Earnings call transcript: Wajax beats Q1 2025 earnings, stock surges 13%

Wajax Corporation (WJX) reported strong financial results for the first quarter of 2025, surpassing earnings expectations and triggering a significant stock price increase. The company posted an earnings per share (EPS) of $0.67, exceeding the forecasted $0.5156, and achieved revenue of $555 million, above the anticipated $505.43 million. Following the announcement, Wajax’s stock surged by 13.49%, closing at $18.24, up by $2.46 from the previous close. According to InvestingPro data, the company maintains a healthy financial position with a current ratio of 1.95, indicating strong liquidity. InvestingPro subscribers have access to over 30 additional financial metrics and insights for WJX.

Key Takeaways

• Wajax’s Q1 2025 EPS of $0.67 beat the forecast by 30%.
• Revenue increased by 15.1% year-over-year to $555 million.
• Stock price jumped 13.49% post-earnings announcement.
• Strong performance in mining and energy sectors supported growth.
• Gross profit margin decreased by 90 basis points year-over-year.

Company Performance

Wajax demonstrated robust growth in the first quarter of 2025, driven largely by strong demand in the mining and energy sectors. The company’s revenue rose by 15.1% compared to the same period last year, reflecting its strategic focus on expanding capabilities in equipment sales and product support. Despite a decline in gross profit margin, Wajax managed to decrease selling and administrative expenses as a percentage of revenue, enhancing its overall efficiency.

Financial Highlights

• Revenue: $555 million, up 15.1% year-over-year.
• Earnings per share: $0.67, surpassing the forecast of $0.5156.
• Adjusted EBITDA: $43.2 million, a 6.2% increase.
• Gross Profit Margin: 19.1%, down 90 basis points year-over-year.
• Selling & Administrative Expenses: Reduced to 14.1% of revenue from 16.7%.

Earnings vs. Forecast

Wajax’s actual EPS of $0.67 significantly outperformed the forecast of $0.5156, marking a 30% positive earnings surprise. This beat is notable compared to previous quarters, indicating effective cost management and strong revenue growth. The revenue of $555 million also exceeded expectations by nearly 10%, showcasing the company’s ability to capitalize on favorable market conditions.

Market Reaction

The market reacted positively to Wajax’s earnings report, with the stock price increasing by 13.49% in after-hours trading. This surge reflects investor confidence in the company’s performance and future prospects. InvestingPro analysis indicates that Wajax is currently undervalued, trading below its Fair Value estimate. The stock’s beta of 1.11 suggests moderate market sensitivity, while maintaining strong fundamentals with an Altman Z-Score of 7.53, indicating solid financial health. For detailed valuation analysis and more insights, visit the Most Undervalued Stocks list on InvestingPro.

Outlook & Guidance

Wajax anticipates maintaining its growth trajectory in 2025, expecting typical seasonal patterns with a strong second quarter driven by spring construction activities. The company remains focused on inventory reduction, cost management, and margin improvement to sustain its competitive edge. Forward guidance indicates stable revenue and EPS growth for the remainder of the year, aligning with industry trends.

Executive Commentary

CEO Iggy highlighted the company’s strategic focus, stating, "We’re still bringing it down, and we are making improvements in how we manage things." He emphasized the strength in mining and energy, noting, "We’re seeing things pretty strong in mining, pretty strong in energy." Despite the positive outlook, Iggy tempered expectations by saying, "We’re not expecting an exceptionally great quarter or great year based on anything that’s going on in the economy."

Risks and Challenges

• Tariff uncertainties may impact customer demand in the industrial sector.
• Safety concerns with a 41% increase in the Total Recordable Injury Frequency rate.
• Potential volatility in commodity prices affecting the mining and energy sectors.
• Leverage ratio currently outside the target range at 2.53x.
• Continued pressure on gross profit margins despite revenue growth.

Q&A

During the earnings call, analysts inquired about Wajax’s gross margin improvements, which were attributed to internal initiatives. Questions also focused on inventory reduction strategies and the potential expansion of the ultra-class mining truck segment. The company indicated that the industrial parts and services market is showing signs of normalization, which could bode well for future growth.

Full transcript - Wajax Corporation (WJX) Q1 2025:

Tanya, Presenter/Financial Officer, Wajax: Thank you, operator. Good afternoon, and thank you for participating in our first quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax’s Q1 twenty twenty five financial results. The presentation can be found on our website under Investor Relations, Events and Presentations. To begin, I would like to draw your attention to our cautionary statement regarding forward looking information on Slide two and the non GAAP and other financial measures on Slide three.

Please turn to Slide four, and at this point, I’ll turn the call over to Icky.

Iggy, CEO/Senior Executive, Wajax: Thank you, Tanya. To start, I will provide highlights of our first quarter before turning it back to Tanya for commentary on backlog, inventory and the balance sheet. This slide provides an overview of Wajax. The corporation has one hundred and sixty seven years of Canadian operating history and operates across 111 branches with a team of approximately 3,000 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 59% of our total revenue, while industrial parts and ERS generated approximately 41%.

Turning to slide five. This slide provides an overview of our purpose and values. OIGAC’s purpose statement is empowering people to build a better tomorrow, which we strive to achieve by living our values and delivering an exceptional experience for our people, customers, suppliers, and communities we serve. By living our purpose and values, we will continue to build a people first company that is strong, resilient, and profitable. Our purpose and values guide our decision making and allow us to execute on our strategic priorities.

Turning to slide six. This slide provides an overview of our strategic priorities, have been refined for 2025. Management is completely focused on executing against these priorities. Between our purpose and values and these six priorities, we have the foundation to continue growing our company for many years to come. Turning to Slide seven.

In the first quarter, Wajax saw higher revenues and improved cost efficiency, which were offset partially by lower gross profit margins. Revenue of $555,000,000 increased $72,600,000 or 15.1% in the quarter. The increase resulted primarily from higher equipment sales in the construction and forestry category in all regions, driven largely by the competitive financing program introduced through Hitachi Construction Machinery America, which was effective 03/01/2024, and higher mining equipment sales in Western Canada, including the delivery of two large mining shovels in the first quarter of twenty twenty five with no such deliveries in the first quarter of the prior year. Gross profit margin of 19.1% decreased two ninety basis points compared to the same period of 2024 and increased 200 basis points sequentially from the fourth quarter of twenty twenty four. The year over year decrease was driven primarily by lower margins realized on equipment, industrial parts and ERS revenue as well as a higher proportion of equipment sales relative to industrial parts, ERS and product support.

The decreases were offset partially by higher product support margins. Selling and administrative expenses as a percentage of revenue decreased to 14.1% in the first quarter of twenty twenty five from 16.7% in the first quarter of twenty twenty four, excluding the unrealized loss or gain on total return swaps in both periods. Excluding the $1,400,000 unrealized loss on total return swaps, selling and administrative expenses in the first quarter of twenty twenty five decreased $2,300,000 compared to the first quarter of twenty twenty four due primarily to lower spending on personnel, travel and entertainment and supplies and marketing driven largely by cost savings initiatives. Adjusted EBITDA of 43,200,000 increased $2,500,000 or 6.2% from the first quarter in twenty twenty four, noting the adjustments recorded on this chart. The increase resulted primarily from higher sales volumes and cost savings initiatives, offset partially by lower gross profit margins.

Adjusted net earnings of $0.69 per share increased 15.7% or $0.10 per share from the first quarter of twenty twenty four, noting the adjustments recorded on this slide. At the end of Q1, the TRIF rate was 1.3, an increase of a 41% from the first quarter of twenty twenty four. The first quarter TRIF rate was up 38% from the fourth quarter of twenty twenty four. Safety continues to be Wajax’s number one priority, and management is committed to continuously improving our safety programs to improve on the results. We thank everyone on our team for their ongoing dedication to workplace safety.

Turning to Slide eight. Revenue increase of 15.1% in the first quarter resulted from higher revenue in all regions. Western Canada sales of $264,000,000 increased 20.4 in the quarter due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA effective 03/01/2024, and higher mining equipment sales, including the delivery of two large mining shovels in the first quarter of twenty twenty five with no such deliveries in the first quarter of the prior year. Central Canada sales of $100,000,000 increased 10.3% in the quarter due primarily to higher equipment sales construction and forestry category, driven largely by the competitive financing program introduced by HCMA effective 03/01/2024. And Eastern Canada sales of $191,000,000 increased 10.8% in the quarter due primarily to higher equipment sales in the construction and forestry category, driven largely by the competitive financing program introduced by HCMA effective 03/01/2024, and higher material handling equipment sales.

These increases were partially offset by reduced industrial parts sales. Please turn to Slide nine. An update on equipment and product support sales and year over year variances are shown on this page. Equipment sales of 171,000,000 increased $73,000,000 or 74% compared to last year due primarily to higher construction and forestry sales in all regions due largely to the competitive terms available under the Hitachi financing program as well as higher mining sales in Western Canada, including the delivery of two large mining shovels in the first quarter of twenty twenty five with no such deliveries in the first quarter of the prior year. Product support sales of $146,000,000 increased $12,000,000 or 9% compared to last year due primarily to higher construction and forestry and mining sales in Western Canada, higher power system sales in Eastern Canada, and higher material handling revenue in all regions.

Please turn to slide 10. An update on industrial parts and ERS sales and year over year variances are shown on this page. Industrial parts sales of approximately $145,000,000 decreased $10,000,000 or 7% due primarily to lower sales in Western And Eastern Canada. ERS sales of approximately $82,000,000 decreased $3,000,000 or 3%. Turning to slide 11.

This slide summarizes sales at a category level for our company’s overall groupings of heavy equipment and industrial parts and services. In the first quarter, the heavy equipment categories increased $86,000,000 or 35%, driven primarily by higher construction and forestry sales in all regions due largely to the competitive financing program introduced by HCMA effective 03/01/2024 and due to higher mining sales in Western Canada, including the delivery of two large mining shovels in the first quarter of twenty twenty five with no such deliveries in the first quarter of the prior year. The industrial parts and services categories decreased $13,000,000 or 5% driven by lower industrial parts sales in Western And Eastern Canada. I’ll now turn the call over to Tanya for commentary on backlog, inventory and the balance sheet.

Tanya, Presenter/Financial Officer, Wajax: Thanks, Iggy. Please turn to Slide 12 for my comments on backlog and inventory. Our Q1 backlog of $561,300,000 decreased $3,200,000 compared to backlog of $564,400,000 at Q4 and decreased $25,800,000 on a year over year basis. The sequential decrease was due primarily to a lower number of mining units in backlog, driven by the sale of two large mining shovels in the quarter, one of which was in backlog at 12/31/2024, offset partially by higher construction and forestry orders. The year over year decrease was due primarily to lower material handling, ERS and industrial parts orders, offset partially by higher construction and forestry and mining orders.

Backlog at 03/31/2025, includes six large mining shovels. Inventory decreased $15,200,000 compared to Q4 of twenty twenty four due primarily to lower inventory in most categories, driven largely by the corporation’s focus on managing inventory levels. Inventory at 03/31/2025, included one additional large mining shovel compared to 12/31/2024. Management continues to focus on reducing and managing the corporation’s inventory levels with the focus on optimizing inventory levels and mix while matching them with business volumes and maintaining fill rates at appropriate levels. Ongoing inventory reduction initiatives have decreased inventory by $91,500,000 from peak levels at 03/31/2024.

Inventory decreased $91,500,000 compared to Q1 of twenty twenty four, due primarily from lower equipment inventory in the construction and forestry and material handling categories, lower rental option equipment and lower industrial parts and ERS inventory. Please turn to Slide 13, where I’ll provide an update on cash flow, leverage and working capital. Cash flows generated from operating activities in the current quarter of $31,400,000 compared with cash flows used in operating activities of $7,300,000 in the same quarter of the prior year. The increase in cash generated of $38,700,000 was mainly attributable to a decrease in inventory and income taxes received in the current quarter compared to income taxes paid in the same quarter of the prior year. This increase was offset partially by an increase in accounts payable and accrued liabilities and an increase in accounts receivable.

Our Q1 leverage ratio decreased to 2.53 times from 2.61 times in Q4 due to lower debt levels driven largely by cash generated from operating activities during the quarter and higher trailing twelve month pro form a adjusted EBITDA. The corporation’s leverage ratio is currently outside our target range of 1.5 to two times at the end of Q1, primarily due to debt accumulated from investments in working capital and acquisitions over recent years. Management is working towards getting leverage back within its target range. Our available credit capacity at the end of Q1 was $171,100,000 which is sufficient to meet short term normal course working capital and maintenance capital requirements and fund our planned strategic initiatives. We continue to focus on working capital efficiency, which is a key component in managing our overall leverage targets.

The Q1 working capital efficiency was 25.5%, an improvement of 50 basis points from 12/31/2024 due to higher trailing twelve month revenue. On 01/15/2025, Wajax announced the repayment in full of the 57,000,000 in principal amount owed under its 6% senior unsecured debentures due 01/15/2025, along with accrued interest up to but excluding the maturity date. The corporation’s existing bank credit facility was used to complete the repayment. Finally, the Board has approved a second quarter twenty twenty five dividend of $0.35 per share payable on 07/03/2025 to shareholders of record on 06/16/2025. Please turn to Slide 14.

And at this point, I will turn it back to turn the call back to Iggy.

Iggy, CEO/Senior Executive, Wajax: Thank you, Tania. Our outlook is summarized on Slide number 14. In the first quarter of twenty twenty five, Wajax delivered revenue of 555,000,000, up 72,600,000.0 or 15.1% from the first quarter of twenty twenty four. The year over year increase in revenue was primarily due to higher equipment sales in the construction and forestry category across all regions and higher mining equipment sales, including the delivery of two large mining shovels in the quarter. Gross profit margin decreased to 19.1% in the first quarter of twenty twenty five versus 22% in the first quarter of twenty twenty four and increased sequentially from 17.1% in the fourth quarter of twenty twenty four.

The decrease in margin was driven primarily by lower margins realized on equipment, industrial parts and ERS revenue. Excluding the unrealized losses and gains on total return swaps in both periods, selling and administrative expenses as a percentage of revenue decreased to 14.1% in the quarter from 16.7% in the same period of 2024. In response to increased competitive and market pressures, management continues to be focused on several cost saving and margin improvement initiatives. Looking ahead to the balance of 2025, we continue to see strong customer demand in the mining and energy sectors, with the former supported by robust backlog. Headwinds are expected to persist, with broader market conditions remaining soft and continued uncertainty surrounding tariffs and counter tariffs on Canada U.

S. Trade and management is closely monitoring changes to tariff policies. Amid this backdrop, management remains focused on advancing the corporation’s six strategic priorities which will continue to position the business for future success and as additional focus areas management is continuing to execute initiatives to reduce inventory, lower costs and improve margins. I will now turn it back to the operator and open the line for questions.

Conference Operator: Thank you, ladies and gentlemen. We will begin the question and answer session. Should you have a question, please press star followed by one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2.

If you’re on speakerphone, please lift the handset before pressing any keys. First question comes from the line of Devin Dodge with BMO Capital Markets.

Devin Dodge, Analyst, BMO Capital Markets: Hey, on gross margins, they improved pretty meaningfully in Q1 on a sequential basis despite both quarters having some large mining shovels flowing through the P and L. Just wondering if you could speak to the puts and takes that impacted gross margins relative to Q4 and if you think the gross margin performance in Q1 was more reflective of what we should see for the rest of the year.

Iggy, CEO/Senior Executive, Wajax: Thanks, Devin. Good question. You know, we we we saw some good improvements in product support margins, largely driven by internal margin initiatives. And and and we have been working pretty hard inside the company on a number of margin and pricing improvements. So I think we’re we’re just starting to see some of those coming to fruition, which is great to see.

Devin Dodge, Analyst, BMO Capital Markets: Okay. Good. Good to hear. Okay. So inventories, good to see continued progress in bringing them lower in what is typically a seasonal buildup period.

I also believe you mentioned there was an additional mining shovel sitting in inventory. So it seemed like the drawdown was actually even a little bit better. But just based on your outlook, do you expect to continue on that pace of inventory reduction of around $25,000,000 a quarter? And is this primarily about drawing down inventories to realign with expected demand? Or are there more structural improvements being made to improve efficiency and inventory velocity?

Iggy, CEO/Senior Executive, Wajax: Yeah. I I I would say the answer is both. So over the last year, you know, we brought inventory down 91,000,000. And as you mentioned in the last quarter, it was a little bit more just because of the change in mining shovels. So it has been coming down about 25,000,000 a quarter, not not exactly 25,000,000 a quarter, but that’s a a reasonable run rate.

And we and we still plan to continue moving ahead. We think that’s a good pace. It’s never exactly that number, but we think that’s a a good pace for a little while to continue to bring back our inventory into line with our current business volumes. We also are working hard behind the scenes on a number of inventory improvements from ordering better, managing our turns better, and now that we have our ERP rolled out to 90% of our company, we’re we’re trying to use that a little bit better to to manage inventory. So, yeah, I I think it’s it’s it’s really both.

We’re we’re still bringing it down, and and we are making improvements in in how we manage things. And and keep in mind, our, you know, our our largest piece of inventory is Hitachi, and, it it’s been three years since we’ve been dealing with Hitachi Direct, and so we’re we’re just figuring out how to do that better.

Devin Dodge, Analyst, BMO Capital Markets: Okay. Got it. Okay. And then just one last one. I was just sticking with the Hitachi, theme there.

Just any update on the evaluation of expanding into ultra class mining trucks, with Hitachi?

Iggy, CEO/Senior Executive, Wajax: No meaningful updates at this time, Devin.

Devin Dodge, Analyst, BMO Capital Markets: Okay, got it. Thank you. I’ll turn it over.

Conference Operator: Your next question comes from Patrick Sullivan with TD Cowen. Please go ahead.

Patrick Sullivan, Analyst, TD Cowen: Good afternoon. Thanks for taking my questions.

Iggy, CEO/Senior Executive, Wajax: Hi, Patrick.

Patrick Sullivan, Analyst, TD Cowen: The the IPERS were were both down slightly. I know we’ve we’ve had a few abnormal years here in terms of supply chain and demand and things like that. But I guess, are we getting back to a point where you would start to see more typical seasonality in businesses like this? And I’m kind of thinking that maybe you see a bit of an uptick in the spring and the fall around turnaround activity. Is is that something that could could take shape?

Iggy, CEO/Senior Executive, Wajax: Yeah, Patrick. I think that’s a good way to think about it. You know, we’ve we’ve had some scaling back in that business. It’s just it the market outlook is still generally soft in in industrials. A lot of customers who are exposed to tariffs in any way are you know, they’ve they’ve hit the pause button on the capital portion of our IP and ERS spend.

The maintenance spend is still continuing on, but in light of, you know, impact to their business and to their revenues, they’re pausing. And and some of the costs have been going up too. And so our customers are, you know, they’re price sensitive, they’re always price sensitive, so they’re they’re shopping it around a little bit more and that’s adding time to the buying process as well. So it feels like we’re getting back a little bit to normal, but it in in terms of seasonality, but the the market is still it’s still a bit soft.

Patrick Sullivan, Analyst, TD Cowen: Okay. Got it. Great. Thank you. For the Hitachi financing program was was highlighted as a a big driver of new equipment sales.

That would have been in place for the prior three full quarters. So I guess was was there a bit of an onboarding or, like, ramp up period where you you kinda really got it clicking right now?

Iggy, CEO/Senior Executive, Wajax: I wouldn’t say so. I mean, I mean, there there was an onboarding and ramp up period, but it happened pretty quick. So if you recall, we were a little bit late to the game on the 0% financing programs, and then it was put into place March 1, and, you know, so I wanna say the ramp up was a month or two. But beyond that, there hasn’t been any really meaningful change in the programs. I think our our teams just did a great job this quarter.

Patrick Sullivan, Analyst, TD Cowen: Okay. Great. If I could do one more. So I guess two shovels were delivered this quarter. I think, typically, you kinda gave the cadence of about one per quarter for the year.

I guess, does that change your your views on deliveries for the rest of the year?

Tanya, Presenter/Financial Officer, Wajax: Hi, Patrick. No. It does or it doesn’t change our view. We still expect two to be, sorry, three to be delivered for the balance of the year, one per quarter. And then we we do have two, in 2026 and one in 2027 as previously stated.

The second one that, we called out this quarter was actually on RPO, so just a conversion.

Conference Operator: Great. Thank you. Again, if you have any question, please press star one on your touch tone phone. Next question comes from Jonathan Goldman with Scotiabank.

Jonathan Goldman, Analyst, Scotiabank: Hi, team. Thanks for taking my questions. Really nice results on the top line. Good afternoon, guys. So really nice results on the top line, but it does seem to contrast with some of the pure results and commentary from OEMs about uncertainty and customers pulling back on spending.

I mean your own outlook seems largely unchanged, and I note that headwinds are expected to persist with broader market conditions remaining soft and continued uncertainty. It doesn’t seem like that was the case in the quarter. So I’m just trying to parse out the puts and takes there.

Iggy, CEO/Senior Executive, Wajax: Yes. So I I guess maybe just going through, maybe I’ll talk about it in terms of market segments and then our business segments. So in terms of market segments, we’re still seeing things pretty strong in mining, pretty strong in energy. I think there is a few question marks around energy, know, OPEC’s ramping up production, there is continued, you know, you know, threats and challenges with The US. So we so so I think that’s that’s a negative.

But we’ve got a new new government elected, so there’s a little bit less uncertainty there now. And, you know, our our prime minister is meeting with US president today, and energy is, I think, certainly on the agenda. And and there is talk of energy corridors and and some positivity around energy in Canada. So there’s I I think the our our oil and gas customers are uncertain, but we haven’t seen any real pauses there. So we’re that that that’s still a a business segment that’s doing pretty well for us.

Forestry is is doing okay, but industrials are are down a bit and construction had a had a reasonable quarter for us. I think, you know, a couple things that happened this quarter that were quite good for us is we just had a strong quarter for construction. Hitachi remains aggressive in going after customers with us and their financing programs, so that was good, I think our teams did a great job there. And and we had two mining shovels shipped in the quarter, which which, you know, that’s that’s always a nice bonus. Mhmm.

IP and ERS, while they’re down year over year, quarter over quarter, they’re up a little bit, which which was also also good to see. And and then product support, we were we were pretty happy with that one. We’re up 9% year over year. We’re up court we’re up up quarter over quarter the last two quarters. So we’re starting to see some positive momentum there.

So we’re happy with where product support is going.

Jonathan Goldman, Analyst, Scotiabank: That’s good color. Maybe if I can just maybe put a finer point on it. Mean, typically, Q1 is a seasonally weaker quarter. I’m just wondering if there’s any unique dynamics in Q1, any pull forward. Typically, Q1 is less than 25% of sales and even less of EBITDA.

Are you expecting this year to follow typical seasonal patterns? Or how should we think about the cadence of earnings growth for the balance of the year?

Iggy, CEO/Senior Executive, Wajax: Yeah. We we we thought q one was pretty good in terms of top line. We we do expect maybe I’ll say that we we don’t see anything that would disrupt the typical seasonality that we would see in a year. So q two for us is typically a good quarter for construction just because it’s spring and people are getting all their gear ready and there’s turnaround. So so we we would expect that revenue would be reasonable in q two, but it’s but we’re we’re not expecting, you know, an exceptionally great quarter or great year based on anything that’s going on in the economy.

There’s nothing to point to that.

Jonathan Goldman, Analyst, Scotiabank: That’s understandable. And if I could squeeze one more in. Do you have a timeline to deleveraging within the target range?

Tanya, Presenter/Financial Officer, Wajax: Not one that we have disclosed. No.

Conference Operator: K. Fair enough. Thanks for taking my questions.

Iggy, CEO/Senior Executive, Wajax: Jonathan.

Conference Operator: There are no further questions. Please continue.

Iggy, CEO/Senior Executive, Wajax: Thank you, operator. Thank you, everyone, for joining today, and thank you for your continued interest in Wajax. Have a wonderful afternoon.

Conference Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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