Good day, and thank you for standing by. Welcome to the Exco Technologies Limited First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Darren Kirk, President and CEO. Please go ahead.
Thank you, Shannon, and good morning, all participants. Welcome to Exco Technologies Fiscal 2024 First Quarter Conference Call. I will lead off with an operations overview. Matthew Posno, our CFO, will then review the financial aspects of the quarter before we open the call for questions. Before I begin, I'd like to point out the cautionary notes in yesterday's news release and on page 2 of the presentation that we have posted to our website. They are applicable to this discussion today. Overall, we had a fairly decent quarter, with solid year-over-year growth in revenues, EBITDA and EPS. I would emphasize that we did have some incremental challenges this quarter, which we expect will dissipate through the remainder of the year, contributing to our expectations for ongoing growth.
Namely, these challenges included a very modest dampening of sales due to the UAW strike, but also more pronounced seasonal weakness in December than we have seen in a while, as well as heightened FX headwinds. Jumping right into market conditions and looking at our Automotive Solutions segment, vehicle production volumes in North America and Europe were up roughly 6% on a combined basis. This occurred despite UAW strike-related production stoppage in October. Vehicle sales also remained relatively robust, ending the calendar year with a U.S. SAAR of almost 16 million units. While elevated interest rates and continuing high average transaction prices are certainly headwinds, there remains pent-up demand at the consumer level, while dealer inventories continue to be replenished and OEM incentives are clearly picking up.
In relation to the 6% rise in production this quarter, our segment, segment revenues again strongly outperformed overall market conditions, rising 18% and signaling ongoing growth in content per vehicle, pulled higher by our focus on accessory products. We estimate the UAW strike-related impact on our revenues was just over $2 million for the quarter. Looking forward, despite macro headwinds, vehicle production volumes are expected to remain stable or grow modestly in 2024 as dealer inventory continues to be replenished and pent-up consumer demand is satisfied. As we've long demonstrated, we would expect our revenues to exceed industry rate of growth, helped by our new programs that are ramping up. Quoting activity also remains very decent, which we expect will support our growth longer term.
On the cost side, margins were squeezed during the quarter by lost contributions from the UAW strike action, as well as rising labor costs, particularly in Mexico. Labor costs in Mexico have increased significantly over the past several years, and we are working to offset these pressures through various measures. These measures include implementing automation and trimming headcount where possible, exiting less profitable programs, pushing off cost downs, and of course, targeting price increases. Turning to our Casting and Extrusion segment, we saw mixed results between die-cast and extrusion-related products. Starting with die-cast, demand in that end market remains very firm, particularly for new molds for both new EVs and internal combustion engine vehicles. This is true for powertrain and structural programs, giga-sized dies, and of course, our additive manufacturing operations.
While there is clearly a slowing of pace of EV adoption, it is important to note that our business is relatively agnostic to powertrain architecture. Should the EV revolution slow further or even shift toward hybrid vehicles, we remain confident in the trend towards aluminum, and that demand for our products will continue to grow strongly in the years ahead. Of note, our Large Mould Group continues to see record and growing backlog levels. Demand for consumable extrusion tooling softened during the quarter as extruders have responded to weaker global macro conditions. While certain end markets, such as automotive and green energy applications, are still showing growth, the building and construction market deteriorated through the quarter. Typical seasonal softness may have been exacerbated this year as extruders consolidated plant shutdowns over the holidays to deal with weaker conditions.
To that point, we have seen a rebound in demand for extrusion products materialize through January. Capital equipment sales within the extrusion end market nonetheless remain decent, as extruders continue to focus on enhancing their productivity and efficiency through the cycle, a sweet spot for our Castool operations. Margins in our Casting and Extrusion segment improved over the prior year, but weakened sequentially due to the weakness in the extrusion market, startup losses at Castool Mexico, and balance sheet FX losses. We remain confident in the path higher for segment margins through our outlook period of 2026 as our greenfield investment ceases , our recent capacity additions are utilized, and various efficiency initiatives continue to take hold.
Lastly, with regard to our various capital asset investments and growth strategies, we continued to move the ball ahead in Q1… With the commercial operations of Castool Mexico now commenced, our capital plans mainly consist of several smaller projects to selectively boost our capacity, enhance our capabilities, and improve our overall efficiency. For example, this quarter, we kicked off a new vacuum heat treat project for our Michigan extrusion die facility and completed a major equipment upgrade to one of our Halex plants. We are confident these investments will see great returns over the coming years. That concludes my prepared remarks. I want to thank all my Exco teammates for their tremendous efforts and focus on working safely through the quarter. I will now pass the call over to Matthew to discuss the financial highlights.
Thank you, Darren. Good morning, ladies and gentlemen. Consolidated sales for the first quarter ended December 31 were CAD 156.7 million, an increase of CAD 17.6 million or 13%. Foreign exchange rate impact was negligible in the quarter. Consolidated net income for the first quarter was CAD 5.6 million, or earnings of CAD 0.15 per share, compared to CAD 4.5 million or CAD 0.12 per share in the same quarter last year, a 24% increase in net income. The effective income tax rate for the quarter was 23.6%, compared to 22.7% the prior year period. The change in income tax rate in the current year quarter was impacted by geographic distribution and foreign rate differentials. Segment discussions. The Automotive Solutions segment experienced an 18% increase in sales in the first quarter, or an increase of CAD 13 million to CAD 83 million.
The sales increase was driven by new program launches and higher vehicle production volumes. Combined North American and European vehicle production was up approximately 6% compared to a year ago, which demonstrates the strength of Exco's product mix. The revenue impact of the UAW strike action, which was resolved in late October, was approximately $2.5 million. Adjusting for the strike impact, sales were up at all four of the segment's locations compared to the prior year quarter. First quarter pretax earnings in the Automotive Solutions segment totaled $8.1 million, which is an increase of $900,000 or 12% over the same quarter last year. The increase in pretax profit is largely attributable to higher sales and better absorption of overheads. Higher volumes from new program launches and increased sales allowed the segment to benefit from improved efficiencies and better absorption of fixed costs.
Offsetting these factors were higher labor costs in all jurisdictions. Labor costs in Mexico have been particularly challenging in recent years, and we see added pressure in fiscal 2024, given the significant rise in minimum wage levels. Volumes in the quarter were impacted by the UAW strike action and December holiday shutdowns at certain OEMs. These shutdowns reduced profitability as labor levels were maintained and production inefficiencies were incurred for specific parts and programs. Apart from these specific impacts, management is cautiously optimistic that its overall cost structure will improve, such that margins should strengthen in coming periods. The Casting and Extrusion segment recorded sales of CAD 74 million in the first quarter, compared to CAD 69 million last year, an increase of CAD 5 million or 7%.
Demand for extrusion tooling was lower in the quarter, as outlined by Darren, as the continued impact of higher interest rates and recessionary conditions in certain end markets, such as building construction and recreational vehicles, caused an overall reduction in tooling demand from extruders. Demand for certain capital equipment sold by Castool within the extrusion markets remains firm as extruders focus on various efficiency and sustainability initiatives. We remain focused on developing the benefits of the company's new greenfield locations in Morocco and Mexico, which provide the opportunity to gain market share in Europe and Latin America through better proximity to customers. In the die-cast market, demand for molds, associated consumable tooling, like shot sleeves, rods, rings, tips, and such, and rebuild work increased. In addition, demand for Exco's additive 3D printed tooling continues its strong contribution as customers focus on greater efficiency.
Sales in the quarter were also aided by price increases, which were implemented to protect margins from higher input costs. Quoting activity remains robust, and our backlog for die-cast molds remains at record levels. Pretax earnings in the Casting and Extrusion segment of CAD 3.6 million increased 88% or CAD 1.7 million compared to the prior year quarter. The pretax profit improvement is due to higher sales volumes, program pricing improvements, favorable product mix, and efficiency initiatives within the Large Mould Group . Improved efficiency in the extrusion die business, including improvements at Halex and the elimination of prior year one-time costs associated with outsourcing due to the extrusion heat treat implementation. As well, there was improved absorption and efficiency at Castool's heat treat operation, stabilizing raw material and labor costs, and lower Castool Morocco startup costs.
Offsetting these cost improvements were startup losses at Castool's new operations in Mexico and a CAD 800,000 increase in segment depreciation costs associated with recent capital expenditures. Exco generated cash from operating activities of CAD 12.9 million during the quarter and CAD 2.9 million of free cash flow after CAD 7.7 million in maintenance fixed asset expenditures. This free cash flow, together with the company's cash balances, was used to fund fixed assets for growth initiatives of CAD 4.2 million, CAD 4.1 million of dividends, and CAD 400,000 to repurchase shares under our Normal Course Issuer Bid. Exco ended the quarter with CAD 16 million in cash, CAD 116 million in bank and long-term debt, and CAD 37 million available in its credit facility. Exco's financial position remains strong. As such, the company's balance sheet and availability under the existing credit facility provides continued support for our strategic initiatives.
... Our strong financial position, combined with our free cash flow, provide the foundation for management to, to pursue high-value growth, capital expenditures, dividends, and other opportunities that may arise. That concludes my comments. We can now transition to the Q&A portion of the call. Thank you, Shannon.
Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Ocampo with Cormark Securities. Your line is now open.
Thank you. Good morning, gentlemen.
Morning, David. Morning, David.
I guess, Darren and Matt, you guys have put a lot of capital to work over the last few years, and I guess that's the expectation for this year. It seems like a lot of equipment has gone to support the giga-sized molds and some greenfield facilities. I'm just curious how you expect the revenue and EBITDA to be backfilled in the coming years, and what your confidence level is on that, just based on your ongoing discussions with customers?
Sure. Yeah, I mean, we have had a number of capital initiatives to you know, build capacity in certain regions globally and also strengthen our capabilities. You know, the revenue is pretty firm. You know, we've got a target of CAD 750 million by 2026, and it really only requires kind of a mid-single digit CAGR to get there. But where our focus is starting to turn is on improving the margins. You know, we're still suffering through ramp-up costs in the early days of the Castool facilities. Mexico was just turned on in the last quarter or so. And then you know, our Halex operations are still receiving some additional investment to improve those operations.
We do see a clear path to margin enhancement through the time frame of our 2026 targets. You know, I'm not going to articulate on how the ramp-up of that margin progression is, but there's numerous pathways to improvement that you know are turning to our focus now to achieve such that much of the capital that's been deployed on these new plants and bigger projects.
Yeah, that's helpful. And just to follow up on that, I mean, Matt, if I take a look at the margin profile for casting and extrusion, it did take a step back quarter-over-quarter. Is that largely responsible for the startup costs that you guys are seeing at the new facilities? And if so, then I was hoping you could potentially quantify that.
You know, the Mexico cast startup costs were, you know, somewhere in the neighborhood of about $500,000 or so. It wasn't the biggest factor, quite frankly. I think the fact that the extrusion business deteriorated through December. You know, in this business, you've got to run the plants at a high degree of utilization to get and keep the margin up at the expected level. And, as I mentioned in my remarks, you know, we did see more seasonal weakness this year than we've seen in a while. And it seems likely, and it was certainly the case with our operations, that we consolidated the downtime through December to offset that weakness with vacation days and the like.
We've seen that our customers on the extrusion side of things were likely doing the same thing. As I also mentioned, the sales have come back in January, so that was certainly a factor. Then the last thing I would call out is the Canadian dollar versus the U.S. dollar moved around quite significantly during the quarter, and that backed up on the segment to, you know, probably $500,000 or so of FX balance sheet losses.
Got it. And just sticking with the theme of margins, I mean, labor in Mexico has been an issue for you guys in the past, so certainly not something new, but maybe the order of magnitude at, I think, 20% is. So when we think about your contracts with your customers, are there any price provisions built in for these one-time shocks? Or how are you guys managing the potential negative impact on your margins?
Yeah, there, there's no provisions in the contract that link pricing to labor costs or anything like that, so it is in a constant negotiation that has to occur. You know, we've been successful in at least pushing off cost downs in recognition of the increased inflationary labor environment. And we are having some success at getting selective pockets of price increase. But really, the bigger opportunity for price increase comes when the contract rolls over and, you know, you've got to rebid for new programs at the higher cost structure. And we're certainly doing that. You know, we're continuing to be successful with awards at that higher cost base.
So there is kind of a protracted period where you're absorbing the higher cost with the lower pricing, and then it corrects over time.
Perfect. And last one for me. If I take a look at the last few quarters or maybe even the last two years, you guys continue to outperform the automotive industry. I was hoping you could comment on whether if that's, you know, being on more platforms or just increasing the content per vehicle on the platforms that you're already on.
It's both. You know, I'll—where it's easiest to point to that outperformance is in our Automotive Solutions group, which has a strong correlation of sales to production volumes. And we've been increasing the number of products, selling those products to more products to existing programs and, you know, increasing the number of OEMs that we're penetrating and on new platforms. So it's coming from all sides on that, which is what you need to do. I mean, again, this quarter we had, you know, 18% growth versus 5%-6% growth in production volumes. And we think that that pace is gonna remain pretty strong. The pull-through from accessory sales is a big contributor.
OEMs are increasingly looking to accessory sales to pad their own profitability, and we have a tremendous pipeline of products to help them achieve that goal.
I guess just a follow-up to that, that 18% growth, if you had to split that between volumes and pricing, is the bulk of it volumes versus price?
The bulk of that would be volumes.
Okay, that's it for me. I'll hand the call over. Thanks a lot, guys.
Okay. Thanks, David.
Thank you. As a reminder, to ask a question at this time, please press star one one on your touchtone telephone. I'm currently showing no further questions at this time. I'd like to hand the call back over to Darren Kirk for closing remarks.
Great. Thanks, Shannon, and thank you all for joining us on the call today. We look forward to speaking to you, with you at the end of the next quarter. Take care, everyone.
This concludes today's conference call. Thank you for your participation. You may now disconnect.