Exco Technologies Limited (XTC:CA) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals: strong financial performance with increased sales and net income, but challenges in key segments and uncertainties due to tariffs and economic conditions. The Q&A session revealed growth potential in AI data centers but a weak M&A pipeline. Despite positive financials and operational efficiencies, the lack of a share buyback program and external risks balance the sentiment, leading to a neutral rating.
Key Financial Performance
Consolidated Sales $149.5 million for the first quarter, an increase of $6 million or 4% year-over-year. The increase was partly due to foreign exchange movements, which contributed approximately $1 million.
Net Income $4.8 million, up from $4.2 million in the prior year quarter, representing an increase in earnings per share from $0.11 to $0.13. The improvement was attributed to a lower effective income tax rate and operational efficiencies.
EBITDA $17.4 million, representing 12% of sales, compared to $16.7 million or 12% in the prior year period. The increase was driven by higher sales and operational improvements.
Automotive Solutions Segment Sales $79.3 million, up $7.2 million or 10% from the prior year quarter. Growth was driven by stable automotive production volumes, new product launches, favorable vehicle mix, and the resolution of inventory destocking issues from the prior year.
Automotive Solutions Segment Pretax Profit $6.5 million, an increase of $1.8 million or 37% from the prior year quarter. The improvement was due to higher volumes, better overhead absorption, productivity initiatives, and pricing discipline.
Casting and Extrusion Segment Sales $70.2 million, down $1.3 million or 2% year-over-year. The decline was due to reduced die-cast tooling sales caused by regulatory uncertainty and a shift in OEM focus from EV to hybrid and internal combustion engine platforms.
Casting and Extrusion Segment Pretax Profit $3.5 million, down $200,000 or 6% year-over-year. The decline was attributed to lower volumes, higher direct labor and overhead costs, and increased depreciation.
Free Cash Flow $4.8 million, up from $3.8 million in the prior year quarter. The increase was due to reduced cash used in investing activities.
Net Debt $67.1 million, unchanged from September 30, 2025. The company maintained a strong financial position with $24.6 million in cash and $59.8 million of available liquidity under its credit facility.
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Operating Highlights
New product launches: Sales in the Automotive Solutions segment benefited from recent and upcoming program launches, which will further increase content per vehicle.
Additive tooling: Demand for Exco's additive or 3D printed tooling remains strong, particularly for larger, more complex applications such as giga-press molds.
Market diversification: Extrusion tooling sales were supported by a diversified range of end markets, including building and construction, transportation, sustainable energy, and electrical components.
Reshoring industrial manufacturing: The broader push towards reshoring industrial manufacturing in North America is expected to increase demand for domestic and near-shore sourcing.
Operational efficiency: Productivity initiatives and pricing discipline helped mitigate cost inflation, particularly in the Automotive Solutions segment.
Automation and innovation: The company utilized machine learning and AI to automate complex programming tasks, reducing human error and speeding up workflows.
Capital allocation strategy: Exco is pivoting its capital allocation strategy to focus on optimizing the performance of existing assets, with capital spending forecasted to decrease in fiscal 2026.
Resilience in trade policy uncertainty: Exco's products comply with USMCA rules of origin, positioning the company to benefit from reshoring trends and tariff exemptions.
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Risk or Challenges
Tariff-related uncertainties: The company faces challenges due to global trade policy uncertainties, particularly regarding tariffs, which could impact operations and financial performance.
Labor costs in Mexico: Sharp government-mandated minimum wage increases in Mexico have created structural challenges for the industry, requiring aggressive productivity improvements and automation to offset costs.
Slowdown in die-cast molds: Sales were negatively impacted by a sharp slowdown in die-cast molds due to political and regulatory uncertainties in the United States, particularly affecting EV programs.
Shift in automotive focus: OEMs have pivoted away from pure EV platforms to hybrids and internal combustion engine vehicles, delaying the timeline for electrification and impacting the company's EV-related pipeline.
Performance at newer operations: Newer operations, including Castool greenfield facilities in Extrusion Germany, are underperforming and remain a focus area for operational improvements.
Foreign exchange losses: The company experienced foreign exchange losses related to the strengthening Canadian dollar, which impacted corporate expenses.
Economic uncertainties: The broader global economic environment remains complex and uncertain, which could affect demand and operational stability.
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Guidance & Outlook
Automotive Solutions Segment: Sales are expected to continue benefiting from recent and upcoming program launches, which will further increase content per vehicle. Quoting activity remains encouraging, and management is confident in sustaining and improving margins even if the broader global economy softens.
Casting and Extrusion Segment: Die-cast tooling revenues are expected to pick up late in Q2 and continue improving for the remainder of the year as tooling demand for hybrid and ICE platforms increases. Electrification is expected to progress at a slower pace, but demand for Giga and mega casting applications associated with EVs is anticipated to rise in the future. Additionally, demand for die-cast tooling in sectors like marine, heavy trucks, energy, and telecom is expected to grow.
Extrusion Tooling: The market is expected to remain resilient due to diverse applications, including building and construction, automotive, and consumer goods. Demand for capital equipment items is anticipated to increase during slower market conditions as extruders focus on maintenance and efficiency upgrades. The rise of artificial intelligence and data centers is expected to drive demand for high-precision aluminum extrusions and advanced tooling.
Capital Spending: Fiscal 2026 capital spending is forecasted at $28 million, down from $36 million in fiscal 2025, as management focuses on optimizing the performance of existing assets.
Reshoring and Trade Policy: The broader push towards reshoring industrial manufacturing in North America is expected to be a significant tailwind. Increased demand for domestic and near-shore sourcing is anticipated as tariffs make offshore tooling less competitive.
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Shareholder Return Plan
Dividend Payments: Exco's financial position remains strong, providing flexibility to support strategic investments, dividends, and other opportunities as they arise.
Share Buyback Program: No specific mention of a share buyback program was made in the transcript.
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Key Q&A
Q:What percentage of the business is related to AI data centers and what is the potential growth rate?
A:AI data centers currently account for a low single-digit percentage of the business, but the growth rate is well into the double digits, making it a significant growth area for the future.
Q:What does the M&A pipeline look like currently?
A:The M&A pipeline is not very robust at the moment. The company is focusing on harvesting investments from the prior CapEx cycle but remains open to tuck-in acquisition opportunities. The balance sheet is strong, and there is liquidity capacity for acquisitions.
Q:Review of Unclear Management Responses
A:Management provided clear answers to the questions asked and did not appear to avoid any questions or use vague language.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Automotive Solutions
Cash activity
Casting Extrusion
Castool
EV
Exco Technologies
Extrusion segment
Mexico
OEMs
Sales
Solutions segment
absorption
accessory
aluminum extrusion
application
automation
building construction
capital spending
cast tooling
combustion engine
conference
die cast
exchange
income
inventory
labor
platform
pricing
production volume
program launch
vehicle
wage
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Exco Technologies Limited (XTC:CA) Q1 2026 Earnings Call Transcript
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Frequently Asked Questions
Where does this earnings call transcript come from?
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