risk or Challenges
Aftermarket Weakness: Continued weakness in the aftermarket segment, particularly in North America, has negatively impacted sales and margins.
Unfavorable Product Mix: Unfavorable product mix, including growth in small engine light vehicle diesel and softness in the aftermarket, has led to margin pressures.
Global Light Vehicle Industry Decline: The 2026 outlook assumes a 2% decline in the global light vehicle industry, which could impact sales and growth.
Net Inflation and Pricing Pressures: Unfavorable pricing and net inflation are expected to offset productivity gains, impacting profitability.
Diesel Market Decline in Europe: Lower diesel demand, particularly in Europe, continues to be a challenge as the industry declines.
Tariff Impacts: Tariffs have caused a 20 basis point margin dilution, adding to cost pressures.
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Guidance & Outlook
2026 Financial Outlook: Net sales projected at $3.7 billion, net income of $315 million, adjusted EBIT of $545 million (14.7% margin), net cash provided by operating activities of $455 million, and adjusted free cash flow of $405 million. Capital expenditures and RD&E expenses expected to be 2.5% and 4.2% of sales, respectively.
Industry Assumptions for 2026: Global light vehicle industry expected to decline by 2%, BEV penetration to average 19%, and commercial vehicle recovery (on and off-highway) to grow by 1.5%.
Zero-Emission Technologies and Industrial Cooling: Approximately 50% of RD&E will focus on zero-emission technologies and industrial cooling. Industrial cooling expected to scale to more than 5% of revenue by the end of the decade.
Margin Expansion and Productivity: Adjusted EBIT margin expected to improve by 50 basis points to 14.7% in 2026, driven by increased volumes and operational productivity, offsetting unfavorable pricing, inflation, and product mix.
Capital Allocation: Targeting distribution of approximately 75% of adjusted free cash flow to shareholders through dividends and share repurchases.
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Shareholder Return Plan
Dividends Paid in 2025: $52 million
Q4 2025 Dividend: $0.08 per share
Q1 2026 Dividend Declared: $0.08 per share
Share Repurchase in 2025: $208 million worth of shares repurchased
Q4 2025 Share Repurchase: $72 million worth of shares repurchased
2026 Share Repurchase Program: $250 million authorized for share repurchase
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Key Q&A
Q:What is the economic opportunity of the Trane partnership and the use of the high-speed compressor?
A:The Trane partnership represents a significant opportunity, with the first application expected in 2026 and a ramp-up in 2027. By the end of the decade, it is projected to contribute over 5% of revenue. The CapEx for this initiative is included in the 2.5% CapEx guidance for 2026, and the margins are expected to be accretive from the start of production.
Q:What are the company’s plans for diversifying into power generation for data centers?
A:The company is focusing on verticals that value its technology, including commercial vehicles, industrial spaces, and data centers. It has developed a new range of products for gensets, with significant growth expected beyond the $100 million sales target for 2025. The cooling side, driven by data center growth, is also a key focus area, with the company leveraging its unique technology to gain market momentum.
Q:How does the company compare the growth opportunities in power generation for data centers versus cooling?
A:Both markets are growing fast, driven by macro trends like increased energy needs and demand for energy-efficient cooling. The company forecasts cooling to quickly exceed 5% of revenue, with a rapid ramp-up by industrial standards. Both areas are seen as complementary rather than competing opportunities.
Q:What is the company’s progress in light vehicle turbo awards and market share?
A:The company has consistently won over 50% of industry turbocharger awards in recent years, increasing its market share. It is well-positioned with advanced technologies for hybrid vehicles and electric boosting solutions, which are driving its growth and market share gains.
Q:What are the efficiency gains of the Trane e-compressor compared to competing technologies?
A:The Trane e-compressor offers proven efficiency gains, controllability, and maintenance advantages over magnetic bearing technologies. It is less difficult to control and more energy-efficient, making it a superior solution.
Q:What are the company’s SG&A cost savings and future plans?
A:The company has achieved significant SG&A cost savings through organizational fine-tuning and system development. It plans to further improve efficiency and performance in the coming years.
Q:Is the 5% revenue target by 2030 solely from the Trane partnership?
A:No, while the Trane partnership is a significant contributor, the company expects additional opportunities with other players and segments in the cooling industry to contribute to revenue growth by 2030.
Q:What is the progress on zero-emission products and the $1 billion revenue target for 2030?
A:The company is making progress with predevelopment programs in passenger vehicles, commercial vehicles, and industrial applications. It has confirmed benefits of its solutions and expects production for heavy-duty electric axles to begin in 2027. The $1 billion revenue target includes contributions from various zero-emission products, including the Trane partnership.
Q:How does the company reconcile its EBITDA margin expansion with a decline in global light vehicle units?
A:Despite a decline in global light vehicle units, the company expects EBITDA margin expansion due to increased market share in the light vehicle industry and growth in commercial vehicles, particularly in off-highway and industrial turbos.
Q:Is the growth in commercial vehicle revenue driven by off-highway or on-road aspects?
A:The growth in commercial vehicle revenue is primarily driven by off-highway applications, specifically industrial turbos for gensets.
Q:Is the Trane partnership exclusive, and will it contribute to the $1 billion zero-emission revenue target?
A:The Trane partnership is not exclusive in the long term, allowing the company to develop relationships with other players. It is part of the $1 billion zero-emission revenue target for 2030, contributing alongside other portfolio products.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numbers for 2027 revenue from the Trane partnership, instead emphasizing the overall growth trajectory and the 5% revenue target by the end of the decade. Additionally, they did not provide detailed technical comparisons of the Trane e-compressor's efficiency gains, deferring such discussions to a future Investor Day.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Capital expenditure
EBIT margin
HVAC application
Olivier remark
RDE
Slide EBIT
Technologies
application rooftop
award turbo
balance sheet
benefit
chiller
compressor HVAC
cooling
core
discussion
dividend share
emission technology
energy
flow capital
gain
highway application
light vehicle
margin cash
midpoint outlook
oil speed
portfolio
quality
recovery vehicle
region
series production
share dividend
sheet term
speed compressor
supplier
vector
warming refrigerant
GTX Transcript
Garrett Motion Inc. (GTX) Q4 2025 Earnings Call Transcript
Positive2-19
The earnings call shows strong fundamentals with a raised 2025 outlook, significant share repurchases, and dividend increases. The Q&A highlights promising partnerships and growth in zero-emission technologies, despite some uncertainty in specific future projections. The market cap suggests a moderate reaction, leading to a positive outlook.
Garrett Motion Inc. (GTX) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call summary and Q&A indicate strong financial health with a 33% dividend increase and significant share repurchases. The company's advancements in zero-emission technologies and stabilization in key markets provide optimism. Despite some margin dilution from tariffs, the overall outlook remains positive with a focus on shareholder returns and strategic partnerships. The market cap suggests a moderate reaction, leading to a predicted stock price increase of 2% to 8%.
Garrett Motion Inc. (GTX) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call highlights a stable financial performance with strong cash flow and shareholder returns through dividends and buybacks. Despite some margin pressures and currency risks, the company maintains a positive outlook with new wins and solid gasoline turbo sales growth. The Q&A reassures on cost recovery and operational performance, reinforcing confidence. The market cap suggests a moderate response, leading to a 'Positive' sentiment, predicting a 2-8% stock price increase.
Garrett Motion Inc. (GTX) Q1 2025 Earnings Call Transcript
Unknown5-1
Financial performance shows mixed results: a revenue decline but improved EBIT margins. Product development focuses on innovation, yet sales growth is negative. Market strategy is cautious due to geopolitical risks and competitive pressures. Expenses are managed well, with a solid liquidity position, but foreign exchange and tariff risks persist. Shareholder returns are positive with dividends and share repurchases. The Q&A highlights potential in North America and China but lacks clarity on Euro impact. Given the market cap, the stock price reaction is likely to be muted, resulting in a neutral sentiment.
GTX Report
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