Earnings Call: Q1 2026

Apr 24, 2026

Summary

Q1 revenue grew 7% to $271 million, with reported EBITDA of $31 million and a 12% margin; adjusted for the prior-year extraordinary benefit, EBITDA rose 4%. New programs exceed $50 million in estimated revenue, and FY 2026 CapEx guidance remains $60 million-$70 million.

Good day everyone, and welcome to GIS first 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 first quarter 2026 earnings conference call. With me today are Mr. Knut Bentin, GIS CEO, who will provide a high-level overview of the business and key messages for the reporting quarter, and Mr. Saúl Castañeda, GIS CFO, who will discuss in further detail the financial results. In this sense, we encourage you to follow along on the on-screen presentation. Before we begin, note 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 additional details, including risk factors. Unless otherwise stated, figures discussed are expressed in USD and comparisons are on year-over-year basis. If you did not receive the earnings release, it is available in the investor relations section of the company's website. I will now turn the call over to Mr. Knut Bentin. Please go ahead. Thank you, Arturo, and good morning everyone. Thank you for joining us at our first quarter 2026 earnings conference call. I will start with three headline messages from the quarter. First, we started 2026 with a solid top-line growth and strong profitability. Consolidated revenue increased 7% year-over-year to $271 million, while EBITDA totals $31 million, stemming from our disciplined execution and strengthened operating performance, particularly in North America, even as the broader environment remained uneven. It is important to note that EBITDA compares year-over-year against a base that includes $3 million of extraordinary benefits, without which Q1 2026 would have posted a 9% growth. Second, during the quarter, we also secured new programs that represent estimated revenue of over $50 million, with kickoffs expected over the next two years. Third, Draxton continued to progress at its most strategic tasks, higher utilization of machining and plating capacity, a more favorable mix toward higher value-add components, and better operating indicators across key facilities following strict cost controls. Let me now turn to the industry. The first quarter reflected a mixed environment across regions. In North America, light vehicle production and sales declined 3% and 6% year-over-year respectively, and commercial vehicle production was also down 3%. The comparison was affected by a solid first quarter 2025 as purchases pulled forward ahead of tariff-related measures. In addition, recent trade actions affecting vehicles and auto parts continue to create cost and supply pressures across the value chain. It is important to highlight that Draxton's products comply with USMCA requirements, and therefore, there is no impact on our operations. In Europe, light vehicle sales and production declined 2%. The market continues to reflect competitive pressure from Chinese manufacturers, OEM capacity adjustments, and regulatory uncertainty around CO2 emissions. Commercial vehicle production, however, posted an important increase of 8%, supported by a surging demand and reactivation of shifts at assembly plants, which was a relevant factor for our European portfolio throughput. In China, industry conditions softened at the start of the year. Light vehicle production declined 10%, and retail sales fell almost 15%, affected by changes in the tax treatment of new energy vehicles in 2026 and by uncertainties around vehicle replacement programs. Even so, exports remained a relevant outlet for manufacturers. Against that backdrop, we remain focused on those variables under control, just as customer service, productivity, product mix, and financial discipline. Now let me turn to Draxton's operating performance. The quarter again showed differentiated dynamics by region, but it also showed good progress in our main levels. In this sense, in North America, casting volume was broadly stable at annual basis, despite a still subdued demand. At the back of a better commercial vehicle activity, solid commercial execution, and production scale adjustments at certain OEMs. Machining volume increased 8%, supported by the ramp-up of new programs and higher utilization of installed capacity. These drivers continue to improve our product mix towards components of higher value-added content, aligned to our strategy, allowing us to sustain resilient profitability. In Europe and Asia, casting volume increased 4%, supported by diversification into the more dynamic commercial vehicle market, machining volume, and on the other hand, declined 6%, mainly due to changes in customers' product mix. Operations in this region continue to show resilience despite the still challenging market demand. Going further on the P&L, Draxton reported revenue of $247 million in the quarter, up 6% year-over-year. This performance reflected the volume growth in Europe, higher concentration of value-added parts, particularly in North America, coupled with product mix optimization. EBITDA was $29 million, equivalent to a 12% margin. As mentioned earlier, the fourth quarter 2025 included an extraordinary $3 million benefit. Therefore, in a comparable basis, Draxton's EBITDA would have increased 4%. Underlying profitability benefited from better mix, higher value-added content, continued improvements in key operating indicators. These gains helped to mitigate the effects of exchange rate and fixed costs, high scrap prices in North America, and elevated energy costs in Europe, both of which are passed through customers with a certain lag, thus having operational discipline as a critical factor to protect margins during the gap. Regarding other businesses, GISEderlan reported quarterly revenue of $18 million, essentially flat versus last year, reflecting continued stability. All in all, these results confirm a more efficient operating platform and incremental contributions from our investments in machining and plating, allowing us to consolidate better mix. Despite the challenges, we estimate GIS is better positioned today, thus encouraging us to move forward in our operational progress for the sake of margins, cash generation, and long-term value creation. Before I hand over the call to Saúl, let me shed some light over two recent developments. First, Fitch affirmed the company's national scale rating at AA-(mex), thus reflecting the resilience of our business model and balance sheet. Second, at our annual general meeting on April 9, shareholders approved a cash dividend of up to $0.082 per share, including an initial payment of $0.033 per share beginning on April 23, with the flexibility to consider an additional payment, sorry, of up to $0.049 per share later this year, depending on the company's financial position, investment plans, and market conditions. With that, let me turn the call over to Saúl, who will walk you over the financial results in further detail. Thank you, Knut, and good morning, everyone. Now, I will go over the main financial developments of the quarter. Consolidated revenue increased 7% year-over-year to $271 million. This growth was mostly supported by Draxton enhanced mix and a higher value-added content, together with an increasing iron casting volume. Reported EBITDA totaled $31 million with a 12% margin. As Knut mentioned, the most accurate comparison is normalizing out of first quarter 2025 extraordinary $3 million benefit. Excluding that effect, EBITDA this quarter would have increased 4% year-over-year, and margin will have improved as well. Profitability continued to benefit from better mix and enhanced operating indicators stemming from smart cost controls that allow us to mitigate the lagged effect of higher scrap prices in North America and surging energy costs in Europe. These expenses show the effects of a weaker US dollar, but the figures in local currencies remain virtually flat. Turning to the balance sheet. As of quarter end, interest-bearing liabilities totaled $324 million, including leases, and cash and cash equivalents stood at $62 million, remaining at healthy levels, having a net debt of $262 million. Net leverage measured as net debt to last 12 months EBITDA closed at 2.2 times, compared with 2.4 times in the first quarter 2025. This reflects the resilience of EBITDA generation. In addition, at quarter end, we hold $70 million in available and undisposed revolving credit lines that enhance our liquidity position and financial flexibility. The debt profile remains aligned to our business plan. In this sense, we reiterate the company's position to support current operations and selective growth initiatives. On the CapEx end, during the quarter, we deployed around $13 million aimed at meeting maintenance needs in Europe and North America, alongside selective productivity and capacity projects. In this sense, we reiterate our full year CapEx guidance range between $60 million-$70 million. As previously discussed, we do not expect to enter another high investment cycle in the foreseeable future, as we will instead focus on consolidating recent investment and capturing additional volume through the existing platform. Summing up, this quarterly performance shows that GIS is entering 2026 with a stronger underlying earnings profile, as revenue growth remains resilient and operating indicators continue moving in the right path, as shown in the improved leverage of the quarter. With that, I will turn the call back to Knut for a few closing remarks before we begin Q&A. Thank you. As Raul just mentioned, we believe the quarter is a good example of how a better mix and smart cost controls can support profitability even in a non-optimal market. As we look ahead to the rest of 2026, our priorities remain clear. We want to be the preferred choice for iron casting solutions in mobility. We aim to become the go-to partner for customers seeking excellence and innovation in mobility solutions. To achieve this, our strategy is to grow from a solid core, protecting and strengthening our core business, and use it as the foundation to grow by further adding value to our products and expanding our presence in other markets. In the short term, we will continue accelerating the improvement of key operating indicators, prioritizing profitability while maintaining tight discipline in fixed costs, working capital and CapEx. From a commercial perspective, keep driving growth in commercial vehicle platforms in Europe and continuing to consolidate the ramp-up of higher value-added programs in North America, having in the radar those opportunities that fit well with our capabilities and return thresholds. From a medium to long-term standpoint, we see relevant growth avenues in machining and value-added processes that stem from the outsourcing strategies of OEMs and Tier 1 suppliers, believers that our capabilities fit just well to tap into these arising opportunities. Finally, I want to appraise the commitment of our teams across all regions and also to thank our investors, analysts, and financial partners for their continued interest. Operator, please open the line for questions. 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 Carlos Alcaraz of Apalache Research. Please, sir, go ahead. Hello. Thank you very much for the call, and congratulations on the results. I have two questions. The first one is about the new programs captured for more than $50 million. Could you give us more detail on the mix of these programs by region? The second one is about the growth in machining volumes in North America, which was driven by the consolidation of new programs. What is the current optimization level of your installed capacity in this region? Yeah. To the first question, the order intake of $50 million, it really goes across both of the regions, and is also well-balanced in terms of casting only and extended casting, so means also including machining and plating. So quite a, yeah, solid structure here that shows that we are competitive and attractive for our customers in both of our regions. Regarding the machining capacity, we are still in the launch period. It's not fully completed. We should be at the moment operating between 80%-85% of the installed capacity, and that is going to ramp up basically over the rest of this year to the desired level of 90%. Okay. Understood. Thank you, and have a good day. Thank you. Our next question comes from Valeria Michelle from GBM. Please, Valeria, go ahead. Valeria, can you unmute your microphone? Hi, can you hear me? Yes. Yeah, I apologize. First, congratulations on the results, and thanks for taking my questions. My first question is regarding your improved volumes in Europe. In this context, how are you seeing rationalization capacity in Europe, and should we expect these improved volumes to continue during the following quarters? I also have a second question regarding your cost pass-through. You mentioned it has a certain lag regarding energy and also scrap prices. Should we expect improved results or these cost pass-throughs to be reflected more efficiently during the next quarters? Yeah. To your second question, maybe I start with that one. The lags vary a little bit from region to region and also from customer to customer. Generally, when prices go up, both for scrap and for energy, we have this challenge that we follow with a certain lag to what the market is indicating. On the other side, when prices go down, it is the opposite effect. Yes, we expect some stabilization from there. But also, at the same time, we would like to stay cautious. We have a lot of impacts globally that are very difficult at the moment to predict. So, let us say, yeah, cautiously optimistic in that regard. Maybe for the first question, Raul. Sure. Let me add. Thank you for your questions, Valeria. Just adding up on what we just have mentioned. As you know, these pass-through mechanisms remain important and effective over time. We could have also a lag effect between cost increases and the recovery through customer pricing, such as in this quarter. Then, particularly in relation to energy, this help us to mitigate impacts in the region. Regarding your first question, what related with? Volumes in Europe. Volumes. Yes. Thank you, Arturo. Yeah. As you know, while European light vehicle production declined 2.4% year-over-year, commercial vehicle production increased almost 8%. As we have mentioned before, GIS has benefited from its diversification into commercial vehicle components. So this helps us to report this 4% increase in casting volume in the region. It is a clear demonstration of the value that our diversification strategy has made for us and our ability to capture opportunities even in a challenging market. Thanks for your response. Thank you. As a final reminder, if you want to make a question, please use the raise your hand in your Zoom tool. With no further questions in the queue, I would like to turn the call to the management for the close of this conference. Thank you, everyone. Once again, thank you for your interest in GIS. Please do not hesitate to reach out if you have any further questions. Thank you. You may disconnect.