Earnings Call: Q2 2026

Jul 24, 2026

Summary

Q2 revenue rose 11% YoY to $278 million, with EBITDA of $32 million and an 11% margin despite FX and cost headwinds. H1 program awards, operating efficiencies and disciplined CapEx underpin growth and cash-generation priorities.

Good day, everyone, and welcome to GIS second quarter 2026 earnings conference call. Please be advised that this call is meant for investors and analysts only. All participants are in listen-only mode to prevent any background noise. There will be a question and answer session after the speaker's opening remarks and instructions will be given at that time. I will now turn the call over to Mr. Arturo Morales, GIS Treasury and Investor Relations Director. Please go ahead, sir. Thank you. Good morning, everyone. We appreciate your participation in today's GIS second quarter 2026 earnings conference call. With me today are Mr. Knut Bentin, GIS CEO, who will provide a high-level overview of the business, our operating performance, and main strategic messages for the quarter. Mr. Saúl Castañeda de Hoyos, GIS CFO, who will discuss financial results and balance sheet priorities. We encourage you to follow along with the on-screen presentation. Before we begin, please know that today's discussion may include forward-looking statements. Actual results may differ due to a number of factors. Please refer to the earnings release and supporting materials for further detail, including the discussion of risks. Unless otherwise stated, figures discussed are expressed in USD. Comparisons are on year-over-year basis and sequential comparisons are identified where relevant. If you did not receive the earnings release, it is available at the investor relations section of the company's website. I will now turn the call to Mr. Knut Bentin, GIS CEO. Please go ahead. Thank you, Arturo, and good morning everyone. Thank you for joining us for our second quarter 2026 earnings conference call. Let me begin with a few key messages that frame the reporting quarter. During the first half of the year, we have sustained operating momentum. Consolidated revenue and EBITDA stood above the figures reported last year, in line with our expectations. Notably, this growth was achieved despite unfavorable foreign exchange impact. This performance is the result of a clear commercial strategy, recent investments in capacity, and the operational agility to adjust to the industry's and our customers' needs. In this context, revenue and profitability benefited from higher volumes, a favorable mix towards value-added components, strong execution, and continuous improvement in operating KPIs. In addition, Draxton secured $150 million in new programs during the first half of the year, supporting the midterm strength of our order book. Finally, our priorities remain clear: maximize installed capacity utilization, continue improving operational KPIs, support profitability initiatives, and protect cash generation. Turning to the macro and industry environment, the global mobility environment remains mixed, with industry conditions continuing to differ by region. In North America, light vehicle production decreased 1% year-over-year, while light vehicle sales declined 2%, reflecting affordability constraints, macroeconomic pressures, and a challenging comparison against pre-tariff purchases ahead of the implementation of tariffs on imported vehicles and auto parts last year. In contrast, commercial vehicle production increased 3%. At the recent USMCA joint review, the parties agreed to conduct annual reviews and the agreement remains in force. At this stage, we see no material impact on our operations, as shown by customer schedules and order books. Nevertheless, we will continue to monitor the prevailing trade agreements closely. In Europe, light vehicle production decreased 5%, reflecting rising energy costs, affordability challenges, and capacity adjustments by certain OEMs. Light vehicle sales rose 2% as the region continues to face competitive pressures supported by demand for electrified vehicles and ongoing tax incentives. Commercial vehicle production in Europe was 2% lower year-over-year. China remains the weakest of the major markets. Light vehicle production and sales declined 3% and 16% year-over-year respectively, reflecting soft domestic demand and cautious consumer spending following the reduction in tax incentives. Exports, however, continued to provide a partial offset of these local dynamics. Given these mixed conditions, our focus remains on the variables within our control, growing the added value of our portfolio and awarded programs, operational excellence, and disciplined diversification. Now let me turn to Draxton's operating performance. In North America, casting and machining volumes increased 7% and 9% year-over-year respectively, supported by demand for heavier components, including commercial vehicle and large pickup applications, together with the successful ramp-up of new programs and solid execution across our plants. This renewed demand for large pickup platforms reinforces the value of this component within our portfolio of solutions. In Europe and Asia, performance was mixed. Casting volume increased 6%, while machining volume decreased 15%. The growth in casting reflected a greater contribution from commercial vehicle programs, while machining was affected by changes in customer platform mix and production schedules. Turning to Draxton's financial performance, revenue reached $257 million this quarter, growing 11% on an annual basis, with both regions posting a favorable comparison against 2025, both in the quarter and over the first six months of the year, supported by a more favorable product mix, a greater contribution from value-added components, particularly in North America, and stronger casting volumes. Underlying efficiencies supported EBITDA growth of 6%, reaching $32 million. These efficiencies helped offset the temporary impacts of surging energy costs while also fully mitigating a $2 million exchange rate headwind from Mexican peso appreciation. During the year, our operations have experienced a lag from scrap price indexation. Scrap prices have continued to increase, and the corresponding pass-through will be reflected in future periods under the same pricing mechanism. This metal lag recovery does not change our focus on underlying productivity and cost control. We remain focused on mitigating industry challenges, inflationary pressures, and adverse foreign exchange effects through productivity improvements, greater operating efficiency, and targeted initiatives to reduce costs and expenses. These efforts will support a leaner and more resilient operating structure while helping protect profitability. Summing up, the quarter reflects solid execution within a still volatile market, highlighting efficiency gains across operations, higher volumes in both regions, and an incremental contribution from value-added processes. It reflects our clear focus on margin expansion and cash generation. The sustained program award cycle gives us a solid outlook to sustain our order book and business plan. It also confirms Draxton's competitive position and the value that we give back to our customers. I also want to emphasize that we are particularly proud of our team at Draxton Irapuato, as they were recognized with the Labor Merit Award for fostering innovation, productivity, and continuous improvement. Achievements like this reflect the culture of discipline, commitment, and focus on improvement that underlies everything we set out to accomplish. With that, I will turn the call over to Saúl, who will review the financial performance and our capital and liquidity priorities in greater detail. Thank you, Knut, and good morning, everyone. I will now review the financial developments of the quarter. Consolidated revenue reached $278 million, up 11% year-over-year, while EBITDA increased to $32 million, representing an 11% margin. EBITDA also improved sequentially, reinforcing the positive operating momentum highlighted by Knut and demonstrating our ability to convert higher volumes and a richer product mix into stronger results. Importantly, this performance was achieved despite higher scrap and energy costs, which are recovered through customer indexation mechanisms with a timing lag, as well as a net adverse foreign exchange impact of $3 million, resulting primarily from the appreciation of the Mexican peso. Higher volumes and continued improvements in operating efficiency more than offset the headwinds, underscoring the resilience of our operations and the effectiveness of the initiatives implemented across the organization. Capital expenditures totaled $12 million during the quarter. For the full year, we continue to expect approximately $60 million-$70 million, including close to $40 million dedicated to maintenance and operational continuity. This outlook reflects a prudent and disciplined approach to capital allocation, supported by the consolidation of recent investments and lower near-term expansion requirements. As a result, we expect more moderate capital needs to support stronger cash flow generation while continuing to fund all investments required to ensure the reliability, safety, and continuity of our operations. We will maintain rigorous return thresholds and prioritize capital toward essential maintenance, productivity, efficiency, and selective projects that enhance utilization and create value. As of quarter end, interest-bearing liabilities, including lease liabilities, stood at $318 million, while cash and cash equivalents totaled $63 million, resulting in net debt of $256 million. Net leverage, measured as net debt to last 12-month EBITDA, closed at 2.2 times compared with 2.3 times a year earlier. This improvement reflects the resilience of our EBITDA generation, disciplined working capital management, and prudent execution of CapEx. As recent investments are consolidated and near-term capital requirements become more moderate, we expect to release additional cash flow to strengthen liquidity, reduce leverage, and preserve financial flexibility to pursue value-creating opportunities. In summary, the first half of 2026 demonstrated stronger operating performance and the tangible benefits of financial discipline. Revenue growth remained resilient, operating indicators continue to improve, improving capital allocation further strengthen our ability to generate cash and enhance the company's financial position. With that, I will turn the call back to Knut for a few closing remarks before we begin Q&A. Thank you, Saúl. As you mentioned, the second quarter extended the steady operating start to 2026, as Draxton delivered one of its strongest volume quarters, supported by favorable platform exposure and disciplined execution. As we move forward into the second half of this year, these are our top priorities. First, we need to accelerate our operational KPI improvements to remain competitive and add value to our customers. Second, continue with our commercial focus, prioritizing profitability and diversification in our product portfolio. Third, continue improving efficiency and install capacity utilization, specifically in Europe. Last but not least, protect cash generation through tight control of fixed costs, working capital and CapEx. All in all, customer schedules have remained stable. Our commercial pipeline continues to develop, and our existing asset base provides room to grow without a broad expansion cycle. While remaining attentive to uneven market conditions such as the USMCA review process, regional powertrain shifts, energy cost surges, and competitive pressures from Chinese exports. Bottom line, our ambition remains to be the preferred choice for iron casting solutions in mobility. Clearly, that path is based on a strong core, higher value-added content, disciplined use of capital, and a clear focus on returns. Finally, I want to thank all our stakeholders across all regions for their continued commitment, particularly our investors, for their continued interest in GIS. Operator, please open the line for questions. Thank you. At this time, we will open the floor for your questions. Ladies and gentlemen, if you have a question, please use the raise hand function on your Zoom tool. Please make sure that the microphone is turned on. Our first question comes from Isaac Gonzalez. Please, sir, go ahead. Hello, Knut, and everyone over. Just two questions. The first one is, you mentioned about KPIs improvements. Which KPIs are you prioritizing and at what current levels? How can we track this progress in the upcoming quarters? Yeah. Sure. Thank you. The most relevant KPIs for us in the foundry are KPIs such as the yield, which means how much of saleable metal we generate with each mold that we produce. That has a number of impacts. It impacts, obviously, our man-hours per piece. It impacts our electricity costs per part. So that is basically one of the key focus that we have to constantly improve the yield of those castings by improvements of the design, how we produce the parts. Obviously also then trying to increase the operational stability so that we can really maximize those yields to the limits that we are aspiring for. If I may, just to add for this clear reference that Knut provides. Isaac, thank you for your question. Also scrap. It's a very important KPI for our operations as well as energy. It costs for us. Thank you. Another question, if I may. What is the current revenue mix between commercial vehicles and other platforms in Europe? How can we expect that mix to evolve? Are commercial vehicles program structurally with a higher margin? The commercial mix in Europe should be in the range of 20%-30% of the overall output. What we see is that there is a trend towards more commercial applications from the European tier ones. We see that may increase. In the past, we also have undertaken substantial investments, both in machining, but also to some degree in the foundries, to position ourselves better for this revitalization of commercial vehicles in Europe. Thank you. Very clear. Thank you, Isaac. Our next question comes from Carlos Agaras from Apalache Análisis. Please, sir, go ahead. Hello. Good morning. Thank you very much for the call and for taking my questions. I have just one. With the casting volume growing, how close are you running to installed capacity? Yeah. No, thank you, Carlos. I think we have a little bit of a different picture in North America versus Europe. In North America, we are roughly at 90%-92% of our installed capacity. In Europe, we have, depending on the kind of component we are talking about, a little bit more room to grow. Yeah. But generally, we should be in this range of 7%-8% available capacity in North America and maybe something like 13%-14% in Europe. Okay. I have another question, if I may. Of the 115 million pipeline in new programs, how much exposure is there to electric vehicles or hybrid platforms? Carlos, we are mostly in safety-related components. Our product portfolio is largely agnostic to the shift in powertrain from the internal combustion engine to the electrification. I would say maybe some 15%-20% is really traditional powertrain business, and the rest really is agnostic to the driveline. Carlos, just let me add this from a different perspective regarding these new programs awarded. Our existing asset base provides meaningful capacity to support growth, so we do not foresee an expansion or additional CapEx required for these new programs. All right, perfect. So thank you very much, and have a good day. Thank you. Thank you very much. Once again, if you want to make a question, please use the function raise your hand in your Zoom tool. Our next question comes from Ingo Alvarez from GBM. Please, sir, go ahead. Hello, everyone. My question would be, what level of margins should we expect in the second half of the year as metal price lag subsidies and energy-related costs pass through mechanisms take effect? Also, if you could quantify the expected sequential margin improvement and clarify whether these benefits should be fully reflected by year-end. Okay. If I may, I can start with this question. Thank you, Ingo, for bringing this topic to the table. From a different perspective, I will say that, as you saw in our report, we had a non-ordinary impact of $3 million related to FX fluctuation. I will say another $3 million related to scrap and energy lags. As you know also, we do not provide specific guidance, but what I can say is that we should not extrapolate a single quarter to have this new rate. As I mentioned, the margin reflects a combination of stronger volume and mix. That's an important aspect of the quarter. Structural operating improvements and, as I just highlighted, the temporary cost and FX pressures. Probably in a nutshell, we should expect higher margins, but I wouldn't say any specific margin at this time. Okay. Thank you. We have a follow-up question from Isaac Gonzalez from GBM. Please, sir, go ahead. Hey again. I have another question, and it is regarding the expansion of the automation energy efficiencies. What magnitude of the cost savings or margin expansion could this project generate? Over what timeframe could we expect this benefit to become more visible? No, Isaac. Obviously, these are measures that we have to take constantly in our industry also to remain competitive for our customers. This is basically part of our continuous improvement programs, to have electricity optimization and also automation projects. They are basically designed to support our margins. To say they are also attractive in a customer base that is expecting also continued efforts to improve the pricing situation that they have. Thank you. That is all. Thank you. As a final reminder, if you want to make a question, please use the function raise your hand in your Zoom tool. With no further question in the queue, I would like to turn the call to the management for the close of this conference. Thank you. The quarter demonstrates that our strategy is translating into resilient growth and a stronger financial position. We are increasing value-added content, improving operational execution, and exercising disciplined capital allocation. While the market remains uneven, we have clear levers to protect profitability, generate cash, and strengthen returns. Once again, thank you for your interest in GIS. Please do not hesitate to reach out if you have any further questions.