Exco Technologies Q2 2026 Earnings Call: Complete Transcript

On Thursday, Exco Technologies (TSX:XTC) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/. The full earnings call is available at https://edge.media-server.com/mmc/p/7xw8y4gn/ Summary Exco Technologies reported a decrease in second-quarter sales to $157.6 million, down 5% year-over-year, impacted by foreign exchange headwinds. Automotive Solutions segment experienced stable vehicle production levels and new program launches, but faced cost pressures from rising oil prices and customer cost reduction requests. The company is optimistic about the second half of fiscal 2026 due to a rebuilt large mold backlog, strong extrusion tooling demand, and innovative initiatives in additive manufacturing and energy diversification. Full Transcript OPERATOR Good day and thank you for standing by. Welcome to Exco Technologies Ltd. Second Quarter Results 2026 Conference Call at this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press Star one one on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Darren Kirk, President and CEO. Please go ahead. Darren Kirk (President and CEO) Thank you Kevin and good morning to everyone joining us. Welcome to Exco Technologies Fiscal 2026 Second Quarter Conference Call. I'll begin today with an overview of our operations and strategic progress in the quarter. I'll then turn the call over to Matthew Pozno, our CFO to walk through the financial details. Afterwards, I'll return to discuss our outlook before opening the call for your questions. Before we proceed, I'd like to remind everyone that our discussion today contains forward looking information. I'd ask that you refer to the cautionary notes included in yesterday's news release and in our continuous disclosure filings, all of which apply to today's discussion. Turning to the Quarter Our second quarter results were affected by temporary softness in large mold volumes, restructuring actions and foreign exchange headwinds. That said, we are encouraged by the underlying momentum building across the business. Large mold order activity and backlog continue to build and we expect sales and profitability in this business to recover in future quarters as new programs ramp up. At the same time, our Automotive Solutions segment continues to benefit from recent program launches. Extrusion tooling demand remains solid and our recent investment in innovation initiatives are increasingly well positioned to contribute to stronger margins and earnings growth. Let me walk through each segment, starting with Automotive Solutions. The Automotive Solutions segment delivered another solid quarter. The industry backdrop was modestly softer. Year over year, North American light vehicle Production was down approximately 2% and Europe was down 1%, but underlying market conditions remained constructive. The US seasonally adjusted annual rate of sales reached 16.3 million units in March. Dealer inventories remain below pre pandemic levels, vehicle fleets continue to age and OEM incentive activity continues to pick up. Against that backdrop, our Automotive Solutions segment sales were up meaningfully on a constant currency basis, outperforming the broader industry. We benefited from a favorable vehicle mix, contributions from recent program launches, and continued progress in developing new accessory products and expanding our content per vehicle with both existing and new customers across North America and Europe. We're keeping a close eye on cost pressures within this segment. The recent rise in oil prices driven by ongoing geopolitical tensions in the Middle East is starting to work its way through our supply chain in the form of higher polymer thread, yarn and resin costs as well. Customer cost down requests have returned after a relatively quiet period. Nonetheless, we continue to take pricing action where feasible, particularly on new program awards and and we remain focused on lean manufacturing and automation initiatives to mitigate inflationary pressures and structural labor cost increases. Quoting activity remains healthy and we believe there are meaningful opportunities to advance our long term growth objectives, particularly with our innovative products product development efforts which continue to win new business and expand penetration on key vehicle platforms. Turning to cast and extrusion the segment's results reflect two distinct dynamics this quarter. On the large mold side, sales were materially lower year over year reflecting the software order book we've been working through. As we discussed last quarter, OEMs deferred new tooling and program launches through much of last year amid softer EV demand, evolving regulatory frameworks and tariff related uncertainty. The good news is what we previewed in Q1 has very much come to fruition. Order activity has remained exceptionally strong this quarter. Our backlog has been rebuilt meaningfully and quoting activity remains high. Given typical lead times of four to six months in this business, we expect this to translate into meaningful sequential and year over year revenue improvement in the second half of 2020 26. We are also seeing continued momentum in our additive manufacturing business where year to date sales are running ahead of expectations. Adoption of additive solutions is broadening across the die cast tooling industry as customers pursue greater manufacturing efficiency and increasingly complex tooling requirements, including the applications related to very large castings, Faster cycle times. We hold a clear leadership position here and customer engagement on additive solutions continues to grow. We're also making real progress diversifying large mold into the nuclear energy end market. We've leveraged the same precision machining equipment we use for very large sized molds to pursue opportunities in the precision machining of nuclear components for the domestic Canadian energy market Voting activity in this area is encouraging. Orders are beginning to flow and we view this as a promising area of diversification that could support incremental growth over time. On the closure of our large mold Mexico facility, the decision reflected limited growth opportunities in the domestic Mexican market for large die cast tooling components and objective of consolidating production across fewer locations. As of March 31, all employees have been notified, final customer orders have been fulfilled and equipment relocation is underway. We don't expect this closure to materially reduce our future revenue opportunities and we believe it will support a lower cost structure and improved profitability going forward. On the extrusion side, the picture remains constructive. Extrusion tooling demand was solid in both the Americas and in Europe, with end market dynamics that continue to feel quite resilient. Our North American operations had a particularly strong quarter with our Michigan facility benefiting from the completion of our heat treatment, vacuum equipment installation and several other capacity enhancing additions that are now operational. End market diversity and extrusion remains one of the most attractive features of this business. While automotive extrusion demand in North America has been somewhat soft, we are seeing strong demand from a number of other end markets, building and construction, transportation, renewable energy, electrical applications and AI infrastructure. The build out of AI data centers continues to drive demand for high precision aluminum extrusions used in heat sinks and advanced cooling solutions, and that demand vector is only accelerating as well. New extrusion press capacity is being added by domestic and foreign extruders increasingly seeking nearshore supply. In our European extrusion operations, performance continues to bifurcate. Italian operations had a strong quarter on good cocks controls and favorable overhead absorption. Our German operations remain a focus area for improvement. The German market continues to grapple with elevated energy costs and weakness in the automotive end market. Our senior leadership has been deeply engaged on the ground there and while it's been a slow grind, we are making progress on production predictability and lead time consistency in Castle sales were modestly lower year over year, primarily reflecting lower capital equipment volumes. Containers and die ovens which tend to be lumpy but are expected to pick up in our second half. Excluding restructuring charges. Castool's underlying performance was ahead of last year with margin improvement reflecting better pricing discipline and lower production input costs. Our greenfield facilities continue to mature and we are encouraged by the trajectory of these operations. Stepping Back the broader theme this quarter is that we are working through a period of transition. Our greenfield investments are maturing. Our restructuring actions are positioning us for a leaner cost structure. Our large mold backlog has been rebuilt to a level that gives us better visibility into growth for the second half, and our innovation initiatives, particularly in additive manufacturing and in the energy diversification at largemold, are opening up new avenues for profitable growth. With that, I'll turn it over to Matthew for his review of the financials. Matthew Pozno (Chief Financial Officer) Matthew thank you, Darren. Good morning, ladies and gentlemen. Consolidated sales for the second quarter ended March 31, 2026 were $157.6 million compared to 166.1 million in the same quarter last year, a decrease of $8.5 million or 5%. Foreign exchange movements reduced sales by approximately 6.9 million in the quarter. Excluding this impact, sales were down approximately 1%. Consolidated net income for the quarter was 5.8 million or $0.15 per share, compared to 6.4 million or $0.17 per share in the prior year. Quarter results in the current period included $2.4 million or $0.06 per share of after tax restructuring charges. The effective income tax rate for the quarter was 26.4% compared to 33.7% last year, reflecting the impact of geographic earnings mix and foreign tax rate differentials. Quarterly Consolidated EBITDA was $18 million representing 11.4% of sales compared to 19.7 million or 11.8% in the prior year period. Second quarter sales for the Automotive Solutions segment were $82.4 million, down half a million dollars or 1% from the prior year. Quarter. Foreign exchange reduced sales by approximately $4.5 million. Excluding this impact, sales increased approximately 5%. The segment benefited from stable vehicle production levels in North America and Europe, contributions from new program launches and favorable vehicle mix. Pre tax profit for the segment was $7 million, a decrease of $900,000 from the prior year quarter. The decline primarily reflects product mix, higher labor costs and foreign exchange impacts. Management continues to focus on lean manufacturing, automation and pricing discipline, particularly on new program awards to support future margin expansion, while near term conditions remain uncertain. Quoting Activities healthy and recent program launches are expected to support continued growth in content per vehicle. Second quarter sales for the Casting Extrusion segment were $75.1 million, down $8.1 million or 10% from the prior year. Quarter extrusion tooling demand remained solid supported by diversified end markets including construction, transportation, renewable energy and AI related infrastructure. Die cast tooling revenues declined year over year reflecting prior delays and program launches amid softer EV demand, regulatory uncertainty and tariff related considerations. However, order activity has strengthened and programs are now ramping up which is expected to support our improved performance in the second half of fiscal 2026. The segment reported pre tax profit of $3.4 million, down $1 million from last year. Results were impacted by $900,000 of incremental restructuring $800,000 of incremental restructuring costs along with lower volumes product mix and higher labor and overhead costs. Included in the restructuring cost is a $1 million accrual related to the closure of the large mold facility in Mexico. This action is expected to support improved profitability going forward. Management continues to emphasize pricing initiatives, operational efficiency, process standardization and automation. We remain confident that improving diecast demand and strong extrusion activity will support margin improvement. Corporate expenses for the quarter were $1.6 million compared to $1.4 million in the prior year quarter. The increase primarily reflects higher stock based compensation partially offset by foreign exchange gains. Cash provided by operating activities was $11.1 million compared to $8.7 million in the prior year quarter. Free cash flow for the quarter was $5.9 million, up $3.1 million from last year. Cash used for financing activities included $4 million in dividend payments and $2.5 million to repurchase shares. Under the normal course issuer bid cash used in Investing activities totaled $5.8 million, reflecting $1.7 million in growth capital expenditures and $4.1 million in maintenance capital expenditures. Following several years of elevated growth related investments, capital spending has moderated with fiscal 2026 expected at approximately $25 million. Focusing on maintenance, productivity and select growth initiatives, Exco entered the quarter with $22.5 million in cash and approximately $60 million available under its credit facility. The company remains in compliance with its financial covenants. Our balance sheet remains strong and provides flexibility to support dividends, share buybacks and strategic investments. That concludes my comments. I will now turn the call back Darren Kirk (President and CEO) to Darren for his closing remarks. Thank you, Matthew Looking Ahead the macro environment continues to be characterized by uncertainty surrounding global trade policy, including the ongoing review of the USMCA agreement and the broader geopolitical and macroeconomic backdrop. As you've all seen, the three governments are required to make a decision on USMCA by July 1st, and we've been monitoring the discussions closely. Whatever the precise form of the renewed framework, we firmly believe that products that comply with USMCA rules of origin will remain favorably positioned. Nearly all of Expo's products sold within North America comply with USMCA requirements, which we believe will be, which means we are well positioned to navigate evolving trade policy as well. Within our casting and extrusion segment, we maintain a substantial US Manufacturing footprint for both extrusion dies and large mold products, providing further flexibility should tariff policies evolve. And to the extent that the elevated tariffs on imports from non compliant jurisdictions, particularly China, persist, we believe Expo's competitive positioning relative to certain global peers should improve. We're also encouraged by the continuing reshoring momentum in North America industrial manufacturing. These trends are expected to support demand for both extrusion tooling and high pressure die cast tooling area where XCO has considerable strength. Combined with structural automotive trends and aging vehicle fleet that needs to be replaced, continued program launches and our broadening product capabilities, these factors reinforce our confidence in Hexco's long term outlook. Beyond trade policies, the diversification we've been building in casting extrusion is increasingly visible. Our die cast tooling applications have historically been used for passenger vehicles. However, we're seeing growing demand from large trucks, energy, marine and other industrial end markets. Furthermore, our large mold groups pivot into precision machining for the Canadian nuclear energy market. Leveraging the same equipment we've built up for large sized die cast molds represents an important new growth avenue. And in extrusion, the AI data center buildout remains a powerful secular tailwind. I want to close by thanking our shareholders for their continued support and our global team, approximately 4,500 colleagues across nine countries, for their hard work and dedication in navigating what continues to be a dynamic environment operator. We're now ready to take questions. OPERATOR Thank you ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q and A roster. First question comes from Nick Corcoran with Acumen Capital Partners. Your line is open. Darren Kirk (President and CEO) Morning guys. Thanks for taking my questions. Morning, Nick. Nick Corcoran (Analyst at Acumen Capital Partners) Just a few questions for me first on your contracts. Any indication what the structure of these contracts are in terms of either duration? And I'm just wondering how long it takes to pass on higher costs and what escalators are on the contracts. Darren Kirk (President and CEO) You're talking about the large mold buildup or. Yeah, both large mold and automotive solutions as well. Yeah, it really is. It depends. And the dynamics are quite different on each side of the business. So I guess I'll start with auto solutions. I mean, they typically tend to be four to five year fixed price type contracts and so there is limited ability to pass through cost increases for some programs, accessory type programs, where basically it's our product that we've designed that the OEM almost uses a profit center and enhances the the overall appeal of the vehicle. We tend to have better chances at passing those price increases through and they're not so fixed price contract in nature. And I'd say that, you know, it's hard to give you a number on this, Nick. And you know, whatever the impact is, we are trying to take aggressive actions on the broader cost environment. To contain the inflationary impact across the segment. And then I guess I would say on the large mold business, you know, there is inflationary pressure there, but it's mitigated by the fact that most of the input costs would be steel and that steel is typically acquired at the time that we signed the contract and Nick Corcoran (Analyst at Acumen Capital Partners) therefore it's mitigated against the inflation risk. That's helpful. Darren Kirk (President and CEO) And then you. There's just a lot of uncertainty related to tariffs and high oil prices. But you indicated quoting activity remains healthy. What are you hearing from the OEMs on the automotive solutions side? Well, I mean I guess we continue to see decent quoting activity for you know, for all products, accessories and non accessory products. And you know, there is just continued uncertainty out there. And you know, the industry has been kind of living with this uncertain world for at least a good year now. And so it's really just the new norm. I mean life is going on, new programs are being launched and vehicles are being refreshed and anytime those things happen, there's got to be parts associated with it. And we're certainly getting our fair share of quotes and awards. Nick Corcoran (Analyst at Acumen Capital Partners) Good. And maybe switching gears, last quarter you mentioned extrusion was used in data centers. You kind of reiterated that today. Any indication that what increase in demand you've seen over the last couple months? Darren Kirk (President and CEO) It's hard to give you a number on a short term basis like that. But you know, just, just generally does seem that AI kind of infrastructure related extrusions are probably accelerating toward 10%, you know, certainly upper single digits of, of total extrusions. It's a very big growth driver and Nick Corcoran (Analyst at Acumen Capital Partners) And then maybe one last question from me. Any update on the MA pipeline and what you might be thinking there? Darren Kirk (President and CEO) Nothing on the front burner. I mean we continue to look out for selects and tuck in acquisitions, but nothing to talk about at this point. We are continuing to focus on organic growth. We do see a lot of that. The volumes in large bold are extremely encouraging. The opportunities in nuclear seem to be very big and we've got still some underperformance in our greenfield facilities that we are seeing traction on turnaround and we think that the combination of these things will drive our profitability going forward starting in Q3, but through the second half at least and to the extent that we can complement those positives with some accretive acquisition activity, that is certainly something that we're focused on. But nothing to report at this time. Nick Corcoran (Analyst at Acumen Capital Partners) That's great. Thanks for taking my question. I'll pass along. Darren Kirk (President and CEO) Okay, thanks, Nick. OPERATOR And I'm not showing any further questions at this time. I'd like to turn the call back to Darren. Darren Kirk (President and CEO) Okay. Thanks, Kevin. Thanks, everyone for joining us on the call today. We look forward to talking with you when we release our third quarter results. Take care. Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.