Nemak SAB de CV (NMAKF) Q3 2024 Earnings Call Highlights: Navigating Challenges with Strategic ...

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Fri, Oct 18, 2024, 1:04 AM 4 min read

EBITDA: Increased 3% year over year to $169 million.
Volume: Declined 9% year over year to 9.6 million equivalent units.
Revenue: Decreased 4% year over year to $1.2 billion.
Operating Income: $73 million, 4% lower year over year.
Net Income: $5 million, affected by noncash currency exchange effects.
Net Debt: $1.77 billion, a $12 million sequential increase.
Capital Expenditures: $96 million, 26% lower year over year.
North America Revenue: Decreased 11% year over year to $636 million.
Europe Revenue: Increased 3% year over year to $419 million.
Rest of the World Revenue: Increased 14% year over year to $169 million.
Updated EBITDA Guidance: Raised to $640 million from a previous range of $570 million to $600 million.

Warning! GuruFocus has detected 6 Warning Signs with NMAKF.

Release Date: October 17, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Nemak SAB de CV (NMAKF) achieved a 3% year-over-year increase in EBITDA to $169 million despite a 9% decline in volume.
The company successfully reduced capital expenditures by 26%, maintaining a downward trend throughout the year.
Nemak SAB de CV (NMAKF) accumulated approximately $220 million in awarded business this year, with 60% directed towards platforms offering both ICE and hybrid variants.
The company launched and started production of a battery housing for a full electric commercial vehicle, showcasing its capability in lightweighting solutions.
Nemak SAB de CV (NMAKF) received the 2024 Top Employer Certification at multiple sites, highlighting its commitment to a positive work environment.

Negative Points

Global vehicle sales declined, and production was scaled back to manage inventory levels, impacting Nemak SAB de CV (NMAKF)'s volume.
Revenue decreased by 4% year-over-year to $1.2 billion due to lower volume, despite a favorable product mix.
Net income was affected by the non-cash effect of currency exchange from euro-denominated liabilities, resulting in a net income of $5 million.
Light vehicle production in North America decreased by 3.8%, with Stellantis reducing production by 28% year-over-year.
The company faces challenges from labor inflation and decreased demand for EV components, impacting profitability.

Q & A Highlights

Q: Can you provide more details about the one-off impact during this quarter's commercial renegotiations and the long-term impact? Also, what should be considered as a normalized level of CapEx compared to EBITDA? A: The commercial negotiations included both one-time and recurrent impacts, but specific details cannot be disclosed due to confidentiality. We aim for improved margins going forward. Regarding CapEx, the company plans to significantly reduce expenditures over the next three to five years, as we have already invested heavily in transforming towards structural components and EVs.

Q: What was the rate of the recent five-year loan, and what is the total available in your committed credit line facilities? A: The five-year loan has a SOFR-based variable interest rate with a margin slightly above 200 basis points. All committed credit lines, totaling close to $400 million, remain fully available.

Q: Do you expect working capital cash generation in the current quarter to meet your target of 2.6 to 2.7 times net debt to EBITDA? A: We expect to achieve a 2.5 times net debt to EBITDA by the end of the year, supported by working capital recovery and the updated EBITDA forecast.

Q: How are the commercial negotiations evolving versus objectives and plans? A: Significant progress has been made in repricing products and recovering investments. We are confident of achieving almost 100% success in negotiations by the end of the quarter.

Q: Can you provide an update on your free cash flow expectation for the year and any color on expectations for 2025? A: We expect slightly positive free cash flow for the full year, with leverage ratio improving to 2.5 times net debt to EBITDA. For 2025, we aim to enhance cash generation by reducing capital expenditures, optimizing working capital, and increasing EBITDA.

Q: What does a potential Trump win mean for Nemak, considering his plans for tariffs on imported vehicles? A: It's too early to tell, but any tariffs would be the responsibility of OEMs, as our products are sold free onboard in Mexico. Tariffs would primarily affect American consumers.

Q: Could you share how much of your $640 million EBITDA guidance comes from extraordinary compensation? A: Specific data cannot be disclosed due to confidentiality, but the negotiations include both one-time and continuous pricing improvements.

Q: How are you forecasting demand and production of light vehicles in the USA, China, and Europe in 2025? A: We anticipate a small recovery in demand and production in North America and Europe due to lower interest rates and improved vehicle availability and affordability.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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