Earnings call transcript: Exco Technologies Q2 2025 reveals mixed results

Exco Technologies Limited reported its Q2 2025 earnings, revealing a mixed performance. The company posted earnings per share (EPS) of $0.17, falling short of the forecasted $0.21. Revenue, however, slightly surpassed expectations at $166.1 million against a forecast of $165.03 million. In response, Exco Technologies’ stock rose by 4.21% in after-hours trading, reflecting investor optimism despite the earnings miss. According to InvestingPro data, the company maintains strong fundamentals with a high shareholder yield and has consistently paid dividends for 23 consecutive years, suggesting resilient financial health despite short-term earnings volatility.

Key Takeaways

• EPS missed forecasts, coming in at $0.17 versus the expected $0.21.
• Revenue slightly exceeded expectations at $166.1 million.
• Stock price increased by 4.21% following the earnings announcement.
• The company is facing challenges with a 21% decline in net income year-over-year.
• Exco is focusing on strategic investments in greenfield locations and efficiency improvements.

Company Performance

Exco Technologies’ Q2 2025 performance showed resilience in revenue generation despite a challenging environment. The company reported a 1% year-over-year increase in consolidated sales, reaching $166.1 million. However, net income declined by 21% to $6.4 million, driven by a higher effective income tax rate and restructuring charges. The company is navigating a tough market, with declining automotive production in North America and Europe.

Financial Highlights

• Revenue: $166.1 million, up 1% year-over-year
• Earnings per share: $0.17, down from $0.21 in the prior year
• Net income: $6.4 million, down 21% year-over-year
• Effective income tax rate: 33.7%, up from 22.8% in the previous year
• Cash from operations: $8.7 million
• Free cash flow: $3.1 million

Earnings vs. Forecast

Exco Technologies reported EPS of $0.17, missing the forecast of $0.21 by approximately 19%. Revenue slightly exceeded expectations at $166.1 million, compared to the forecasted $165.03 million, marking a marginal beat. This mixed performance reflects ongoing operational challenges and market headwinds.

Market Reaction

Following the earnings announcement, Exco Technologies’ stock rose by 4.21%, closing at $5.94. This positive market reaction indicates investor confidence in the company’s strategic initiatives, despite the EPS miss. InvestingPro analysis shows the stock trading at a low earnings multiple, with a 32.63% total return over the past year. The stock is trading within its 52-week range of $5.26 to $8.80, suggesting room for growth as market conditions stabilize. InvestingPro subscribers have access to detailed valuation metrics and 8 additional ProTips that could help evaluate this potential growth opportunity.

Outlook & Guidance

Exco Technologies withdrew its fiscal 2026 financial targets due to uncertainties in trade policy. The company remains confident in its long-term strategic initiatives, focusing on greenfield investments, new program launches, and organic market growth. Capital expenditures are expected to be reduced, targeting $35 to $40 million. InvestingPro data indicates the company maintains strong liquidity with liquid assets exceeding short-term obligations, providing financial flexibility during this strategic transition period. For comprehensive analysis including Fair Value estimates and detailed financial health metrics, investors can access the full Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

Darren Kirk, CEO, emphasized the company’s strong positioning with USMCA compliance, stating, "Nearly all of Exco’s North American sold products meet USMCA compliance standards, positioning us favorably amid ongoing trade policy shifts." He also highlighted efforts to reduce dependence on Chinese suppliers, reflecting a strategic pivot towards North American manufacturing.

Risks and Challenges

• Declining automotive production in North America and Europe poses a significant challenge.
• Tariff uncertainties and recessionary risks add to market volatility.
• Restructuring charges and a higher tax rate impact profitability.
• Limited visibility into customer order schedules could affect future sales.
• Slowdown in large mold order intake may hinder revenue growth.

Q&A

During the earnings call, analysts raised concerns about the slowdown in large mold order intake and the company’s visibility into customer order schedules. Executives addressed these issues, noting that restructuring costs are expected to have a payback period of less than 12 months, and capital expenditures will be strategically reduced to align with market conditions.

Full transcript - Exco Technologies Limited (XTC) Q2 2025:

Lisa, Conference Call Operator: Good day, and thank you for standing by. Welcome to the Exco Technologies Limited Second Quarter Results twenty twenty five Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there’ll be a question and answer session. To ask a question during the session, you’ll need to press 11 on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 1 again. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to Darren Kirk, Chief Executive Officer. Please go ahead.

Darren Kirk, Chief Executive Officer, Exco Technologies Limited: Thank you, Lisa, and good morning to all participants. Welcome to Exco Technologies fiscal twenty twenty five second quarter conference call. I’ll begin with an overview of operations followed by our CFO, Matthew Posno, who will review the financial details for the quarter. Afterwards I’ll address our outlook before we open the call for questions. Before we begin I’d like to remind everyone of the cautionary notes included in yesterday’s news release and on page two of the presentation we posted to our website.

These notes are applicable to today’s discussion. Firstly I’m very pleased with our performance this quarter which featured record consolidated revenues, record revenues for our Cast and Extrusion segment and consolidated EBITDA excluding restructuring charges among the highest in Exco’s history. We achieved these results despite challenging market conditions including sharply reduced automotive production volumes in both North America and Europe as well as ongoing tariff uncertainties. Throughout the quarter we continued investing in our future by enhancing operational efficiency, driving innovation and leveraging recent strategic investments to capitalize on favorable market opportunities. In our Automotive Solutions segment the modest sales decline significantly outperformed broader reduction in vehicle production volumes.

This resilience was helped by exceptionally strong U. S. SAR figures as consumers accelerated purchases ahead of impending U. S. Tariffs.

New program launches, favorable exchange rate movements and the restocking of accessory inventories that had reduced in prior quarter also helped our results. These factors coupled with a favorable product mix helped maintain segment EBITDA margins around 12% despite increased pressure in Europe and restructuring charges which largely reflect proactive headcount reductions as we further streamline operations and emphasize automation. In our Casting and Extrusion segment we saw strong sales for new high pressure die cast molds, rebuilds and additively printed inserts. Although order intake for these products was softer. Demand for consumable die cast components and extrusion related products rebounded from the previous quarter to levels broadly consistent with the prior year.

Capital equipment sales also remained relatively stable as our customers continued to focus on productivity and efficiency improvements, a core strength of our cast fuel operations. Margins in the casting extrusion segment were lower year over year despite significant improvements at recent greenfield facilities primarily due to restructuring charges. These charges negatively impacted results this quarter but have positioned us for immediate cost structure improvements moving forward. Additionally we experienced higher cost and operational disruptions related to the outsourcing during the installation of new heat treatment equipment at our largest extrusion die facility located in Michigan. We remain committed to achieving greater scale and efficiency from our recent capital investments and saw encouraging progress this quarter.

Notably Castool’s facility in Mexico continued to ramp up effectively, our heat treatment operations performed exceptionally well and our Halix operations in Europe delivered profitability improvements that outpaced local market conditions. Matthew will now provide an overview of the financials.

Matthew Posno, Chief Financial Officer, Exco Technologies Limited: Thank you Darren. Good morning ladies and gentlemen. Consolidated sales for the second quarter ended 03/31/2025 were $166,100,000 compared to $163,800,000 in the same quarter last year, an increase of $2,300,000 or 1%. The impact of foreign exchange rate changes increased consolidated sales $8,800,000 in the quarter. Consolidated net income in the second quarter was $6,400,000 or basic and diluted earnings of $0.17 per share compared to $8,100,000 or $0.21 per share the same quarter last year, a decrease of net income of $1,700,000 or 21%.

Net income this quarter included $2,000,000 or 5% on an EPS basis of after tax restructuring charges compared to less than around 1% EPS the prior year. The consolidated effective income tax rate was 33.7% in the quarter compared to 22.8% in the prior year quarter. The change in income tax rate in the quarter was impacted by geographic distribution, foreign tax rate differentials and losses that cannot be affected for tax purposes. The Automotive Solutions segment reported sales of $82,900,000 in the second quarter, a decrease of $2,900,000 or 3% from the prior year quarter. Foreign exchange rate changes increased segment sales in the quarter $4,800,000 Second quarter sales were modestly below the prior year level but increased 15% sequentially.

Results in the quarter were favorably impacted by strong seasonally adjusted annual rates in North America, reaching 17,700,000 units in March, as well as inventory restocking of accessory products driven by the strong SARA performance. However, despite this favorable performance, the global automotive risk market continues to be negatively affected by global tariff uncertainty, recessionary risks, environmental regulatory changes that may affect future production, and reduced consumer confidence. Nonetheless, supportive factors include the potential for lower interest rates, continued resilience in vehicle sales, an aging vehicle fleet and higher OEM incentives. The Automotive Solutions segment reported pre tax profit of $7,800,000 in the second quarter, a decrease of $05,000,000 in the prior year quarter. Second quarter segment pretax profit increased sequentially 65% over the first quarter.

Variances in the period profitability were due to lower sales volume, product mix shifts and rising labor costs in all jurisdictions. Labor costs in Mexico have been particularly challenging in recent years and are seeing added pressure in fiscal twenty twenty five given the significant rise in wage levels. In reaction to these challenges, the company incurred incremental restructuring costs of half a million dollars in the quarter. These restructuring actions will help the segment deal with current production levels more efficiently and provide a strong base for future profitability when the market improves. The Casting and Extrusion segment reported sales of $83,200,000 in the second quarter, an increase of $5,200,000 or 7% from the same period last year.

Foreign exchange rate movements increased segment sales by $4,000,000 in the quarter. Demand for our casting and extrusion products recovered in the second quarter as sales increased 17% from weaker conditions in the first quarter due primarily to December holiday shutdowns at our customers. Extrusion tooling sales were stable in the second quarter reflecting the diverse end markets this group ultimately supports, which include building and construction activity, automotive, sustainable energy, transportation, recreational vehicles, and electrical components. In the die cast market, which primarily serves the automotive industry, order flow for new molds and associated consumable tooling has declined as automotive manufacturers continue to put new product development and production on hold in part due to the political current political risks. That being said, sales for large molds were very strong in the quarter as a high number of dies were shipped.

While overall coating activity remains decent, sales of die cast products in the short term will be impacted as the automotive industry reacts to global tariffs, economic uncertainty, and lengthening vehicle refresh cycles. Demand for Exco’s additive three d printed tooling continues its steady contribution as customers focus on greater efficiency with the size and complexity of die cast tooling continuing to increase with the rising adoption of Giga Presses. Management is developing the benefits of its cast tool greenfield locations in Morocco and Mexico, which provide the opportunity to gain market share in Europe and Latin America through better proximity to local customers. The Casting and Extrusion segment recorded $4,500,000 of pre tax profit in the second quarter, a decrease of $1,000,000 from the same quarter last year, an increase of $800,000 from the first quarter fiscal twenty five. Pretax profit reduction is primarily due to incremental restructuring costs of $1,600,000 incurred during the second quarter, mainly related to headcount reduction activity.

Excluding the impact of the restructuring charges, segment pretax profits improved marginally. The underlying pretax profit improvement was due to program pricing improvements, favorable product mix and efficiency initiatives across the segment, including the ongoing use of lean manufacturing and automation to improve productivity through standardization and waste elimination. In addition, volume to Castool’s heat treat operation continue to increase providing savings and improved production quality while efficiency initiatives at HALEX are progressing. Offsetting these cost improvements were ongoing losses at CASA’s greenfield operations, albeit with good improvement demonstrated. We remain focused on standardizing manufacturing processes, enhancing engineering depth, and centralizing critical support functions across our various plants.

These initiatives have reduced lead times, enhanced product quality, expanded product breadth, and increased capacity, which will contribute to profit improvements. Exco generated cash from operating activities of $8,700,000 during the quarter and $3,000,003,100,000 of free cash flow after 4,400,000.0 in maintenance fixed asset expenditures. This free cash flow together with the company’s balance cash balances was used to fund fixed assets for growth initiatives of $4,100,000, 4 million dollars of dividends, and 900,000 to repurchase shares under normal course issuer bid. Exco ended the quarter with $18,000,000 in cash, 100,000,000 in bank and long term debt, and $51,000,000 availability in its credit facility. Exco’s financial position remains strong.

As such, the company’s balance sheet and availability on the existing credit facility provides continued support for our strategic initiatives. Our strong financial position combined with our free cash flow creates a foundation for management to pursue high value growth capital expenditures, dividends and other opportunities that may arise. That concludes my comments. We can now transition back to Darren to discuss the company’s outlook.

Darren Kirk, Chief Executive Officer, Exco Technologies Limited: Thanks Matthew. So turning to our outlook. From a macro perspective, industry analysts forecast vehicle production declines of roughly 9% in North America and approximately 5% in Europe in calendar twenty twenty five driven by the tariff impacts. Additionally US SAR is expected to decline to around 15,000,000 units in 2025. Given the growing uncertainty surrounding global trade policy particularly around tariffs we withdrew our fiscal twenty twenty six financial targets this quarter.

Although we made significant progress toward achieving these goals since their initial announcement in fiscal twenty twenty one, the unpredictability of tariff implementation and scope particularly regarding The United States makes it impractical to reaffirm our previous financial objectives at this time. Nonetheless, we believe the strategic initiatives underpinning these targets remain solid and achievable over the longer term. Our greenfield investments, new program launches, organic market growth and consistent track record of market share gains should all contribute to meaningful growth and margin expansion as market conditions stabilize. Importantly, we anticipate that products complying with United States Mexico Canada agreement USMCA rules of origin will remain tariff exempt over the long term. Nearly all of Exco’s North American sold products meet USMCA compliance standards positioning us favorably amid ongoing trade policy shifts.

Furthermore, our substantial manufacturing presence in The US for extrusion dies and large mold ensure that we remain well positioned should tariff application broaden beyond our current expectations. And should tariff elevated tariffs persist particularly against non compliant jurisdictions like China, EXFO stands to benefit competitively relative to global peers. We are also encouraged by broader North American macro trends particularly industrial reshoring initiatives. These trends should bolster demand for both extrusion and high pressure die cap tooling core competency of Xscope. The alignment of policy driven reassuring efforts structural automotive industry shifts and Exco’s strong market positioning give us confidence in our long term outlook despite near term challenges.

That concludes my prepared remarks. I’d like to sincerely thank all my EXCO colleagues for their hard work, innovation and unwavering commitment to maintaining a safe work environment. I’ll now turn the call back to Lisa for Q and A.

Lisa, Conference Call Operator: Thank you. One moment for the first question. And our first question will come from the line of Dave Ocampo of Cormark Securities. Your line is open.

Dave Ocampo, Analyst, Cormark Securities: Thanks, operator, Darren, Matt, good morning. Just first question here, I completely understand the pulling of the ’26 guidance just given the uncertainty. But I am curious, when you do speak to your customers and hear about their order schedules, how much visibility do you guys have into the next quarter? Is it status quo right now until we get a change either for the good or the worse relating to tariffs?

Darren Kirk, Chief Executive Officer, Exco Technologies Limited: Yeah, good morning David. I’m going to say at this point there’s not a lot that has changed from a visibility perspective. Know things continue to be relatively normal for now. We do expect though that you know that the longer that the tariffs stay in place that the more likely things are to shift. It’s just that you know we haven’t seen it to a material degree yet.

Now I will say that on the large mold side of the business, we have seen a slowdown on order intake that impact the next couple of quarters. But you know that I’m going to say is not entirely driven by tariffs. There’s some cyclicality there that is going to bite longer term. You know we still remain extremely bullish on high pressure die cast and we are seeing a lot of growing activity on the on the quoting side of things. So you know this is one of these things that it’ll play out through the next quarter you know but you know things could change rapidly depending on what happens to tariffs on an overall perspective.

Dave Ocampo, Analyst, Cormark Securities: Yeah, it makes sense and you called out China and how they’re certainly being targeted by The US but you know a lot of your competitors for the large multi division are from China. Are you starting to see more of your customers starting to have more conversations with you as they look to kind of shift their supply chains to more western mold suppliers like yourself?

Darren Kirk, Chief Executive Officer, Exco Technologies Limited: That’s exactly right David. We are seeing a lot more conversations about what we can do in North America to reduce the dependence on China for the whole industry. And we really feel that this is kind of going to demonstrate the value of the investments that we’ve made in particularly our high pressure die cast operations but across our whole tooling group where you know we’ve built the capabilities up to handle kind of giga type molds and increase volume and so to the extent that we end up in a situation where where China has you know tariffs not even at the 145 percent level but even something lower that our competitive position should improve dramatically.

Dave Ocampo, Analyst, Cormark Securities: Okay and then just two quick ones just for Matt. A couple million dollars of restructuring this quarter. Is there any more that gets leaked into future quarters and how should we be thinking about the payback on those actions that you’ve made so far?

Matthew Posno, Chief Financial Officer, Exco Technologies Limited: I think our payback is going to be less than twelve months, I think from a lot of what we’ve seen. And I’m gonna say we’re considering other things. It really depends on where the market is and operationally how things are reacting.

Dave Ocampo, Analyst, Cormark Securities: Okay. And then just a loss on here. It may have come up in your prepared remarks, but just thoughts on CapEx given the uncertainty. I know there’s a bit of growth CapEx in the quarter, but do you guys plan on pulling back some of your capital plans just given all the uncertainty?

Matthew Posno, Chief Financial Officer, Exco Technologies Limited: Yes, have certain capital that is committed. Think last quarter we kind of said we think a CapEx would be around you know $40,000,000 I don’t anticipate is hitting that level. It could be 35,000,000 40 million could be less than $35,000,000 I do know that you know we’re already in the midst of discussions for future CapEx and as we talked about even last year and heading into this year, we do see our CapEx being much lower. Mean some of the stuff we have right now it’s committed so we have to kind of complete it but we are looking at anything discretionary and next year for sure Because we spent so much, it’s it’s we’re I don’t wanna say we’re at maintenance mode, but we’re we’re getting close.

Dave Ocampo, Analyst, Cormark Securities: Sorry. What what is the maintenance CapEx for for your operations on an annual basis?

Matthew Posno, Chief Financial Officer, Exco Technologies Limited: It could be 20, plus or minus, you know, 10%.

Dave Ocampo, Analyst, Cormark Securities: Okay. That’s perfect. Thanks thanks a lot, everyone.

Matthew Posno, Chief Financial Officer, Exco Technologies Limited: No problem. Thanks, David. Talk to you later.

Lisa, Conference Call Operator: Thank you. One moment for the next question. And our next question will be coming from the line of Nick Kacoren of Acumen Capital Partners. Your line is open.

Rice McCauley, Analyst, Acumen Capital Partners: Good morning. This is Rice McCauley on the line for Nick Corcoran from Acumen Capital. A few questions from me. Have you seen OEMs change their production schedules in response to tariffs?

Darren Kirk, Chief Executive Officer, Exco Technologies Limited: Good morning. Not materially at this point. I mean there’s certainly been some shifts for sure, but in terms of those shifts and the impact on on our products and demand, it has not been material at this point. But kind of going back to my previous answer, I would expect that to change, if there’s no, further adjustments to the tariffs through the quarter.

Rice McCauley, Analyst, Acumen Capital Partners: Great, thank you. And then this kind of touches on the other question too. Just to confirm with the US government imposing higher tariffs on China, have this made your extrusion products more competitive or do you believe they will?

Darren Kirk, Chief Executive Officer, Exco Technologies Limited: So with regard to extrusion, we don’t actually get or have a lot of competition from China. The nature of the extrusion business is such that, lead times are so short kind of seven to nine days typically, that China is not able to compete effectively in that market anyway. But with respect to high pressure die cast molds in particular, lead times are much longer kind of in the six month timeframe typically. And so China has been a significant competitor there for a number of years and you know the you know the the broader perspective on trade policy which I think The US is really addressing this and that’s the subsidized nature of all of these Chinese products that are making their way to The US is really being demonstrated here. And you know to the extent that that plays out anywhere near where you know the tariffs are positioned today that’ll be that’ll be very helpful to our high pressure die cast operations for a long period of time.

Rice McCauley, Analyst, Acumen Capital Partners: Great. Thanks. And just last one for me. Just touching on M and A pipeline, has it changed at all since your Q1 release?

Matthew Posno, Chief Financial Officer, Exco Technologies Limited: Our M and A pipeline? You know, I think we’ve said before, Exco is not an M and A company, but we’re always looking for the right strategic fit that meets our vertical integration or our current skill sets. So I’m say no. I don’t think we’ve changed our philosophy. We’re just very selective, and we wanna continue to be so.

I mean, now might be a good time to find some some gems, but, you know, we’re we’re we’re not changing our philosophy being more bullish or less.

Rice McCauley, Analyst, Acumen Capital Partners: Great. Thank you. That’s all for me. I’ll pass the line.

Matthew Posno, Chief Financial Officer, Exco Technologies Limited: Okay. Thanks.

Lisa, Conference Call Operator: Thank you. This concludes today’s q and a session. I would like to turn the call back over to Darren for closing remarks. Please go ahead.

Darren Kirk, Chief Executive Officer, Exco Technologies Limited: Well, thanks everyone for joining us on the call today. We look forward to speaking to you again next quarter when hopefully we’ll have a lot more clarity and certainty over the tariff policies and directions. So we’ll talk to then.

Lisa, Conference Call Operator: Thank you all for participating. You may now disconnect.

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