Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Exco Technologies Ltd (EXCOF, Financial) reported its seventh consecutive quarter of year-over-year growth in EBITDA and EPS.
- The Casting and Extrusion segment saw a notable uptick in EBITDA margin, reaching almost 18%.
- Free cash flow was stronger this quarter due to improved earnings and lighter CapEx.
- The company is making significant progress in innovation, particularly through the use of AI and machine learning, which is enhancing efficiency.
- Exco Technologies Ltd (EXCOF) is confident in achieving higher segment margins by 2026 due to ongoing investments and efficiency initiatives.
Negative Points
- The Automotive Solutions segment experienced a 4% revenue drop due to customer-driven program launch delays and unfavorable vehicle mix.
- Margins were squeezed by higher labor costs, particularly in Mexico, and weaker volumes.
- The Castool Moroccan facility is behind expectations in terms of ramp-up, impacting overall performance.
- There is a delay in demand for giga tooling due to slowing EV adoption, potentially affecting future growth.
- CapEx guidance was reduced from $40 million to $36 million for the fiscal year, indicating potential delays in capital projects.
Q & A Highlights
Q: Can you provide an update on the performance of the Castool Moroccan facility and what needs to happen to achieve desired returns?
A: Darren Kirk, President and CEO, acknowledged that the facility is behind expectations in terms of ramp-up. It is currently around EBITDA breakeven, but sales and orders are increasing. The company has overcome many hurdles and expects performance to improve soon, although the timeline has been more protracted than initially expected.
Q: How is the demand for giga-presses affected by the slowing EV market, and can they be used by traditional customers?
A: Darren Kirk explained that giga-presses are currently used only for EVs, and the demand has been delayed by 12 to 24 months. However, discussions with customers remain active, and while there are no current applications for traditional vehicles, the technology could potentially be used for hybrid or gas powertrain architectures in the future.
Q: Is there any risk to the 2026 targets due to the delay in EV and giga-press demand?
A: Darren Kirk stated that they do not see a risk to the 2026 targets. While casting is a significant growth area, the delay in EVs is offset by increased demand for gas and hybrid powertrains, maintaining confidence in achieving the targets.
Q: What is the updated guidance for CapEx spending, and have any projects been delayed?
A: Matthew Posno, CFO, indicated that CapEx for the fiscal year is expected to be around $36 million, down from previous guidance of $40 million. The reduction is due to evaluating programs for better returns and delays in equipment delivery. The total CapEx over the next two years is expected to remain consistent.
Q: How much room is there for margin improvement in the Automotive Solutions and Casting and Extrusion segments?
A: Darren Kirk mentioned that the Automotive Solutions segment aims to reach a 15% margin by 2026, up from the current 12%, as older programs roll off and new ones with better economics ramp up. The Casting and Extrusion segment is targeting a 20% margin by 2026, with current margins closing in on 18%, supported by greenfield investments and CapEx benefits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
