Earnings call transcript: Wajax Q2 2025 sees earnings beat, stock dips

Wajax Corporation reported its second-quarter 2025 financial results, showcasing a notable earnings per share (EPS) beat, despite a decline in revenue compared to forecasts. The company achieved an EPS of $0.75, surpassing the predicted $0.6825, marking a 9.89% surprise. However, revenue fell short at $547.1 million against an anticipated $575.58 million, representing a -4.95% surprise. Following the announcement, Wajax’s stock experienced a 5.29% drop in after-hours trading, closing at $23.14. According to InvestingPro data, the company maintains a healthy financial profile with a "Good" overall health score and has consistently paid dividends for 22 consecutive years.

Key Takeaways

• Wajax’s EPS exceeded expectations by 9.89%.
• Revenue decreased by 3.7% year-over-year, missing forecasts.
• Stock price decreased by 5.29% following the earnings release.
• Cash flow from operations improved significantly.

Company Performance

Wajax Corporation’s Q2 2025 results reflected mixed performance. While the company managed to exceed EPS expectations, its revenue faced a decline of 3.7% year-over-year. This was largely attributed to challenges in the construction and forestry sectors, which impacted overall sales. Despite these hurdles, Wajax maintained a strong presence across its 110 branches and continued to optimize inventory and improve margins.

Financial Highlights

• Revenue: $547.1 million, down 3.7% year-over-year
• Earnings per share: $0.75, a 9.89% surprise above forecast
• Gross profit margin: 19.1%, down 180 basis points from last year
• Adjusted EBITDA: $44.7 million, a decrease of 18.3%
• Cash flow from operations: $67.4 million, up from $35.8 million in 2024

Earnings vs. Forecast

Wajax’s actual EPS of $0.75 surpassed the forecasted $0.6825, resulting in a positive surprise of 9.89%. In contrast, revenue fell short, reaching $547.1 million compared to the expected $575.58 million, a negative surprise of -4.95%. This mixed outcome highlights the company’s ability to manage costs effectively, even as sales lagged.

Market Reaction

Despite the positive EPS surprise, Wajax’s stock fell by 5.29% in after-hours trading, closing at $23.14. This decline may reflect investor concerns over the revenue miss and broader market trends affecting the industrial sector. The stock remains within its 52-week range, with a high of $26.20 and a low of $15.55. InvestingPro analysis suggests the stock is currently undervalued, with strong fundamentals including a current ratio of 2.16, indicating solid liquidity. The company’s market capitalization stands at $347 million, with the stock showing relatively low price volatility compared to peers.

Outlook & Guidance

Looking ahead, Wajax is focused on optimizing inventory, managing costs, and improving margins. The company aims to bring its leverage ratio within the target range of 1.5 to 2.0 times, down from the current 2.35. With an available credit capacity of $220.2 million, Wajax is well-positioned to navigate future challenges. The company’s strong financial position is reflected in its Good financial health score from InvestingPro, which analyzes over 100 financial metrics to provide comprehensive company assessments.

Executive Commentary

CEO Iggy Domagalski emphasized the company’s strategy, stating, "Management believes that strong performance in these areas of focus supported by prudent capital allocation and a solid balance sheet will enable Wajax to generate sustainable long-term value." CFO Tanya Cassadino added, "We continue to be committed to getting that leverage back within the target range."

Risks and Challenges

• Macroeconomic pressures, particularly in the construction and forestry sectors.
• Ongoing uncertainty regarding Canada-U.S. tariff dynamics.
• Need for continued inventory optimization and cost management.
• Potential fluctuations in customer demand within the mining and energy sectors.

Q&A

During the earnings call, analysts inquired about the impact of inventory reduction on sales, to which management responded that it was not materially significant. Questions also focused on the potential stabilization of gross margins and the company’s approach to managing leverage within the target range.

Full transcript - Wajax Corporation (WJX) Q2 2025:

Conference Operator: Thank you for attending Wajax Corporation’s twenty twenty five Second Quarter Financial Results Webcast. On today’s webcast will be Mr. Iggy Domagalski, President and Chief Executive Officer Ms. Tanya Cassadino, Chief Financial Officer. Please be advised that this webcast is being recorded.

Please note that this webcast contains forward looking statements. Actual future results may differ from expected results. I will now turn the conference over to Tanya Cassadino. Please go ahead.

Tanya Cassadino, Chief Financial Officer, Wajax Corporation: Thank you, operator. Good afternoon and thank you for participating in our second quarter results call. This afternoon, we will be following a webcast, which includes a summary presentation of Wajax’s Q2 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 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 Iggy.

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Thank you, Tanya. To start, I will provide highlights on our second quarter before turning it back to Tanya for commentary on backlog, inventory and the balance sheet. And this slide provides an overview of Wajax. The corporation has one hundred and sixty seven years of Canadian operating history and operates across 110 branches with a team of approximately 2,900 employees. During the quarter, our heavy equipment categories and revenue sources made up approximately 59 of our total revenue, while industrial products and ERS generated approximately 41%.

Turning to Slide five. This slide provides an overview of our purpose and values. WageAx’s purpose statement is empowering people build a better tomorrow, which we strive to achieve by living our values and delivering an exceptional experience for our shareholders, customers, suppliers, our people, communities we serve. Our purpose and values guide our decision making and allow us to execute on our strategic priorities. Please turn to slide six.

This slide provides an overview of our strategic priorities which have been refined for 2025. Management is focused on executing against these priorities as well as optimizing inventory, managing costs and improving margins. To our purpose and value in these priorities management believes that this will enable Wajax to generate sustainable long term value, capitalize on future opportunities. Turning to slide seven. In the second quarter management focus on key strategic priorities resulted in strong cash flow and improved leverage due to inventory optimization and cost discipline despite lower revenues and year over year margin compression.

Revenue of 5 and $47,100,000 decreased $21,200,000 or 3.7% in the quarter. The decrease resulted primarily from increased market pressures attributing to lower product support sales in all regions, lower industrial part sales in Western And Eastern Canada and lower equipment sales in Eastern Canada offset partially by higher mining sales in Western Canada, including the delivery of a large mining shovel in the 2025 with no such delivery in the second quarter of the prior year. Gross profit margin of 19.1% decreased 180 basis points compared to the same period of 2024. It remained flat sequentially versus the 2025 and increased over 200 basis points from 17.1% in the 2024. The year over year decrease was driven primarily by reduced margins realized on equipment, industrial parts and ERS revenue due to increased market pressures offset partially by higher product support margins given management’s focus on margin improvement initiatives in this area of the business.

Excluding the unrealized gains and losses on total return swaps in both periods, selling and administrative expenses as a percentage of revenue decreased to 13.8% in the 2025 from 13.9% in the 2024, primarily due to lower spending on personnel, travel and entertainment and supplies and marketing driven by ongoing cost savings initiatives. Adjusted EBITDA of $44,700,000 decreased $10,000,000 or 18.3% from the 2024 noting the adjustments recorded on this chart. The decrease resulted primarily from lower gross profit margin and lower sales volume offset primarily by cost savings initiatives. Adjusted EBITDA margin of 8.2% in the 2025 improved from 7.8% in the 2025 and six point two percent in the 2024. Adjusted net earnings of $0.77 per share decreased 27.4% or $0.29 per share from the 2024 noting the adjustments recorded on this chart.

At the end of Q2, the TRIF rate was 1.02, an increase of 26% from the 2024. The second quarter TRIF was down 22% from the 2020 Safety continues to be Wajax’s number one priority and management is committed to continuously improving our safety programs to improve on this result. We thank everyone on our team for their ongoing dedication to workplace safety. Turning to Slide eight. Revenue decrease of 3.7% in the second quarter resulted from lower revenue in Central And Eastern regions due to market conditions offset partially by growth in Western Canada.

Western Canada sales of two forty nine million dollars increased 3.7% in the quarter due primarily to higher mining equipment sales including the delivery of a large mining shovel in the 2025 with no such delivery in the second quarter of the prior year. This increase was partially offset by reduced equipment and product support sales in the construction and forestry category. Central Canada sales of $95,000,000 decreased 1.3% in the quarter due primarily to lower equipment and product support revenue in the material handling category. And Eastern Canada sales of $2.00 $2,000,000 decreased 12.5% in the quarter due primarily to lower equipment sales in the construction and forestry and power systems categories and reduced industrial parts and ERS 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 $177,000,000 decreased $4,000,000 or 2% compared to last year due to lower sales in most categories, but most notably in construction and forestry offset partially by higher mining sales in Western Canada driven by the delivery of a large mining shovel in the second quarter with no such delivery in the second quarter of the prior year. Product support sales of $133,000,000 decreased $11,000,000 or 8% compared to last year due primarily to lower construction and forestry and power system sales in Western Canada, lower mining sales in Eastern Canada and lower material handling revenue in Central Canada. 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 $141,000,000 decreased $6,000,000 or 4% due primarily to lower sales in Western And Eastern Canada driven by softer market conditions. ERS sales of approximately $84,000,000 decreased $1,000,000 or 1%. Turning to Slide 11. The slide summarizes sales at a category level for our company’s overall groupings of heavy equipment and industrial parts and service. In the second quarter, the heavy equipment categories decreased $14,000,000 or 4% due to lower sales in most categories, but most notably in construction and forestry offset partially by higher mining sales in Western Canada including the delivery of a large mining shovel in the 2025 with no such delivery in the second quarter of the prior year.

The industrial parts and services categories decreased $7,000,000 or 3% driven by lower industrial parts sales and ERS sales in Western Canada and Eastern Canada. I’ll now turn it over to Tanya for commentary on backlog, inventory and the balance sheet.

Tanya Cassadino, Chief Financial Officer, Wajax Corporation: Thank you, Iggy. Please turn to slide 12 for my comments on backlog and inventory. Our Q2 backlog of 5 and $24,300,000 decreased $37,000,000 compared to backlog of $561,300,000 at Q1 and decreased $20,600,000 on a year over year basis. The sequential decrease was due primarily to lower construction and forestry orders and lower mining backlog driven largely by the sale of a large mining shovel in the quarter which was in backlog as of 03/31/2025. These decreases were partially offset by higher ERS orders.

The year over year decrease was due primarily to lower material handling and industrial parts orders. This was partially offset by higher construction and forestry and mining orders. Backlog at 06/30/2025 includes five large mining shovels. Inventory decreased $56,000,000 compared to 2025 due primarily to lower inventory in most categories driven largely by the corporation’s continued focus on optimizing inventory levels. Ongoing inventory reduction initiatives have decreased inventory by $147,500,000 from peak levels at 03/31/2024.

Inventory decreased 122,300,000 compared to Q2 twenty twenty four. The year over year decline is mainly attributed to lower equipment inventory in construction and forestry and material handling categories, lower rental option equipment, industrial parts and ERS inventory. Management continues to focus on reducing and managing the corporation’s inventory levels and mix, while matching them to business volumes and maintaining fill rates at appropriate levels. 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 $67,400,000 compared with cash flows generated from operating activities of $35,800,000 in the same quarter of the prior year.

The increase in cash generated of $31,500,000 was mainly attributable to a decrease in inventory as the corporation continued to optimize inventory levels during the quarter and a decrease in trade and other receivables. Our Q2 leverage ratio improved to 2.35 times from 2.53 times in Q1 due to lower debt levels largely driven largely by cash generated from operating activities during the quarter. The corporation’s leverage ratio is currently outside our target range of 1.5 to two times at the end of Q2, primarily due to debt accumulated from investments in working capital and acquisitions over recent years. Management remains committed to getting leverage back within its target range. Our available credit capacity at the end of Q2 of 220,200,000.0 which is sufficient to meet short term normal course working capital and maintenance capital requirements and fund our planned strategic initiatives.

We continue focused on working capital efficiencies, which is a key component of managing our overall leverage targets. The Q2 working capital efficiency was 25.7%, a slight decline in efficiency of 20 basis points from 25.5% at 03/31/2025 due to lower twelve month trailing revenue. Inventory turns of 2.2 times are flat to Q1 twenty twenty five, but have improved from 2.2 times or two turns since 2024. Finally, the Board has approved our third quarter twenty twenty five dividend of $0.35 per share payable on 10/02/2025 to shareholders of record on 09/15/2025. Please turn to slide 14 and at this point I’ll turn the call back to Iggy.

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Thanks Tanya. Our outlook is summarized here on slide 14. During the 2025 Wajax delivered revenue of 5 and 47,100,000.0 down $21,200,000 or 3.7% from the 2024. The year over year decrease in revenue was due primarily to lower equipment sales in the construction and forestry categories across all regions due largely to increased market pressures. This was partially offset by higher mining equipment sales, including the delivery of one large mining shovel with no such delivery in the 2024.

Gross profit margin of 19.1% decreased from 20.9% in the same period of 2024, remained flat versus the 2025 and increased by 200 basis points from 17.1% in the 2024. The year over year margin compression was primarily driven by lower realized margins across equipment, industrial parts and ERS revenue. This was partially offset by stronger product support performance given management’s focus on margin improvement initiatives in this area of the business. Selling and administrative expenses excluding unrealized gains and losses on total return swaps decreased to 13.8% of revenue in the 2025 from 13.9% in the same period of 2024. This improvement reflects ongoing discipline and cost control and operational efficiency.

As of 06/30/2025, Corporation’s backlog stood at $524,300,000 a decline of $37,000,000 or 6.6% compared to 03/31/2025. This reduction was driven by lower construction and forestry orders and a decrease in mining backlog following the sale of a large mining shovel during the quarter. Despite the decline, backlog remains robust and includes five large mining shovels scheduled for delivery over the next seven quarters. Inventory optimization continued throughout resulting in total inventory of $602,500,000 as at 06/30/2025, a reduction of $56,000,000 from the first quarter of twenty twenty five and a reduction of $147,500,000 from the peak in March 2024. This ongoing discipline in inventory management drove a significant improvement in cash flow from operations, which increased to $67,400,000 in the second quarter compared with $35,800,000 in the same period last year.

Corporation’s leverage ratio improved to 2.35 times at 06/30/2025 from 2.53 times at 03/31/2025. This progress reflects the Corporation’s ongoing focus on reducing debt and optimizing working capital. Looking ahead to the 2025, Wajax continues to see strong customer demand in the mining and energy sectors with the former supported by robust equipment backlog. The broader end market environment remains challenging with macroeconomic softness and ongoing uncertainty related to Canada U. S.

Tariff dynamics. In this environment, management remains sharply focused on optimizing inventory, managing costs and improving margins. Management believes that strong performance in these areas of focus supported by prudent capital allocation and a solid balance sheet will enable Wajax to generate sustainable long term value, capitalize on future opportunities. I’ll now turn it back to the operator and open the line for questions.

Conference Operator: Thank you, sir. And your first question will be from Devin Dodge at BMO Capital Markets. Please go ahead, Devin.

Devin Dodge, Analyst, BMO Capital Markets: Thank you. Good afternoon, guys.

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Hey, Devin.

Devin Dodge, Analyst, BMO Capital Markets: We saw that ERS revenues improved sequentially. I think it was mentioned that order intake was higher in Q2. Do you guys sense that customers are at least at the margin more willing to invest in some discretionary projects? Or does the pickup in orders more reflect just the timing of maintenance type activities?

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: I would say generally it’s maintenance type activities. Most of our industrial products and ERS customers still have a pretty big pause on any capital project. And we’re hopeful that some clarity around tariffs will allow them to release those purse strings. But at the moment, most of the spend is MRO related.

Devin Dodge, Analyst, BMO Capital Markets: Okay. And has that order intake momentum in ERS, is that carried over into early Q3?

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: I think when we look at ERS, quarter year over year for the quarter, it was down 1%. If you look at the first six months versus the same six month period the last year, it’s down 2%. So it’s pretty flat. We haven’t seen and kind of going into going past Q2, we haven’t seen any really material changes in customer activity this summer really in any of our categories.

Devin Dodge, Analyst, BMO Capital Markets: Okay. Okay. Fair enough. Okay. I believe cash flows this quarter, I think it actually was a record Q2 performance for the business.

So congrats for that. Just wondering if we should be expecting working capital to continue to be a source of funds in the second half of the year or should it be more neutral?

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: I think for AR and AP that’s always moving around. And inventory has been a pretty large driver of our improved cash flow along with decent earnings. And I would say that we’re quite pleased with our progress on inventory. In the last five quarters, we brought inventory down $147,000,000 which is something that I think our team is proud of. We still think there’s some opportunities to continue to improve on our inventory, but we’re pretty happy with the big lift that we’ve already done.

Devin Dodge, Analyst, BMO Capital Markets: Yes. That’s obviously been a big focus for you and the team here. Lots of progress there. How do you ensure you don’t draw down inventory too much where it could start to constrain revenue opportunities?

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes, I think as we look forward there’s really good opportunity for us to optimize inventory and improve our turns. And that’s through just a number of internal initiatives from where we place inventory to how we utilize our distribution centers. But yes, we feel pretty confident that our inventory reduction activities have not impacted sales materially.

Devin Dodge, Analyst, BMO Capital Markets: Okay. Thanks for that. I’ll turn it over.

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Thanks, Devin.

Conference Operator: Next question will be from Patrick Sullivan at TD Cowen. Please go ahead, Patrick.

Patrick Sullivan, Analyst, TD Cowen: Thank you. Good afternoon.

Devin Dodge, Analyst, BMO Capital Markets: Thanks for taking my questions.

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Hi,

Devin Dodge, Analyst, BMO Capital Markets: I think the one thing I

Patrick Sullivan, Analyst, TD Cowen: was curious about was so I guess equipment sales were down slightly. That’s with the benefit of a large mining shovel going out that didn’t occur a year ago. I’m guessing I’m wondering with that inventory coming down, equipment sales being a bit flat, how much of the decrease is in price versus volume? So if there’s anything you can share there, like did you sell a lot of equipment but is that lower price than you would have been a year ago and that’s kind of a bit of a gap?

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: We haven’t seen huge decreases in price. So there’s any discounting that we’ve seen in the business is not material enough to drive decreases in the volume. So I would just say that Q2 was generally lower on equipment sales and we that’s really the answer. It was just a slower equipment sales quarter.

Patrick Sullivan, Analyst, TD Cowen: Okay. No problem. Understood. And then I guess gross margins kind of stabilized quarter over quarter. Do you think that they’ve kind of found a bit of a normalization point with respect to equipment IP and ERS?

And then can you they edge up from here? Is there more that can be captured on the product support side?

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Yes. So a few comments on the gross profit margins. We’ve been working hard to improve the margins. Q4 was a low point for us at 17% and we have improved about 200 basis points since then. We’ve seen quite meaningful progress in our service operations margins, which is great, something our team is proud of.

And we continue to have a lot of margin improvement initiatives that we think will pay off in the rest of the year and beyond that. All that said, there could be some of that partially offset by the mix in the second half of the year, especially given that we have two or maybe three shovels delivering in the 2025.

Patrick Sullivan, Analyst, TD Cowen: Okay, great. Appreciate that and the little bit of insight on the shovel delivery potential. And then I guess the other thing, another margin related one, guess, the SG and A as a percentage of revenue is 13.8% on an adjusted basis. I mean, the guidance kind of non guidance, I think, in recent history has been 14.5% to 15.5% of revenue on an annual basis. So I guess, have you guys kind of moved the goalposts a bit lower in terms of what you think you can kind of comfortably operate out on the expense side?

Or are you kind of happy with where margins are right now?

Tanya Cassadino, Chief Financial Officer, Wajax Corporation: Hi Patrick, I’ll take that one. Are generally pleased we’re generally pleased with the progress we’ve made to date. We’ve been managing our costs quite well and that included a number of headcount reductions which we believe are now generally complete. We are continuing to focus on opportunities around costs but we do feel that it’s at a probably sustainable level at this point given the volume. So that would probably be a good range or the year to date percentage relative to revenue would probably be a good range for now.

Patrick Sullivan, Analyst, TD Cowen: Okay, great. Thanks. I’ll turn it back.

Conference Operator: Thank you. And your next question is from Jonathan Goldman at Scotiabank. Please go ahead.

Jonathan Goldman, Analyst, Scotiabank: Hi, good afternoon team. Thanks for taking my questions.

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Hey Jonathan.

Jonathan Goldman, Analyst, Scotiabank: So just a little bit of softness on the Product Support and the Industrial Parts. I was wondering if you can maybe discuss some of the dynamics there. And obviously, you go through it in the disclosures and you’ve talked about it in the prepared remarks. But just how should we think about the outlook for Product Support Industrial Parts for the balance of the year? And if you could specifically focus on the construction end markets, what you’re seeing?

Did things get worse in the quarter, stayed the same? And how do you view that evolving through the balance of the year?

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Sure. So a few pieces there, maybe I’ll just touch on the construction piece first. As noted, equipment sales were down a little bit year over year for the quarter. We also had a pretty strong comp in 2024. So that’s one thing to keep in mind.

Generally, we haven’t seen too big of a change in customer behaviors other than just pausing because they don’t know what’s happening with the tariffs. That’s what we’re seeing in our markets. When we look at product support for the quarter, we were down about eight percent over the previous year. Eastern Canada was slower and also our the parts business component of our product support business was a little bit slower. But I think if you look at that product support business for the first six months of the year versus the same six month period last year, we’re pretty flat.

So even our product support business can be a little bit lumpy on occasion and we think that’s what’s happened here. So we’re compared to last year, we think it’s pretty flat. And then when we’re talking about our IP and ERS customers, we’re just seeing our customers shopping around a little bit more. So everyone’s had to sharpen their pencil a little bit. Their capital spend is down, so it’s mostly on maintenance.

And if you look around at our competitors, the ones who post publicly and the ones that don’t where we have some insights, we’re seeing that most of them are down too.

Jonathan Goldman, Analyst, Scotiabank: Interesting. Thanks for the color. And again, this was brought up before the nice cash generation in the quarter and the unwind of inventory. Leverage is coming down, but how are you thinking about a timeline to getting back within the target range?

Tanya Cassadino, Chief Financial Officer, Wajax Corporation: Hi Jonathan. Yes, we’re quite pleased with the progress that we’ve been making over the last couple of quarters and seeing that progressively come down. We continue to be committed to getting that leverage back within the target range and operating within it. We haven’t disclosed the timeline but I’ll just leave

Jonathan Goldman, Analyst, Scotiabank: it at that. Okay, fair enough. Thanks for taking my questions. Thank you.

Conference Operator: Thank you. And at this time, I would like to turn the call back over to our speakers.

Iggy Domagalski, President and Chief Executive Officer, Wajax Corporation: Thank you, operator, and thanks to all our callers for your continued interest in Wajax. Have a great day.

Conference Operator: Thank you, sir. Ladies and gentlemen, this does conclude our conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

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