Earnings call transcript: Martinrea Q1 2025 sees EPS drop, stock steady

Martinrea International Inc. (Market Cap: $3.57B) reported a decline in earnings for the first quarter of 2025, with adjusted net earnings per share falling to $0.41 from $0.62 in the same period last year. Despite the earnings drop, the company’s stock remained relatively stable, closing at $7.34, a 0.27% increase from the previous session. According to InvestingPro analysis, the stock appears slightly overvalued at current levels, though it trades at an attractive Price-to-Book multiple. The company cited several operational and market challenges impacting its performance, including reduced production sales and ongoing tariff uncertainties.

Key Takeaways

• Adjusted net earnings per share fell to $0.41 from $0.62 year-over-year.
• Stock price showed minimal movement, closing 0.27% higher post-earnings.
• New business awards totaled $60 million, with significant deals with Mercedes and GM.
• North American market challenges include lower vehicle production forecasts and tariff uncertainties.

Company Performance

Martinrea’s performance in the first quarter of 2025 was marked by a decrease in key financial metrics compared to the previous year. The company reported an adjusted EBITDA of $140.9 million, down from $162.8 million in Q1 2024, and an adjusted operating income of $61.9 million, a decline from $79.1 million. Despite these challenges, InvestingPro data shows the company maintains a solid dividend yield of 3.08% and has consistently paid dividends for 13 consecutive years. The company faced a 10% year-over-year drop in production sales, reflecting broader market challenges.

Financial Highlights

• Revenue: Not specified in the earnings call summary.
• Earnings per share: $0.41, down from $0.62 in Q1 2024.
• Adjusted EBITDA: $140.9 million, down from $162.8 million.
• Free cash flow: Negative $25.4 million, compared to negative $1.4 million in Q1 2024.

Outlook & Guidance

Looking forward, Martinrea projects sales of $4.8 billion to $5.1 billion for 2025, with an adjusted operating income margin target of 5.3% to 5.8%. The company anticipates flat production volumes year-over-year and plans capital expenditures of approximately $300 million. Martinrea remains focused on SG&A cost improvements and restructuring efforts, particularly in Europe.

Executive Commentary

• "We are making progress in my view," said Rob Wildeboer, Executive Chairman, highlighting the company’s efforts to navigate current challenges.
• "The tariff situation creates a lot of uncertainty for us and our industry," noted Pat, an executive, emphasizing the impact of potential tariffs on operations.
• Wildeboer also expressed confidence in the company’s positioning in the U.S. market, stating, "We’re well positioned in The United States."

Risks and Challenges

• Tariff Uncertainty: Potential tariffs could disrupt supply chains and increase costs.
• Market Conditions: Lower North American light vehicle production forecasts present challenges.
• Operational Costs: Restructuring and SG&A improvements are necessary to maintain margins.
• European Exposure: Restructuring in Europe due to weak EV program volumes poses risks.

Q&A

During the earnings call, analysts inquired about Martinrea’s exposure to European parts in the North American market, which remains minimal at less than 5%. The company also addressed potential M&A opportunities and strategies to manage tariff impacts through cost management and operational improvements.

Full transcript - Martinrea International Inc. (MRE) Q1 2025:

Conference Operator: evening, ladies and gentlemen. Welcome to the Martinrea International First Quarter twenty twenty five Results Conference Call. Instructions for submitting questions will be provided to you later in the call. I would now like to turn the call over to Mr. Rob Wildeboer.

Please go ahead, sir.

Pat, Executive, Martinrea International: Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business and answering questions. We also note that we have many other stakeholders, including many employees on the call and our remarks will be addressed to them as well as we disseminate our results and commentary through our network. With me this evening are Rob Wildebore, Martinrea’s Executive Chairman our President, Fred DiTosto and our Chief Financial Officer, Peter Cerrillis.

Today, we’ll be discussing Martinrea’s results for the first quarter ending 03/31/2025. We have a number of things to discuss. I refer you to our usual disclaimer in our press release and our filed documents. On this call, I will outline some key highlights of the quarter and make some comments on the business. Brenda will discuss operations, followed by Peter on the financials, and then Rob will provide an overview of the current industry, geopolitical and trade environment, especially regarding tariffs, and then we’ll do a Q and A.

Turning to the first quarter, our financial results improved over the fourth quarter on higher production sales and better margins. As we talked about on the last call, our Q4 results were impacted by an OEM inventory correction, which mainly affected the Detroit Three customer base in North America. While we continue to see some impact from these adjustments in the first quarter, volumes improved in Q1 compared to Q4. Inventories are now at a more normal level based on days of sales and in line with market demand. Peter will review the financial performance in more detail later on the call.

Overall, Q1 was a pretty good start to the year. Looking forward, U. S. Tariffs on automotive imports are clouding the outlook for our business and industry. These tariffs have already had a disruptive effect on our business with OEMs announcing temporary shutdowns of assembly plants and volume reductions of certain programs while they get a handle on the impact.

Some of this is also due to continued weak volumes on EV programs. So far, the direct impact on tariffs on our business has been manageable, though it could accelerate, particularly if The U. S. Levies additional tariffs on automotive parts. The situation is very fluid, and Rob will discuss the latest in a few minutes.

Tariffs on auto parts could be disruptive for both suppliers and OEMs alike, especially if previously announced tariffs are left as is. This would have a compounding effect on the industry. The supply chain could become more erratic as deciphering what portion of the vehicle is non U. S. And therefore subject to tariffs could prove to be difficult.

This along with many in the supply base disputing responsibility for paying the tariffs could result in OEM plant shutdowns and a stop start pattern of production like we saw during the chip shortage. In this type of environment, it could be more difficult to flex cost depending on how our customers manage this disruption. There is also the issue of who would ultimately bear the cost of these additional tariffs based on the jurisdiction and who is the importer of record. Tier 2s and Tier 3s will try to push a portion of their cost to Tier 1s, and Tier 1s, such as ourselves, will try to push cost to the OEMs. Safe to say more of the tariff impact would eventually be passed down to the customer in the form of higher vehicle prices potentially resulting in lower demand followed by reduced vehicle production.

IHS recently lowered its North American light vehicle production forecast for this year to around 14,000,000 vehicles, with little growth in 2026, reflecting a fairly cautious tariff scenario, including tariffs on auto parts. While this scenario is not a foregone conclusion by any means, it would be an unfortunate outcome, somewhat self inflicted and avoidable. As such, we need a resolution on the tariff be through refining the USMCA or by some other means. In the meantime, we are focusing on items that are within our control. That includes continued operating improvements, taking costs out of the business, including our recently announced SG and A cost down project, where we are targeting $50,000,000 in annual cost improvement, generating free cash flow and continuing to maintain a strong balance sheet.

On that note, we will temporarily pause our share buybacks under the normal course issuer bid until the tariff issue is resolved or we have more visibility on what the impact on our business is likely to be. In the meantime, free cash flow will mainly go towards paying down debt. We will manage this as we have challenges in the past and we will continue to strengthen our business with all the improvements we are making, not only on cost, but also through our innovations in machine learning with our advanced manufacturing team as well as investments in emerging technologies through our Martinrea innovation development initiative. Once again, many thanks to the Martinrea team for their hard work. And with that, I’ll turn it over to Fred.

Fred DiTosto, President, Martinrea International: Thanks, Pat. Good evening, everyone. Looking at our operations, overall, we are executing well in a tough market. We continue to drive operating improvements through our Martinrea operating system and recent and ongoing investments in machine learning and other innovations are starting to enhance our productivity. In addition, we continue to receive recoveries for volume shortfalls and lingering inflationary cost increases through commercial negotiations with our OEM customers, with tariffs now being added to the list of items to be negotiated unfortunately.

While the tariff situation creates a lot of uncertainty for us and our industry, the improvements we are making in our business will pay off and position us to emerge from this challenge as a much stronger supplier. This will become more evident as the tide turns for industry, which it always does. Looking at our segments, starting with North America. Adjusted operating income was down 8% year over year on lower production sales, though adjusted operating income margin held steady. Solid result, especially considering that we still had some impact from the OEM vehicle inventory correction that continued into the first quarter, as Pat discussed.

Note that production sales are down about $90,000,000 year over year. Tooling sales, which we earned little, if any margin on, were up and we maintain our margins. We’re executing very well in North America and the segment continues to be the main profit driver of our business. Turning to Europe, adjusted operating income was a loss again this quarter, but much improved from Q4 as we benefited from operating improvements as well as some restructuring. Still, results were sharply lower year over year as we continue to face weak production volumes, particularly on EV programs, coupled with a higher and less flexible cost structure compared to North America.

The Rest of World segment saw improved profitability both year over year and quarter over quarter, mainly reflecting the timing of commercial settlements. As you know, this is a small segment for us, accounting for less than 3% of our consolidated sales and changes in volumes on a small number of programs as well as commercial settlements can result in big swings of profits in this segment from quarter to quarter. As you might recall from the last call, we said we would maintain a minimal footprint in China and serve our customers increasingly through partnerships given the competitive dynamics in this region as well as geopolitical considerations. Our view hasn’t changed, notwithstanding the relatively good results we had in this segment in the first quarter. Moving on, I am pleased to announce that we have been awarded new business worth $60,000,000 in annualized sales of mature volumes, which includes $55,000,000 in structured components in our lightweight structures commercial group with Mercedes and General Motors and $5,000,000 in our flexible manufacturing group with Volvo Truck.

New business awards over the last four quarters have totaled $260,000,000 We continue to have a robust pipeline of RFQs that we’re working on with a higher than normal level of program extensions in front of us. These program extensions generally allow us to reprice business to fully build in the higher inflationary costs that we’ve had to absorb the last few years, which benefits our margins. With that said, I’d like to thank our people for their commitment to the long term success of the company. We truly value your contribution. Thank you.

Now here’s Peter.

Peter Cerrillis, Chief Financial Officer, Martinrea International: Thanks, Fred. Looking at the results year over year, we generated an adjusted EBITDA of $140,900,000 in the first quarter, down from $162,800,000 in quarter one twenty twenty four and adjusted operating income was $61,900,000 down from the $79,100,000 that we had generated in quarter one twenty twenty four on production sales that were down about 10%. Adjusted operating income margin came in at 5.3%, down 70 basis points year over year, which reflects a 13% decremental margin on the lower production sales, which is actually quite good and well below the typical range. As Pat and Fred noted, we had some lingering impact from the OEM and inventory correction in the first quarter and volumes were down year over year. Given this reality, we are pleased with our performance in the first quarter.

Moving on, free cash flow before IFRS 16 lease payments came in at negative $25,400,000 which compared to negative $1,400,000 in quarter one of last year, reflecting lower EBITDA. Including lease payments under IFRS 16 accounting, free cash flow was negative $39,500,000 As we have mentioned before, we typically see negative free cash flow in the first quarter given a normal seasonal build in non cash working capital. We expect free cash flow to improve as the year progresses based upon the typical seasonal pattern. Moving on, adjusted net earnings per share came in at $0.41 which was down from $0.62 in the first quarter of twenty twenty four, given the decrease in operating income and net foreign exchange loss compared to a net foreign exchange gain in the year ago quarter and a higher effective tax rate. Of note, adjusted EPS improved significantly over quarter four of last year, which as you may recall was impacted by an unusually high effective tax rate due to the rapid depreciation of the Mexican peso against the U.

S. Dollar. While this tax treatment does not impact cash, it resulted in a hit to our adjusted earnings per share in that period. The Mexican peso U. S.

Dollar exchange rate stabilized in quarter one and as a result, our effective tax rate normalized to approximately 30%, which is reflective of a more typical tax rate for us. Turning now to our balance sheet. Net debt excluding IFRS 16 lease liabilities increased by approximately $51,000,000 over quarter four to $865,000,000 which reflects the negative free cash flow due to the aforementioned seasonal build in working capital, something we generally see in the first quarter of the year. Our net debt to adjusted EBITDA ratio ended the period at 1.64, up from 1.47 at the end of last year. We expect this to decline as we generate an increasing amount of free cash flow in the coming quarters, absent of course of any further potential tariff impacts.

We expect to maintain our leverage ratio within our target of 1.5 or better on a full year basis. We think that this range is a good place to be as it allows us to execute on our capital allocation priorities while maintaining a strong balance sheet. Turning to our 2025 outlook, we got off to a good start in the first quarter with results that were in line with our expectations. As a reminder, our 2025 outlook calls for sales of $4,800,000,000 to $5,100,000,000 and adjusted operating income margin of 5.3% to 5.8% and free cash flow of 125,000,000 to $175,000,000 This outlook does not contemplate potential tariff impacts or any other government policy changes in The U. S.

Or elsewhere, specifically the tariff on auto parts. While it’s difficult to quantify what the impact from tariffs would be, it would likely be significant if the tariffs were applied to auto parts and remain in place for an extended period. As Pat noted, IHS recently lowered its North America light vehicle production volume forecast by close to 1,000,000 units, now sitting at around 14,000,000 total vehicles for the full year of 2025. This reduction in large part reflects a fairly costless view on the likely impact of tariffs in the automotive industry, inclusive of tariffs on auto parts. Our guidance that we put forth in March does not reflect this type of reduction in volume and only assume that we can manage tariffs that are currently in place, while making some reasonable assumptions around recovering tariff costs through our customer negotiations.

Assuming a swift resolution on tariffs, we believe there is upside to current industry forecasts. Though in a worst case scenario where the tariffs remain in place, there could be further downside including a potential full or partial shutdown of the industry. Notwithstanding, we have a number of levers at our disposal to enhance our margins, including our SG and A reduction project, restructuring actions and operating improvements. This gives us confidence in our ability to manage the tariff environment. And with that said, I would like to thank our people for their hard work and perseverance during these chaotic times in our industry.

And now here’s Rob.

Rob Wildeboer, Executive Chairman, Martinrea International: Thanks, Peter. Just eight weeks ago, we reported our annual results and gave a detailed overview of our industry and our position in it, including major issues and challenges facing us, including the slow take up of EVs, geopolitical issues, especially relating to The U. S. China relationship and trade and tariffs. That seems like ages ago, at least to me.

But let me provide a general update on trade and tariffs, particularly focused on North America. First, we have had and still have no tariffs on USMCA compliant auto parts. Deadlines have consistently been moved back the latest to May 3. So note that for the most part, tariffs have not been applied to our products with some exceptions, such as some parts coming from Europe to The U. S, for example.

Before we get to the latest pronouncements, which indicate no tariffs on USMCA compliant auto parts will continue, some context is relevant, I think. I remain of the view that tariffs on auto parts in North America traveling between Canada, The US and Mexico make no sense. And the USMCA makes great sense for all three countries, OEMs and parts makers. For sixty years, our immensely complex supply chain has seen no border between Canada and The U. S.

And for over thirty years, no borders among the three countries. The supply chain is immensely complex to unravel or even to tear, especially given the fact that parts may cross the border multiple times. Many are of the view that the imposition of tariffs on parts in North America will cause the industry to shut down as a number of suppliers choose not to ship either because they cannot afford tariffs on their inputs, do not have assurance the customer will bear the tariffs or simply say, screw it. The supply base is not just the Tier one suppliers like Martinrea, but the Tier two, three and even four suppliers who supply raw materials, brackets or semi processed goods to us. It will not take many suppliers to shut down the industry.

And then the U. S. Administration will have a much bigger problem on their hands than exists today. It is nice to see their broad range of industry players, including OEMs have been speaking from the same script. And based on the most recent announcement, we got the result we were looking for.

Second, there are tariffs on autos going into The US from Canada and Mexico and into Canada from The United States. But some credit for domestically produced parts in each case. Automakers are much about them. But once again, I do believe this doesn’t make much sense in North America, especially between Canada and The US. We import more cars and parts from The US than we export.

Why are we doing this is the obvious question. The bigger issue long term for Canada is how will this affect its automotive footprint. We need and want assembly here in order to support our domestically owned auto supply base, which is large and significant to our country and province. Well, we have a new prime minister who has visited two of our plants and with whom we have had much frank and fruitful dialogue and who I am confident understands the issues and will address them. The basic fact is that Canada is a large economy, the ninth largest in the world that buys 1,850,000 vehicles more per capita than The U.

S. In some years. We produced 1,500,000 or so. We are a significant market for OEMs. Canada traditionally followed policies that basically said, you sell here, you need to make here.

The WTO didn’t like that, but I think it’s perfectly appropriate today. The government has shown its ability to attract investment here with carrots and support. See all the EV related announcements of the past few years. The problem there is in the take up of EVs, slow and inconsistent. But I think there are other carats such as subsidies for Canadian made vehicles.

And there are six too, penalties or extra costs on imported vehicles. Lots to talk about, but the point is this, it’s in the best interest of the auto industry, OEMs and suppliers alike to maintain the free trade deal that is the USMCA. Canada and Mexico should have preferential access to The US. It’s in all our best interests. Third, what is the ultimate best result for North American US OEMs and suppliers?

I’ve been advocating a five part plan for years and believe it or not, we may be lurching towards or something like it. And I can tell you that government leaders in each of Mexico, Canada and The U. S. Are increasingly supportive. One, free trade in autos and parts between The U.

S, Canada and Mexico. Two, higher North American content and vehicles produced in North America. The U. S. Has been advocating for that and interpreting the current USMCA.

Canada and Mexico have opposed automakers, but this is a good way to go. And it will be good for all North American based auto suppliers who are everywhere throughout North America. 3, higher penalties for non compliance with rules of origin, not a 2.5% penalty, which many simply accept, but higher in punitive by 25%. Four, measures to attract assembly into North America. Make it worth it to build here if you sell here.

This could include carrots such as investment and tax incentives or potential sticks such as quarters or tariffs. Note that North Americans buy between 39,000,000 vehicles a year, but imports account for close to 5,000,000. Imagine another 2,000,000 to 3,000,000 vehicles built in North America. Everybody wins here, including the supply base with North American content rules. We used a carrot approach to encourage EV investments in Canada.

Even though EV adoption is stagnated, there is an effective way to encourage investment. Five, I believe tariffs on China are appropriate, but more than that North America should not support direct Chinese investment in parts or auto companies in North America. Reality is that all Chinese parts suppliers and OEMs are in effect extensions of the state subsidized by it and their investments do not add new investment, but they displace investment from market oriented firms. Do all this and we’ll have a really solid North American market. And all this can happen quickly with The US being the biggest beneficiary in my view.

So what’s happening now? I won’t get into detail as there are summaries all over the place produced by analysts, industry observers and journalists, and you’ll see a lot in next few days. But here’s what we have. The US has alleviated to a large extent the problem of stacking tariffs. They would represent overkill that is not needed to meet intended policy goals.

This is a good thing and a supplier like ourselves is not caught up in a stacking problem. Good. Tariffs on autos that are made outside The US but are imported into The US continue to have tariffs, but a system of credits are introduced to lower the tariff impact for the importer. So The U. S.

Is trying to encourage more auto manufacturing in The U. S. Reducing imports, but recognizing it will take time. The Section two thirty two auto tariff on parts will take effect May 3, but the exemption for USMCA compliant parts continues. Very good news for the USMCA and USMCA compliant parts made by suppliers like us.

In fact, it is a competitive advantage. The focus of The U. S. Tariffs and auto remains on automotive assembly outside The U. S.

And parts made outside the USMCA. Things may change of course, but here’s where we’re at. And as I said, five point plan I just outlined. Under the USMCA, it remains for Canada and Mexico to negotiate better tariff terms on auto assembly with The US, which makes sense to get to. That’s what negotiations are all about.

Also ensure we agree on rules of origin and penalties for noncompliance. In terms of actual tariff impact, if there are tariffs placed on our auto parts, a few points to remember. Most of our parts go to the customer in truck country, so no tariff would be paid on those shipments. Parts across the border to a customer that would have a tariff would be paid for by the customer as importer of record. Parts crossing the border is an intra company transfer where we are the importer of record that would give rise to a tariff.

Well, we would be talking to the customer about passing it on much as we did with inflation during the pandemic. As for parts that we buy from suppliers, our contracts with our suppliers have been paying any tariff, but they will obviously try to negotiate and pass on the cost to us, just like we will do with our customers. The tariffs would cost some, but most of the costs will not be directly borne by us at the end of the day. Big issue that remains in any tariff scenario is the effect on the industry. Higher tariffs would cost the OEMs a fortune if they absorb them.

But tariffs passed on to the consumer would cost the industry if consumers bought materially fewer vehicles. And that would be a bad result for the auto industry. Hence the latest U. S. Announcement this week.

One additional point, I do believe the administration when it says that a goal of the tariffs and overall economic and trade policy is to help The US auto industry. The problem is that the approach so far has not been helpful. I’m not sure it has even been coherent in auto or in general. That is what the markets have been telling us. Tariff noises create a lot of storm clouds in the auto business and elsewhere, with stock prices of Detroit Three OEMs as well as US and Canadian parts suppliers all down materially since the US election in November of last year.

That should tell us all something. The tariffs and threats have not helped those who they are extensively meant to help. So let’s continue to focus on achieving a better result than this. Let’s renew the USMCA. Let’s get moving on making a prosperous industry here.

We’re making progress in my view. Now it’s time for questions. Shareholders, analysts, employees, even some competitors on the phone. So we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in.

Conference Operator: Thank you. We’ll now take questions from the telephone lines. If you have a question, please press 1. You may cancel your question at any time by pressing 2. Please press 1 at this time, if you have a question.

There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from David Ocampo from Cormark Securities. Please go ahead.

David Ocampo, Analyst, Cormark Securities: Thanks. Good evening, gentlemen.

Pat, Executive, Martinrea International: Good evening. You

David Ocampo, Analyst, Cormark Securities: guys paused your buyback program, which certainly seems like the prudent thing to do just given the uncertainty. But I am curious if you guys have paused any other discretionary spending, whether it’s capital related expenses or even hiring?

Peter Cerrillis, Chief Financial Officer, Martinrea International: Yes, so David, I can say that, yes, we have been put a tight leash on our spending primarily some of the more call it discretionary spending like the tech travel and entertainment, these types of things. We’re also working with our business leaders to reduce capital, in the event that we would need to go there given the uncertain environment. So making progress there as well. And yes, in the first quarter we did resize some of our corporate functions early in the quarter.

Pat, Executive, Martinrea International: And as you know from our previous discussions with you that we’re taking on a restructuring program in Europe. And then in addition to that, we’re not seeing the same level of activity from the customers for new business because they’re somewhat idle waiting on some of this to pass. So they know which direction to go on new product. We are seeing a lot of extensions of old product to buy time, I think until, you know, can build hybrids, going to build EVs, we’re going to build ICE engines or whatever combination. And what’s the tariff impact going to be on our investment.

And until that settles out, I think some capital will be held up

David Ocampo, Analyst, Cormark Securities: from spending just because the programs aren’t there. Do you guys have an updated guidance or refresh view on where 25 CapEx is going to come? And do you guys have any flexibility with your suppliers to drop that even further?

Peter Cerrillis, Chief Financial Officer, Martinrea International: So as far as our guidance on the capital, we would think we’ll be coming in approximately 300,000,000. So haven’t changed that. I would say trending a little bit lower at this point in time based upon the comments that Pat made.

David Ocampo, Analyst, Cormark Securities: Okay. And then I think last quarter there was quite a bit of discussion on just the hidden assets at Martinrea, whether it’s the real estate or your position in NanoExplorer. I’m just curious, is there any additional thought on potentially monetizing it or on surfacing some of the value that may be hidden behind the scenes that investors may not be appreciating whether, you know, it’s a sell down of your position in NanoX Florida potentially buyback foreign stock here just in the current levels?

Rob Wildeboer, Executive Chairman, Martinrea International: I think capital allocation is something that we always look at and we spend a lot of time talking about it. At the end of the day, we think that Nano Explorer and graphene are, it’s a wonderful product, that, is awaiting its time. That doesn’t mean we’re married to holding it forever. At the right price point, we would do something. I don’t think investors necessarily appreciate it, we do.

And we’ll see where that goes. In terms of things like real estate and so forth, we have a very good lending group. We actually have unsecured debt. But one of the reasons it’s unsecured is because we have a lot of hard assets behind it and that includes the real estate. So there’s actually value in that in terms of the flexibility we have with our lending syndicate.

But if somebody made us an offer for building

Peter Cerrillis, Chief Financial Officer, Martinrea International: that

Rob Wildeboer, Executive Chairman, Martinrea International: we couldn’t refuse, we’d have that discussion, I’m sure.

Fred DiTosto, President, Martinrea International: Yeah. We also like to own some more real estate as well. I mean, we have a nice mix right now at least and so we like to

Rob Wildeboer, Executive Chairman, Martinrea International: keep some balance in that portfolio.

Fred DiTosto, President, Martinrea International: But we’re always open to ideas.

David Ocampo, Analyst, Cormark Securities: Just the last one, just on the I think you guys disclosed previously a potential M and A transaction. Do you guys put that on pause in the event just given the current market conditions?

Rob Wildeboer, Executive Chairman, Martinrea International: I think it depends on the nature of the transaction. As you looked at our history, some of the transactions were quite cheap. And so if we had an offer we couldn’t refuse, we wouldn’t refuse it and we’re always looking. And one of the realities, particularly when we have tougher times like we do now is customers like us looking. And they might have a trouble supplier situation and say that you could really help us out if you do this.

And that involves a lot of different discussions, which may be future work, other things that we can do. We’ve actually made some of our best transactions in the toughest times, but, we’ll always look. Pat, what

David Ocampo, Analyst, Cormark Securities: do you think?

Pat, Executive, Martinrea International: No, I agree 100%. And certainly, there’s a

David Ocampo, Analyst, Cormark Securities: lot of distress out there, smaller suppliers in particular. Yeah.

Pat, Executive, Martinrea International: I wouldn’t say anything super big or hot on the stove at the moment, but there’s some little ones out there that we’ve been asked to take a look at and we were certainly doing that.

David Ocampo, Analyst, Cormark Securities: I think my question was more specific, I think to that Tier two European supplier that you called out where they may not close for another two to 3.5 That’s

Pat, Executive, Martinrea International: kind of a two year out project. We’re buying that over time. So that’s not a right now. There’s no plan to change that.

David Ocampo, Analyst, Cormark Securities: Yeah. Still there. Okay. Sounds good. I’ll hop back in the queue.

Thanks a lot, everyone.

Conference Operator: Thank you. The next question is from Michael Glen from Raymond James. Please go ahead.

Michael Glen, Analyst, Raymond James: Hey, good evening. So just to think about from Canada to Mexico sorry, from Canada to The U. S, from Mexico to The U. S, maybe speak to the two separately. What’s the prospect of your facilities in those markets supplying parts into US assembly?

Is that something that can be accomplished right now?

Pat, Executive, Martinrea International: Yeah. We do some of that right now. We do that in a number of our groups. I’d say what 75% of what we make in Canada goes into The U. S.

Now? Currently, yes. And Mexico, a lot of it goes local to Mexico, which ends up

Peter Cerrillis, Chief Financial Officer, Martinrea International: in The U.

Pat, Executive, Martinrea International: Twenty Five direct. But bottom line is yes, we can do it and we do do it currently. So could it shift? Certainly.

Rob Wildeboer, Executive Chairman, Martinrea International: And if the question is can we supply US assembly plants from Mexico and Canada, answer is yes.

Michael Glen, Analyst, Raymond James: Okay. And then based on what we learned on Tuesday night with the revisions, those parts would be deemed USMCA compliant?

Rob Wildeboer, Executive Chairman, Martinrea International: Yes. The vast there’s things you gotta do to make sure that they are compliant, but the vast majority of what we make in Mexico and Canada is USMCA compliant.

Michael Glen, Analyst, Raymond James: Okay. So we’ve read a few articles over the past week or so regarding, I believe, Stellantis is going to move some volume from Mexico into The US and then General Motors talked about moving volume from Mexico into The U. S. Do you anticipate or the way those would line up, would that would you continue on with your supply related to whatever business you have there, or would you have to shift it to The US to continue to participate?

Pat, Executive, Martinrea International: So let’s use the let’s use the GM example because Mary Barrow talked about it today on making more vehicles or more trucks in Fort Wayne. We supply that vehicle in Canada, in US, and in Mexico. We have duplicate tools in many cases because it’s a big volume vehicle. So then shifting production from, I don’t know if it’s coming from Mexico or Canada, that part I didn’t hear, or if it’s just additional volume because they’re really confident. But we’ll we’ll continue to supply it as is.

And if if one plant, you know, volume line starts to get a little stretched, we would bring it in from one of the other countries. So we see that as a pretty minor adjustment the way we run.

Michael Glen, Analyst, Raymond James: Okay. And I’m I’m just trying to for myself and just to maybe hear you guys speak about it, it’s maybe a bit of a broad question. But, like, the risk associated with the parts infrastructure that you have set up in Mexico over the past number of years. I know it’s been a substantial investment for you over time and that’s now a large business for you. Like, is that something, like how concerned are you regarding the outlook right now for that part of your business, what’s made in Mexico?

Pat, Executive, Martinrea International: The news that we got Tuesday and burned up today, and Rob talked about USMCA compliant, the far majority of everything we make is USMCA compliant. So from a tariff point of view, not in the moment anyway concern. There’s some assemblies logistically that if a product was moved, we might want to move that product because some of our products are large, but a whole lot of our products, know, we like I said, we can transport across the border given the capacity wherever it’s at. So it would really depend on the part and the vehicle and how much work we do to that part before it goes into the vehicle from a size point of view. Larger parts certainly would be more challenging, but the typical part and smaller parts wouldn’t be as much.

Rob Wildeboer, Executive Chairman, Martinrea International: Yeah. Let let me make a comment on a on a broader perspective. The US is obviously focused on getting more assembly capacity in The United States. If there’s more assembly capacity in The United States, it’s probably more work for supply in The United States. The overall focus, even though the press talks a lot about taking work from Canada and Mexico, the real opportunity and the real focus of the tariffs is to get more assembly into The United States from other countries, I.

E. Europe, Japan, and, South Korea. And

David Ocampo, Analyst, Cormark Securities: as I

Rob Wildeboer, Executive Chairman, Martinrea International: mentioned in my remarks, there is a lot of imports into North America, the vast majority of which, of course, go to The United States. So just imagine you can increase volume production by, say, 2,000,000 units over the next couple of years. That’s huge. Like, that’s 10 assembly plants, lots of different work, lots of work go around for North American based suppliers because we’ll be competing for a lot of that new capacity. And in that context, you’ve got to look at that context when you’re talking about just Canada and Mexico.

The other thing that I think we have to factor into the discussions, particularly in the Mexico situation, is the actual competitiveness of the product made. And that competitive is not going it’s not gonna go away, especially when you look at what the peso has done, say, to the US dollar over the last year, which we talked about, I think, in our last two calls. So I think that, you know, this is a this is a long term scenario that I think is good for the North American industry from a producer’s point of view, and we’re very bullish on that. In terms of how messy it’s been, well, it might be the nature of the situation in terms of how things are done. But the but the focus of The US is one that that that works.

And ultimately people are gonna buy vehicles. People are gonna need parts for vehicles. And then the final thing I’ll say is also recognize we didn’t spend much time talking about our remarks, but the big issue for The United States is China, Right? And in order to compete with China, have a healthy, automotive industry, you have to have healthy supply base and that healthy supply base is not just in The United States. We don’t have enough workers in The United States.

It’s hard to find them even for the assembly and so forth. And at the end of the day, when you’re dealing with supply chains and manufacturing supply chains are a lot more complex than some people sometimes, figure, you’re gonna have to deal with that issue. You need people to make the to make the stop.

Michael Glen, Analyst, Raymond James: Okay. So thank you for all.

Conference Operator: Go ahead.

Pat, Executive, Martinrea International: You are not super worried.

Rob Wildeboer, Executive Chairman, Martinrea International: Yeah. We’re paranoid. Right? Like like we’re a supplier and we were in an industry where you get punched in the face on a regular basis and then you deal with that. But ultimately, and I think we’ve shown this.

I think we’ve got enough credibility to say that very often the most difficult times are the ones where you have some opportunities. And we have great people, they’re very focused. And I think that, you know, people are going to need suppliers. The the the discussion is trying to be the best supplier and you’re going to have opportunities.

Fred DiTosto, President, Martinrea International: And and I think ultimately the silver lining for me is the biggest takeaway. I mean, and everything that’s pointed to this right now is that Canada and Mexico is getting preferential treatment in our industry. And that’s compared to the rest of the world. So, it’ll drive some opportunity in the next few years for North America in general because to Rob’s point, US can absorb all of this. Right.

Right? And as you know, our biggest footprint, 75% is in North America. So we’re I think we’re well positioned, at this point.

Rob Wildeboer, Executive Chairman, Martinrea International: We’re well positioned in The United States too. Looking to see that place of Michigan all around Mississippi and Alabama.

Michael Glen, Analyst, Raymond James: Okay. Thank you guys for the insights.

Conference Operator: Thank you. The next question is from Donna Singh from CIBC. Please go ahead.

David Ocampo, Analyst, Cormark Securities: Hi, good evening. You did touch on this earlier, but could you provide more insight into the addition to the restructuring provision this quarter? And what should we expect for the remainder of the year?

Peter Cerrillis, Chief Financial Officer, Martinrea International: Sure. So in the first quarter, had about 16,000,000 of our restructuring. And as we pointed out in the guidance, we would expect to have about 55,000,000 of cash, call it invested in that resizing of the business. So in terms of the specifics around the 16,000,000 in the first quarter, most of that was in Europe, Germany resizing as we talked about, and then to a lesser extent Canada and rest of the world. So in terms of what to expect going forward, we still have to keep moving on in terms of the resizing in Europe, primarily EV, call it EV program related.

So that’s, taking shape still and likely to be substantially moving through the second quarter. Rest of the world is, pretty much, I would say, more or less complete, maybe a couple of lingering things there, but, mostly we have to work on the European resizing.

David Ocampo, Analyst, Cormark Securities: Okay. Thank you. And what conditions need to be met for you to consider resuming share buybacks?

Fred DiTosto, President, Martinrea International: I think all of them come down to getting some better clarity around the tariff situation. It’s obviously been very fluid. What we’re doing is prudent in our view and I think a lot of our peers are taking the same approach. It’s a volatile environment and we just want to get a little bit of more clarity and visibility in terms

David Ocampo, Analyst, Cormark Securities: of what environment we’re working on under.

Rob Wildeboer, Executive Chairman, Martinrea International: At this price, buy the stock. Okay.

David Ocampo, Analyst, Cormark Securities: Thank you. That’s all for now.

Rob Wildeboer, Executive Chairman, Martinrea International: Thanks very much.

Conference Operator: Thank you. Next question is from Michael Glen from Raymond James. Please go ahead.

Michael Glen, Analyst, Raymond James: I’m back. Just wondering you talked about the restructuring in Europe, but given what these tariffs mean for the Europe assembly into The U. S. Right now, do you have any insights like how what are your customers over in Europe? Number one, do you how much exposure do you have to Europe product that goes into North America?

And what’s the what sort of production outlook have the OEMs over there shared with you for this year?

Peter Cerrillis, Chief Financial Officer, Martinrea International: Yeah, can maybe make a few comments there, Michael. As far as our exposure of European business coming into North America is very small, it’s less than 5%, right? So the tariff situation here would not be so dramatic for us because we produce locally for the European market. Now as far as, let’s say the dynamics relative to tariffs, it’s been, let’s say more muted than what we’re hearing from the North American customers. And as far as what our forecasters say, call it IHS or S and P Global, the reduction based upon tariffs to be around maybe a 1%, one point five % is what they forecast for the remainder of the year as opposed to their very conservative view in North America, something north of 5%.

The indication directly from the customer is not a reduction in anything that we’ve heard specific to tariffs. That’s mostly been EV related volume reductions.

Michael Glen, Analyst, Raymond James: Okay. Okay. Thank you. That’s helpful.

David Ocampo, Analyst, Cormark Securities: Alright. Thank you.

Conference Operator: Thank you. The next question is from Tammy Chen from BMO Capital Markets. Please go ahead.

Tammy Chen, Analyst, BMO Capital Markets: Hi. Thanks for the questions here. I have two that are also tariff related. First, I’m just wondering, so, you know, when I saw the exemption for USMCA compliant pause, that was very encouraging to hear. But I’m wondering on this aspect, so, I mean, if I take GM as an example, when Mary this morning says, one of the things they’re also sounds like they’re starting to look at is to further increase US parts content among their supply base.

So they understand an assembled vehicle coming from Canada or Mexico to The US, the non US content part still has that tariff. So I’m just wondering, how do you or how should we interpret that aspect? Do you believe that your customers will gradually start to have that discussion with suppliers such as yourself that although your parts are USMCA compliant, do you think they’ll gradually want their supply base to have more and more of the content made in The US?

Fred DiTosto, President, Martinrea International: One answer is no. They don’t want that at all.

Rob Wildeboer, Executive Chairman, Martinrea International: But but they might be forced to do that to a certain extent. Right? The reason they’re sourcing in different places is because cost, productivity, all that type of stuff. So that’s my general comment.

Pat, Executive, Martinrea International: The only one that can see the where the car sits compliance wise is the customer. And as a part supplier, you know, we don’t have a big role in that until they come to us and say, hey, what would it take for you to move component a to from Mexico to The US as an example? We expected to see a lot of that the first time that this current administration was was in office because that was, you know, when USMCA first got settled. And I think we had one request to study it. Now this one might be more than that with content differences, but the moment, I don’t foresee a tremendous amount of that.

I think there’ll be all kinds of studies, and they may settle on a product or products that that they wanna look at. But but if they’re gonna move a supplier part from one country to another to get better overall compliance, it’s gonna be a part that that has significant weighting. It may be a transmission or an engine or something like that. The majority of our stuff, as you guys know, is our metal components structures, things like that. So I would say we would not be top on their menu unless it was convenient.

So I don’t expect to see a lot of traffic there, but we won’t know till till we get the request.

Fred DiTosto, President, Martinrea International: I think it’s also very early to conclude that the current tariff environment will be permanent. Right? Yeah. I’ll be very imprudent to make some big decision like that, starting with things that in so early at this stage.

Rob Wildeboer, Executive Chairman, Martinrea International: Yeah. I I I would say that we we we were absolutely heavily involved in the USMCA negotiations actually by saying two of the three parties to it, Canada and Mexico. And in the context of the negotiation, there are things that you negotiate. And, The US needs things from Canada and Mexico despite the rhetoric that they don’t. And in the context of that, I I fully expect the discussions to be focused on free trade in autos and parts between the three countries, and there’s gonna be some horse trading and that type of stuff.

And, in terms of the arrows in Canada’s quiver, for example, it includes things like borders, investment in defense, natural resources, critical minerals. You know, if we and and we’ve had these discussions, Canada has a whole playlist for it. Mexico has a playlist as well. But, and then the other thing I’ll say is we’ve set up over a number of years of footprint where our approach to the customer has typically been, where do you want us to make this and try to build capacity so that we can deal with that. I do think that over time, if there’s more assembly in The United States, there’s gonna be more parts in The United States from places that have to locate fairly close to the customer.

And that’s an opportunity for us to grow our US foot. And and like I said, you know, in the context of statements, a lot of statements get said, we’ll see where we go.

Tammy Chen, Analyst, BMO Capital Markets: Okay. I understand. That’s helpful. Thank you. And since that segues to my follow-up question is, you know, I think at this point, year to date, we might have just seen very few actual downtime or similar type announcements by OEMs directly in response to the tariffs.

We’ve gotten a little bit more clarity, you know, recently, just this past week. I’m sure you’re having frequent discussions with your customers. I mean, do you expect at this point going forward, we’ll start to see some more material production related decisions by your customers now that we seem to be at a a little bit more clarity in terms of the the tariffs? And is your sense from your discussions with your customers, like, is the the hope or expectation still that ultimately tariffs on on the sector just eventually goes away? Or do you think customers are now your customers are now expecting that some form of auto tariffs may may stay in the system for for some amount of time longer than initially thought?

Thanks.

Rob Wildeboer, Executive Chairman, Martinrea International: I think tariffs on Europe and Asia coming into The United States are gonna stay. I think it’s gonna be there for autos, and I think there’s good chance it’s gonna be there for parts. I may be wrong, but, you know, that that that that is consistent with the focus of more assembly in The United States. There’s a low hanging fruit is not in Canada for sure. I mean, Canada’s got a a trade deficit with The United States and auto and parts.

And and and I do think that the sources of manufacturing are going to be from OEMs in those places. They’re gonna say, that’s a good market there. It doesn’t make sense for me to make in, say, Japan, and it makes more sense for me to make in The United States. And and that’s why there’s a lot of incentives. The US wants that.

They want they want more production, and that’s how you get the success. So the Wi Fi over 200,000 vehicles made by the Detroit three in Canada, like reducing their footprint when you can get a plant from from a big OEM in Japan that produces 200,000 vehicles. Right? So so so I think that’s gonna be the nature of that discussion. The other thing is so so I do think we’ll have that.

The the other thing is just in the context of of of what’s worked, tariff free movement in North America has worked pretty well. And, I will tell you one story that don’t know how far, how many how many people have insight on this, but very good source basically said that the reason that the OEMs didn’t fight the tariff announcement, that first came out obviously, a few months ago was they were told by the White House there would not be tariffs on parts and and vehicles in North America because they saw the value of the USMCA. So if that was a conclusion then, then I think that’s where we’re gonna try and work to here. But in order to do that, some people gotta do some negotiating at the country level.

Tammy Chen, Analyst, BMO Capital Markets: Interesting. Those were all my questions. Thank you.

David Ocampo, Analyst, Cormark Securities: Thank you.

Peter Cerrillis, Chief Financial Officer, Martinrea International: Thank you.

Conference Operator: You. The next question is from Brian Morrison from TD Cowen. Please go ahead.

David Ocampo, Analyst, Cormark Securities: Good evening. I apologize. I joined late, so I missed a lot of the call. But I wanted to ask, similar to Tammy’s question. On your new business awards, are you being told by the OEMs at all where to build these parts?

Pat, Executive, Martinrea International: Well, in any new business award, it’s part of the award. We negotiate where we will build it, and then that’s part of their approval process when we get the award. The the one thing, and maybe you missed this too, there’s not as many new business awards because there’s been a lot of extensions of current programs while the OEMs try to figure out, you know, where to go with with what kind of vehicles to build. So we’re seeing a little bit of a throttling there. So we are still winning some stuff and and basically when we get the the PO, it tells us this is where we’re gonna build it.

And in fact, typically even in the RFQ stage, that’s identified.

Peter Cerrillis, Chief Financial Officer, Martinrea International: And what we’ve seen also Brian is in some of our recent quoting activity, the customer will say, hey, we would like you to look at couple scenarios, build it in The US. And let’s say we would suggest, we don’t have a particular, let’s say a production line for that product in The US. So we’re going to give you two quotes, one with what it would take to do it, plus what we already currently have in terms of capacity footprint. So we have started to see that more frequently than in the past.

Fred DiTosto, President, Martinrea International: And we’re actually even gene proactive on that front in some cases. Given our global footprint, we got presence in Canada, US, Mexico. We’ll be proactive and say, okay, listen, we can service you out of Canada or Mexico, but we have this made in USA option as well for you. Right, so we’ve done that actually in one occasion. And I suspect that we’ll likely need to do, apply that type of thinking going forward just given the environment right now.

David Ocampo, Analyst, Cormark Securities: Right, makes sense. And then I guess just sorry, on your guidance, it’s unchanged for the year, see that, but it seems like North American production forecasts have come down, from the IHS of the world. I’m wondering what is factored into your North American production forecast in your guidance?

Peter Cerrillis, Chief Financial Officer, Martinrea International: So Brian, in the short term, we haven’t seen a substantial reduction in releases, right? So it’s humming along, if you will. As we mentioned, we start to see now here in 2025 a more seasonal pattern, which was a little bit broken last year. So production and improvements quarter over quarter till you have the seasonal reduction in the fall. That’s what we’re seeing here in the short term.

As far as the longer term, we’re taking into consideration some of those IHS outlooks. Of course, we do think that they’re a little bit conservative, obviously, because they built their latest forecast without the clarity that we had of two days ago. They built theirs, I think, sixteenth or seventeenth of the month, so a couple of days ago. And it was 5% down. So juxtapose that with what we’re seeing from the customers, there’s a gap there in the short term.

David Ocampo, Analyst, Cormark Securities: So sorry, are you looking for flat year over year or what’s in your assumption?

Peter Cerrillis, Chief Financial Officer, Martinrea International: A flat year over year is what we had twenty four to twenty five is what we have a flattish outlook.

Fred DiTosto, President, Martinrea International: You may have missed this. The guidance is not based on IHS, the current IHS on. There, as Peter noted, current projection for North America is quite cautious if you will, about 14,000,000 units. And it does assume tariffs and auto parts. We did confirm that with them.

Given the clarity we have this week, I suspect they’ll likely end up adjusting their forecast going forward.

Peter Cerrillis, Chief Financial Officer, Martinrea International: So just to give you rephrased, to be more clear, Brian, our current outlook, which we talked about in the last call and reiterated here does not include those, let’s say, assumptions.

David Ocampo, Analyst, Cormark Securities: Thank you very much. Thank you.

Conference Operator: Thank you. There are no further questions registered at this time. Would like to turn the meeting back over to Mr. Will DeBoer.

Rob Wildeboer, Executive Chairman, Martinrea International: Hey. Thank you. Thank you all for giving up part of your evenings to talk with us. Have a good night. Any of us are available for questions at the contact numbers in the press release.

Have a good night. Go East Coast.

Conference Operator: Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

Tammy Chen, Analyst, BMO Capital Markets: This conference is no longer being recorded.

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