Release Date: February 13, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Phinia Inc (PHIN, Financial) reported strong aftermarket segment sales, which helped offset lower fuel system sales.
- The company achieved significant new business wins, including a second product win in the aerospace and defense industry.
- Phinia Inc (PHIN) maintained a strong balance sheet with cash and cash equivalents of $484 million, up from $365 million at the end of 2023.
- The company returned $35 million to shareholders via share buybacks and dividends during the fourth quarter.
- Phinia Inc (PHIN) introduced over 3,600 SKUs for aftermarket customers, expanding their product offering and improving customer coverage.
Negative Points
- Net sales in the fourth quarter were $833 million, down 5.6% from the same period of the prior year.
- Adjusted EBITDA margin decreased by 160 basis points year-over-year to 13.2%.
- The company faced a high adjusted effective tax rate of 41.5%, above their guidance range.
- Fuel system segment sales declined by 11.7%, impacted by lower commercial vehicle revenue in Europe and China.
- Phinia Inc (PHIN) anticipates headwinds related to exchange rates in 2025, with a stronger US dollar impacting sales.
Q & A Highlights
Q: Could you provide more details on the $105 million CapEx for the year? What programs are these investments associated with, and could they help lift margins going forward?
A: The $105 million was for the year, not the quarter. It was spread globally, primarily supporting new product launches and expansions. These investments are expected to support upcoming launches and expansions, potentially improving margins.
Q: Regarding the second win in the aerospace and defense market, is this a new customer, and will these products come off the same line as previous ones?
A: It's the same customer, using the same facility and equipment. We are on track to receive our aerospace quality certification by Q1 or Q2, supporting our first SOP in aerospace by Q4.
Q: Why did Phinia choose to diversify into the aerospace and defense markets, and what factors contributed to winning these projects?
A: We aimed to leverage our core competencies in precision fuel management and controls. Our capabilities impressed aerospace companies, leading to more RFQs. Our quality certification will open more opportunities, and our stable, reliable supply chain is attractive to aerospace clients.
Q: Can you explain why the tax rate remains high in 2025, and is there any impact from the global minimum tax?
A: The high tax rate is due to structural inefficiencies we're addressing. We've completed phase one of restructuring, but it's a long-term project. The global minimum tax isn't a significant factor currently.
Q: How do you plan to allocate excess cash, and what are your thoughts on potential M&A opportunities?
A: We aim to be financially disciplined, focusing on assets that expand our commercial vehicle, industrial, and aftermarket exposures. We seek profitable companies that add EPS and have valuations at or below our current valuation.
Q: What are your expectations for segment performance in 2025?
A: We anticipate softness in light vehicle sales but expect aftermarket growth to offset this. The fuel system segment may face volume and revenue pressures, but aftermarket growth should provide balance.
Q: What are the potential risks and upsides to your 2025 guidance?
A: Risks include a weaker-than-expected rebound in commercial vehicle sales. Upsides could come from stronger global markets, increased hybrid and combustion vehicle sales, and a weaker US dollar improving our international revenue.
Q: How are tariffs affecting your business, and what are your customers' perspectives on this issue?
A: Customers are regionalizing supply chains to reduce reliance on China. Tariffs could impact consumers and volumes, but we have minimal exposure to China tariffs. The proposed USMCA tariffs are a concern, but we hope for a rational resolution.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
