Earnings Call: Q3 2025

Oct 16, 2025

Summary

Consolidated revenue rose 3% YoY, but Evercast overruns and seasonal downtime weighed on margins. Management expects a smaller Evercast impact in Q4, reduced FY2025 CapEx guidance to $75 million, and retained its $300-per-ton target.

Good day, everyone, and welcome to GIS third quarter 2025 earnings conference call. Joining us today, we have GIS Chief Executive Officer, Mr. Knut Bentin, GIS Chief Financial Officer, Mr. Saúl Castañeda, and GIS Treasury and IR Director, Mr. Arturo Morales. Please be advised that this call is meant for investors and analysts only. During this call, the management will be discussing GIS performance as per the earnings release issued on Thursday. If you did not receive the report, it is available at www.gis.com.mx at the investor relations section. We encourage you to follow along with the onscreen presentation. 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. Let me remind you that forward-looking statements may be made during this conference call. These are based on information that is currently available and subject to change due to a variety of factors. For more details and a complete disclaimer, please refer to the earnings release. Also, all figures discussed are expressed in U.S. dollars, unless otherwise stated. I will now turn the call over to Mr. Saúl Castañeda, GIS Chief Financial Officer. Mr. Castañeda, please go ahead. Thank you, operator, and good afternoon, everyone. Before we dive into the quarter's results, I am very pleased to welcome our new CEO, Mr. Knut Bentin. Knut brings more than 25 years of international experience in the automotive industry, having held senior leadership roles across Europe, Mexico, and the U.S. He is widely recognized for his operational expertise, financial discipline, and thoughtful leadership. Having previously worked with GIS, Knut already knows our organization and Draxton's business very well. This familiarity has allowed him to pursue our strategic agenda from day one. Knut, we are excited to have you on board and look forward to working under your leadership as we continue to strengthen Draxton's position as a key global player. With that, I will turn the floor over to you. Thank you, Saúl, and good afternoon, everyone. It is a real pleasure for me to join this first earnings call at GIS. Since my start in mid-August, I have had the opportunity to meet teams across all our regions, visit key operations, and engage directly with customers and partners. I am deeply impressed by the strong execution-driven culture I have found here, powered by highly capable operators, engineers, and commercial leaders, all committed to safety, quality, and creating value every day. With such a solid foundation, I am truly excited to build on this legacy and work together with our teams to drive sustainable growth and strengthen GIS global position. Let me now turn to the highlights of our third quarter performance. In the third quarter of 2025, we continued to operate with discipline in a challenging environment marked by trade-related policy shifts, uneven demand across end markets, and temporary challenges linked to expansion at Evercast. These conditions required us to act with agility and focus on meeting customer requirements. Year-to-date revenue posted its first increase of the year, outperforming the broader industry. This improvement reflects the impact of commercial initiatives launched in 2024, underscoring the resilience and strength of our business. In the same spirit, we secured new program awards valued at approximately $167 million as of September, equivalent to nearly 20% of Draxton's annual revenue. As outlined in our earnings release, and Saúl will further comment on this, third quarter results are presented on a pro forma basis, excluding $3 million in severance expenses related to our ongoing structural optimization in North America. This adjustment provides a clearer view of our underlying performance. Beyond structural optimization and operational discipline, we have maintained a prudent approach to CapEx allocations, protecting a solid cash position. With no outstanding CapEx commitments from the 2023-2024 expansion cycle, we are now consolidating the returns on prior investments and strengthening financial flexibility. Regarding international trade, the outlook remains dynamic. However, our operations are structurally resilient. Most of our components are manufactured and supplied locally, minimizing the exposure to tariff risks under USMCA and similar agreements. To date, we have not observed any material shifts in customer order patterns as we remain fully compliant and operationally agile across all geographies. As for Cinsa, while domestic demand remains soft, performance improved thanks to a more favorable product mix, lower fixed costs, and strong results in Mexico's traditional retail channels. Turning now to the global automotive industry, the third quarter brought a more positive sentiment with improved production outlooks in key regions, particularly North America and China. Despite ongoing constraints, trade tensions, and evolving regulations, automakers have adapted strategies to offset the potential impact of tariffs and shifting policies. In North America, light vehicle production reached 3.9 million units, up 3% year-over-year, while sales totaled 4.9 million units, up 2%. The region's strongest quarter of 2025. This momentum was largely driven by a surge in electric vehicle sales ahead of the expiration of federal EV tax credits at the end of September. On the other hand, commercial vehicle production remained under pressure, declining 12%, though the contraction was less pronounced than in the first half of the year. In Europe, light vehicle production totaled 3.4 million units, essentially flat year-over-year at 0.3%. As higher imports from China and weaker U.S.-bound exports weighed on output. However, sales improved to 4 million units, up 5% year-over-year, supported by better macro conditions. Notably, commercial vehicle production surged 20%, fueled by fleet renewal programs, government-backed incentives, and favorable financing conditions. In China, production rose 7% year-over-year to 7.7 million units, driven by robust domestic demand, declining battery costs, expanding charging infrastructure, government incentives, and stronger exports to Europe. Sales reached 6.7 million units, up 10% year-over-year. Overall, these dynamics reflect a sector that is adapting quickly to policy shifts and consumer trends, creating both challenges and opportunities for GIS and our customers. Draxton's performance reflected diverging dynamics across regions and segments, yet showed strong resilience relative to industry trends. Draxton's total casting volumes reached 114,000 tons, up 1% year-over-year, supported by our commercial strategies and higher commercial vehicle demand in Europe. Machining volumes continued their positive trend, rising 30% to 5.9 million parts, driven by greater adoption of value-added processes. In North America, casting volumes declined 5% to 64,000 tons, reflecting softer commercial vehicle production, mainly at our Saltillo facility. By contrast, our Irapuato plant benefited from renewed demand for crankshafts in large pickup engines. Machining volumes rose 39% to 4.7 million parts, marking the third consecutive quarter above the 4 million mark. In Europe and Asia, casting volumes increased 8%, while machining volumes contracted 2% due to weaker OEM demand and seasonal summer shutdowns. Even so, revenue improved 12% year-over-year with profitability stable, thanks to a favorable mix and disciplined cost controls. I want to underscore that third quarter results were affected by cost overruns in Evercast value-added operations, plating, and machining. As you know, throughout 2025, we are materially ramping volumes in these processes. This growth has entailed extraordinary costs, including higher consumption of material, special maintenance, increased labor expenses, and consulting fees. While stabilization will take a few months, we will focus on executing corrective actions, ensure strict process adherence and operating discipline to accelerate the recovery to the usual profitability. Draxton's revenue totaled $229 million, up 4% year-over-year, supported by higher casting volumes and a greater share of value-added solutions. Pro forma EBITDA, excluding severance costs from the restructuring plan mentioned, reached $25 million with an 11% margin. While profitability benefits from efficiencies in new production lines, a stronger product mix, and cost discipline, it was also affected by Evercast-related overruns, lower commercial vehicle volumes, and seasonal downtime, mostly in Europe. On a per-ton basis, pro forma EBITDA stood at $219, down 13% year-over-year, largely by above-mentioned effects from Evercast. Importantly, initiatives already are underway and are expected to reinforce the profitability going forward. Looking ahead, our priorities remain clear: to stabilize and accelerate operational improvements across all plants, preserve cash, and fully consolidate the expansion of value-added capacity. We are working closely with customers to anticipate market dynamics while maintaining the highest standards of service, technology, and product integrity. We are also strengthening operational agility and expanding our presence in adjacent sectors, including commercial vehicles. At the same time, we continue to optimize CapEx and working capital, supporting resilient cash flow generation. With that, I will now hand back over to Saúl, who will provide a more detailed review of the financial performance of GIS. Thank you, Knut. I will walk you through our financial performance for the quarter. As previously explained, third quarter results were affected by higher variable production expenses, primarily labor and raw material cost overrun, major and extraordinary maintenance and tooling. Extraordinary costs identified totaled approximately $4 million. These impacts occurred within Evercast value-added processes and are included in Draxton and GIS EBITDA reported herein. Separately, their earnings release was prepared on a pro forma basis, under which extraordinary costs are excluded. Third quarter 2025 and year-to-date figures exclude $3 million in severance costs related to the ongoing restructuring plan in North America. These costs were excluded from both Draxton and GIS results for comparability purposes, considering they are associated with an ongoing restructuring rather than ordinary turnover in the normal course of operation. Despite these headwinds and the continued softness in the global commercial vehicle segment, our pro forma results show resilience. Consolidated revenue totaled $249 million, up 3% year-over-year, supported by Draxton's strong performance in Europe and the growing share of machining and plating solutions in our portfolio. Consolidated pro forma EBITDA reached $26 million with a 10% margin. As previously mentioned, profitability was weighted by Evercast operational challenges and planned seasonal shutdowns in Europe. As of September 30, our pro forma net debt to EBITDA ratio stood at 2.4 times, slightly above the level reported a year ago, and unchanged from the second quarter. Importantly, gross leverage remains within our expected range and consistent with the full-year trend, as we do not anticipate taking on new debt in the remaining quarter. Management's priority is to uphold strict financial discipline across costs, operating expenses, and cash optimization to support improved results and, in turn, reduce leverage. Despite temporary margin pressures, we continue to prioritize cash flow generation supported by disciplined working capital management and strict CapEx efficiency. We close the quarter with $52 million in cash, maintaining a solid liquidity position. This provides us with the flexibility to meet financial commitments, navigate ongoing market volatility. All in all, we remain firmly committed to financial discipline, even in a volatile environment. GIS financial strength remains solid and positions us to continue supporting our business operations and long-term growth. In the first nine months of 2025, after applying strict standards, we invested approximately $51 million in CapEx, thus lowering guidance disclosed earlier this year to $75 million for 2025. These investments were primarily directed toward capacity expansion, scheduled payments, equipment upgrades, and operational flexibility enhancements. Throughout the company, we continue to apply strict attention to CapEx prioritization, focusing on technological upgrades and efficiency improvements. Looking ahead, we will maintain financial discipline to ensure sustained cash generation and preserve the flexibility required to respond to changing market conditions. Thank you for your attention. I will now turn the call back to Knut for his closing remarks. Yeah. Thank you again, Saúl. Before we open the line for questions, I want to reiterate that our entire team continues to execute with focus and determination, despite persistent macroeconomic and industry-specific pressures. Our performance reflects the strength of our business model, the depth of our customer relationships, the prudence of our financial profile, and the capabilities we have built across our global footprint. We remain firmly committed to our core priorities: margin expansion, sustainable cash flows, and advancing our market position through disciplined execution and excellence. I am also a strong believer that the foundation of every successful organization lies in its people. Over the past weeks, I have traveled across the different regions where Draxton operates, and I have had the privilege of witnessing firsthand the dedication and talent of our teams worldwide. This gives me the confidence that together we are well-positioned to navigate complexity and build the next chapter of long-term value creation. With that, I want to thank you for the time today and for your continued interest and support. We look forward to updating you on our progress. Operator, please now 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 come from Adonai Felix. Please, sir, go ahead. Hello, Félix García from Apalache Research. Thank you very much for the Q&A session, and Knut, congratulations on your new role. My first question is about the expiration of U.S. tax incentives for electric vehicles. Do you expect this change to affect Draxton's product mix, particularly in terms of demand for traditional versus hybrid or electric powertrain components? My second question refers to the margin adjustment driven by the additional cost of Evercast. Do you anticipate this effect to persist during the next quarter? Finally, when do you expect to achieve the full stabilization of the second plating line? Maybe, Felix, I'll take the second and the third question. As you have seen, we had a significant impact from Evercast in Q3 with the $4 million. We are very closely working with the plant in very regular follow-up meetings also with them. The situation has improved to a significant degree. However, there is still some backlog in maintenance and also in the control of the chemical composition for the plating operations, so that we expect a much reduced impact, but still some impact over the course of Q4. Our endeavors will really direct everything to bring it back to normal levels as quickly as possible, but we have to account that there's going to be still some impact, not of the magnitude of Q3, but some. Maybe the question regarding the EV tax incentives, Saúl, you're better prepared to answer that. Sure. Probably, I would like to start that, Adán, thank you for your questions, mentioning that, as you know, more than 85% of our portfolio can be redirected or used in internal combustion engine, hybrid motors or electric. So we are very confident that we are kind of protected against any major disruption in the EV trends. So it is for us, an important aspect to keep our portfolio on brake systems and all these parts that can go for, as I mentioned, to any particular application. Regarding the EV tax credits, as we mentioned, we saw a benefit at the end of the quarter. So we're not foreseeing any major changes in the trend of the electric vehicles production and sales. As you know, probably against or compared with the original forecast that analysts made, they are backward or they are behind the schedule or the plans originally made. But specifically, I will say that we are not foreseeing any major changes or benefits as we saw in this quarter. I will say that this quarter we have an extraordinary benefit in that particular area, Adán. Okay. Thank you very much for your answers and congratulations on the result. Thank you. Our next question comes from Emilio Fuentes from GBM. Please sir, go ahead. Hi. Thank you for taking my question. First of all, I have a question related to the restructuring of your North American footprint. I was wondering if you expect to see further reduction of your workforce in the region, especially in light of similar restructurings we saw during the COVID pandemic and the semiconductor crisis. If so, how big is the impact that we expect going forward? The second question, if I may, could you give us a little more detail on the dynamics you saw on Europe, particularly on the casting volumes that saw a recovery despite a softer production environment? Is there anything particular you are seeing on the order books of your clients? Thank you. Probably I can start with regarding the certain effects or impacts, Emilio. Thank you for your questions. I would say that we are foreseeing or expecting a different scenario than in COVID. We are not foreseeing these major disruptions to our operations or these major layoffs. This is more like a specific restructuring plan. We are going to have an assessment of our structures. We know that we need to be agile and have leaner structures. Basically, the most important part here is that we could see more impacts in our P&L, probably around 3 more million dollars for the next 2 to 3 quarters. I would say that, Emilio. Thank you. Can I have a follow-up on the last part? Are the 3 million going to be split between the next 2 quarters, or do you expect 3 million on the fourth quarter 2025 and 3 million on first quarter 2026? No, it is going to be more split over the next 2 to 3 quarters. Really very much, as Saúl pointed out, it is kind of ongoing efforts really to become a leaner, more agile company. We are discussing now what is going to happen here, but it is not going to be, by any means, something that happened maybe in the COVID crisis. It is going to be more punctual, more kind of, yeah, in the typical, yeah, ranges of optimization that every company undertakes. Thank you. Very clear. Thank you, Emilio. Our next question comes from Alejandro Azar Wabi, also from GBM. Please, sir, go ahead. Hi. Thank you for taking my questions, Knut and Saúl. A quick follow-up, and then I will start with the other ones that I have, if I may. On the new structure, new organization that you are planning, let us say 2026, 2027, how should we think about the EBITDA per unit post this reorganization? Also including the value-added processes, machining, plating, et cetera. Thank you, Alex, for your questions. As you know, I will start saying this. For us, the $300 per ton mark should be the target. We will maintain that target for our operations. Definitely, with a stabilized operation and with the full benefit of these value-added processes, we should pursue something higher than that. As you know, we do not provide a specific guidance, but probably you can make some estimations for something like we have in the first and second quarter. So that will give you a color of in which level you can see the margins and the EBITDA per ton. Definitely, once we are with the full operation in control and everything is stabilized, definitely we could pursue that and even higher of that reference in the next quarters. I do not know, Knut, if you want to add something. No. Absolutely, yeah. These targets, they remain valid. I think what we have now seen with Evercast is a temporary situation that we need to overcome as quickly as possible, and then we have to resume the speed that we have been on in quarter one and quarter two. What I can see from my visits across all the plants now, the teams are very, very engaged. They have very clear action plans, are executing a huge array of improvements, so that I am pretty confident that we are going to see those improvements in the very near future. When thinking about the investments GIS made in the last 24, 36 months, the expansion in Evercast, expansion in, if I am not mistaken, San Luis, then the plating, the machining. What needs to happen in the next 2, 3 years so we can achieve that profitability? My question is related to, is it a thing of casting volumes? Is it utilization, which is currently low and needs to rise? Because you are seeing the machining volumes ramp up dramatically. What needs to happen in the next couple of years for investors to see those investments pay off in terms of EBITDA growth? Yeah. Really, the challenge here is that we need to improve the performance levels closer to the best in class that we have within the system. Yeah. We have to recognize that in some way, there is a learning curve. It is not only a matter of putting infrastructure in place, it is also creating the capabilities of the people, of the team, and maintain that over time. That is basically the challenge that we are focusing on. We have made a number of changes that maybe do not go under this chapter of restructuring, but we have also changed people from facilities to other facilities so that we can speed up that learning curve. What you see again is a very high commitment of people to make these moves. They are not always easy, but we see that people are willing to go the extra mile to make these improvements happen. That is in particular valid for everything that goes into the segment of the foundries, because obviously there is a number of foundries where we can play this very nicely. With the machining, I think here we have still a very strong opportunity to build more on our global capabilities in machining, to ensure for more exchange of best practices here. We have the possibility to work closer with our JV partners here, and we are also working on joint agendas with them to improve the performance in those facilities. There will be meetings to be held over the next 10, 14 days to set up these agendas and then to have really specific action plans. I think we are very much with you, that it is of utmost importance that these huge investments that have been made are being brought to the profitability as we are used in the, let us say, business that we have already holding for a longer time. Thank you for that color. Last one is on the dividend payments approved in the shareholders' meeting. If there is anything that you guys can share with us, if you are going to pay a portion of it, if it is going to be delayed to next year. How are you guys thinking on that, after seeing that CapEx is coming down? Sure. Thank you, Alejandro, for the question. I will say that this matter will be reviewed in the next board of directors meeting. We have still one more meeting in the year, in early December. We did not discuss or the board did not have resolution yet on today's meeting. The commitment was to go deeper and analyze the entire situation and the environment and the financial position and commitments of the company during the next meeting. That will be in early December. Okay. Thank you, Saúl, and welcome Knut. Thank you. We have a follow-on question from Emilio Fuentes. Please, Emilio, go ahead. Hi. Thank you for taking my question again. I realized we didn't talk on the subject of the recovery in Europe. Could you give us a little detail on what instigated this recovery? Is it something you're seeing in particular with your customers? And thank you for taking my question again. Sure, Emilio. Thank you. Up to date, I will say that the facilities were operating in a better shape than we performed in the last quarters. But definitely, the following quarter will be, as you know, we will have a very cycle of business in the fourth quarter. I will say, during the third quarter, we saw these major maintenance programs across all the OEMs, and basically, all the facilities are shut down. However, our volumes perform very well. The factories or the facilities had great KPIs on their operations. We still have room for improvement, definitely, but we did a great job during the last quarter. After saying this, I will say fourth quarter, we are foreseeing a better figure or a better performance regarding different aspects. Probably a higher volume, not as high as we would like, but higher as a matter of fact. Also, other benefits that we get on the last part of the year, on the last quarter each year. Basically, we are foreseeing a better performance in the fourth quarter for this region. Thank you. As a final reminder, if you want to make a question, please use the function "raise your hand" in Zoom. If there are no further questions, I would like to give the floor to Mr. Saúl Castañeda to close the conference. Thank you, and thank you, everyone once again, for your interest in GIS. Please do not hesitate to touch base if you have further questions. Have a nice day. With this, we conclude today's conference. You may now disconnect.