Strong Margins and Capital Returns Despite Lower Sales: Q4 Update on GTX
The company reported another quarter of lower net sales, down 11% year over year for both Q4 and the full year—consistent with previous quarters. However, sales have stabilized in this quarter, and commercial vehicle growth shows early signs of industry recovery.
At the same time, margins remain strong, with an EBITDA margin of 18.1% for the quarter and 17.2% for the full year. Importantly, both EBITDA and free cash flow (FCF) came in as expected for 2024, even with continued softness in light vehicle demand, particularly in the EU and China. The company managed to maintain profitability through improved productivity, fixed and variable cost efficiencies, and some commodity inflation passthrough.
Here is my original analysis of Garret Motion:
Capital Return: Share Buybacks, Debt Reduction, and Refinancing
The company remains aggressive in capital returns:
Share repurchases: In 2024, they bought back 13% of outstanding stock (~$296 million), returning 82% of FCF to shareholders through buybacks.
Debt reduction: They reduced debt by $203 million in 2024 and refinanced a Term Loan B in Q1 2025, securing $3 million in annual interest savings while extending the maturity by two years (now maturing in 2032). This effectively eliminates any significant debt maturities until 2032.
Strong FCF yield: The company generated ~18% adjusted FCF yield in 2024.
The company expects stable Revenues, EBITDA, and FCF in 2025. They expect continued weakness in light vehicles, particularly in Europe, and improved demand for commercial vehicles.
They also announced another $250 million share repurchase program and $50 million in dividends for 2025. So, I expect another year of 10-13% returns through buybacks and dividends, and maybe another $100 million debt reduction.
Business Wins and Market Trends
The company continues winning new business across all geographies, securing deals for plug-in hybrids and range extenders, including with new Chinese automotive players.
Interestingly, they noted that the market is slightly shifting back from battery-electric vehicles (BEVs) to plug-in hybrids and range-extended vehicles—particularly in China:
And in some regions of the world, we tend to move from ICE to hybrid to battery electric vehicle. It seems that in China, we are seeing it moving from battery to plug in hybrids and range extended vehicle because I think there is probably a good understanding that you need several solutions in order to satisfy the needs of the consumers.
During the Q&A, management also made it clear that M&A is not a priority, emphasizing that any potential M&A must meet a very high bar. They don’t want to dilute shareholders for nothing. They will keep their focus on organic growth, expanding the turbo portfolio, and progressing on zero-emission products.
What do I do?
I added a bit to my position after the news about refinancing and an improved debt maturity structure. However, to increase my position significantly, I want to see either a return to growth and more debt repayments or a dip in the price.
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Disclaimer:
I/we own shares of Flow Traders at the moment of publication.
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