Release Date: November 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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Linamar Corp (LIMAF) reported strong financial performance with sales and earnings both up over last year, despite down markets.
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The company achieved double-digit operating earnings growth in both its mobility and industrial segments.
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Linamar Corp (LIMAF) generated an excellent level of free cash flow, positioning it well for the full year.
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The company saw significant market share growth in both its mobility and industrial segments.
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Linamar Corp (LIMAF) announced a new capital allocation strategy framework, including initiating a normal course issuer bid (NCIB) to return cash to shareholders.
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The mobility segment faced sharp declines in OEM production schedules, impacting sales and operating earnings.
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The industrial segment is expected to see sales and operating earnings decline in Q4 due to down markets in agriculture and access equipment.
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Linamar Corp (LIMAF) anticipates a double-digit decline in operating earnings for Q4 due to reduced vehicle inventories and extended shutdowns by OEMs.
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The Welland facility’s contribution to sales next year is unlikely due to delays in electrified vehicle programs.
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The company faces challenges in adjusting fixed costs quickly in response to rapid sales declines, impacting margins.
Q: Can you explain the higher-than-expected detrimental margin in the mobility segment for Q4? A: The biggest issue is the significant cuts to volumes, which makes it difficult to quickly adjust fixed costs and overheads. We’ve long guided that a rapid drop in sales results in a 25% reduction in net earnings, and 30-33% at the operating earnings level. This is due to fixed costs remaining constant while only variable costs reduce. Over time, adjustments can be made, but immediate impacts are significant. – Linda Hassan Pratz, Executive Chair
Q: How should we think about the mobility margin guidance for next year? A: Our current expectation is based on market volumes for next year. We anticipate earnings growth in the mobility segment due to operational efficiencies and rising volumes from launches, despite more modest top-line growth. – Linda Hassan Pratz, Executive Chair
Q: What is your outlook for the AG business next year, considering the current market conditions? A: The AG business is facing some negative trends, and next year remains uncertain. However, we typically outpace the market, driven by dealer expansion and synergies. We are closely monitoring prebuys and dealer inventories. – Jim Jarrell, CEO
Q: Why do you believe the access industry is experiencing only a temporary pause? A: The delays in mega projects and interest rates have caused a temporary pause in rental company tape rates. However, we expect an uptick next year as these projects resume and interest rates stabilize. – Jim Jarrell, CEO
Q: How are you balancing capital allocation priorities, and what would prompt more NCIB activity? A: Our capital allocation framework prioritizes maintaining a strong balance sheet, followed by growth opportunities. We have initiated an NCIB, but growth, whether through new business or acquisitions, remains the priority. – Linda Hassan Pratz, Executive Chair
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.