CPS Q2 2025: $300M Net New Business Lifts Growth Outlook
- Robust net new business: Management highlighted that approximately $300,000,000 of net new business was booked in sealing—and a similar positive trend was noted in the fluid segment—indicating strong demand and effective execution of their growth strategy.
- Margin expansion potential: Executives confirmed that many new programs are already achieving the targeted margins and hurdle rates, with additional upside from vertical integration initiatives, suggesting a clear path toward improved profitability.
- Positive cash flow outlook through working capital improvements: The discussion on working capital highlighted a normalization process, where previous outflows due to increased accounts receivable are expected to unwind in the second half, enhancing free cash flow and overall financial stability.
- Depressed Production Volume Forecasts: Management acknowledged that fourth‑quarter volumes remain depressed based on S&P’s current forecast, which raises concerns about near-term revenue and margin pressures.
- High Interest Expenses and Refinancing Uncertainty: The company incurred significantly higher cash interest payments (approximately $110–$115 million annually) and noted that the outcome of refinancing its debt with a rate improvement remains uncertain, potentially impacting future financial performance.
- Working Capital Outflow Risks: There was a notable $60 million working capital outflow this quarter, driven by the rebuild of accounts receivable, which could pose liquidity challenges if normalization does not occur as expected in subsequent quarters.
| Metric | YoY Change | Reason |
|---|---|---|
Sales (Q1 2024 vs Q1 2023) | Declined from $682.5M to $676.4M | Sales decreased primarily because of divestitures—specifically, the Technical Rubber business in Europe and a joint venture stake divestment, which reduced revenue by $13M, along with an unfavorable foreign exchange impact that subtracted another $1M. |
Sales (Q1 2025 vs Q1 2024) | Fell by 1.4% to $667.1M | Sales further declined in Q1 2025 due to pronounced foreign exchange headwinds that led to a $15.1M reduction, which was partially offset by favorable volume and mix improvements contributing about $5.7M. |
Gross Profit (Q1 2024 vs Q1 2023) | Increased from $41.8M to $61.6M | Gross profit expanded as a result of operational efficiencies driven by lean manufacturing and sustainable price adjustments that boosted margins despite previous period constraints. |
Adjusted EBITDA (Q1 2024 vs Q1 2023) | Rose from $12.5M to $29.3M | Adjusted EBITDA improved significantly, benefiting from lean initiatives that saved $19M and favorable volume/mix adjustments adding $15M, though partly offset by inflationary pressures (-$9M) and adverse FX effects (-$9M). |
Adjusted EBITDA (Q1 2025 vs Q1 2024) | Increased from $29.3M to $58.7M | Adjusted EBITDA doubled in Q1 2025, driven by further gains from manufacturing and purchasing efficiencies, including lean initiatives that saved $20M and restructuring efforts that contributed an additional $8M, despite ongoing inflationary and tariff cost challenges. |
Net Loss / Net Income | Q1 2024: Improved from $(130.4M) to $(31.7M); Q1 2025: GAAP net income of $1.6M, adjusted net income of $3.5M | Net results improved markedly; in Q1 2024, the removal of $81.9M in debt refinancing charges improved the net loss significantly, and in Q1 2025, continued operational efficiencies and cost management further reversed losses into modest net income. |
Capital Expenditures (Q1 2024 vs Q1 2023) | Dropped from $29.3M to $16.8M | Capital expenditures declined as investments were more disciplined and focused on customer launch readiness, reflecting a strategic shift to maximize returns. |
Operating Income (Q1 2025 vs Q1 2024) | Increased to $22.3M | Operating income surged in Q1 2025, demonstrating the company’s improved cost management and operational efficiency following key restructuring and efficiency initiatives. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EBITDA | FY 2025 | Low end $200M and high end $235M | Raised full-year guidance; specific figures not disclosed | raised |
Free Cash Flow | FY 2025 | no prior guidance | Expected to achieve positive free cash flow alongside significant cash interest payments of $110–$115M | no prior guidance |
Net Leverage Ratio | FY 2025 | Around 2 turns by the end of 2027 | Anticipated to achieve a net leverage ratio below 4 times by the end of FY 2025 | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Production Volume and Demand Forecasts | Q1 2025 showed confidence in managing volumes and tariff impacts with plans based on historical S&P numbers and adaptability in truck/SUV segments ; Q3 2024 noted lower production volumes and headwinds in several regions | Q2 2025 emphasized slightly improved forecasts, customer agreements to mitigate tariff impacts, S&P‐based volume assumptions, and acknowledged production variability | Consistent focus on production volumes with an optimistic tilt in Q2 2025 despite continuing variability and external challenges |
Working Capital Management and Cash Flow Dynamics | Q1 2025 described typical seasonal working capital outflows driven by receivables with solid liquidity ; Q3 2024 highlighted positive free cash flow generation and strong liquidity despite lower sales | Q2 2025 reported a significant working capital outflow due to rising accounts receivable, higher net cash used in operations, and scheduled improvements in the latter half of the year | A steady seasonal trend is maintained with operational adjustments; liquidity remains strong though cash usage is more pronounced in Q2 2025 |
Debt Refinancing, Interest Expenses, and Leverage Profile | Q1 2025 outlined strategies for achieving a net leverage ratio near 2 with a focus on refinancing later, though without detailed interest expense discussion ; Q3 2024 detailed plans for refinancing after non-call provisions expire and managing the interest load | Q2 2025 is actively evaluating refinancing options to strengthen the balance sheet, while noting that interest expenses were more than $14M higher than last year | Consistent emphasis on deleveraging through refinancing with a sharper focus in Q2 2025 on managing the higher interest expense environment |
Margin Expansion Initiatives | Q1 2025 emphasized operational efficiencies, lean initiatives, cost reductions, and the potential from hybrid vehicle opportunities ; Q3 2024 highlighted significant cost savings, restructuring gains, and industry recognition for innovations like FlexiCore and eCoFlow | Q2 2025 detailed margin improvement efforts through vertical integration in fluid systems, deployment of digital tools (CS Factory) in sealing, and disciplined pricing practices, along with targeted hurdle rates | A continuous drive toward margin expansion persists, with Q2 2025 adding a stronger focus on vertical integration and digital enablement for enhanced efficiency |
Tariff Management and Recovery | Q1 2025 discussed robust IT and financial systems to manage tariffs and recover most direct impacts, minimizing ongoing issues ; Q3 2024 did not address this topic | Q2 2025 stated that tariff-related negotiations have largely been completed, allowing the team to concentrate on operational execution | There is a clear reduction in emphasis on tariffs in Q2 2025, indicating that previous concerns have been largely contained |
Innovative Product Pipeline and New Technologies | Q1 2025 highlighted sustainability initiatives, product innovation, and the launch of the eCoFlow Switch Pump as a key technology ; Q3 2024 focused on innovations like FlexiCore and eCoFlow technologies, earning industry awards and customer interest | Q2 2025 showcased ongoing innovations with low-carbon initiatives (e.g., Renault Group’s Enblame project), expanded use of digital tools across plants, and new product introductions in both sealing and fluid handling systems | The company maintains a strong and consistent commitment to innovation, with Q2 2025 reinforcing its drive through low-carbon projects and digital transformation |
Currency (FX) Exposure Risks | Q1 2025 mentioned unfavorable FX reducing sales with a slight beneficial impact on adjusted EBITDA ; Q3 2024 detailed significant FX headwinds from cost-only currencies and active hedging measures | Q2 2025 reported mixed FX impacts: an approximate $7M sales reduction partially offset by $4M favorable exchange and a $3M contribution to EBITDA, with consistent acknowledgment of FX risks | FX exposure remains a consistent concern with similar mixed impacts across periods, as management continues to monitor and mitigate these risks |
Net New Business Growth | Q1 2025 secured $55M in new business awards and underscored customer trust in developing new vehicle technologies ; Q3 2024 reported $44M in awards, demonstrating steady new business inflows | Q2 2025 reported a strong increase with $77M in net new business awards, reinforcing the company’s market competitiveness | There is an upward trend in new business wins, indicating growing momentum and a robust future pipeline |
Cost Reduction and Financial Flexibility Initiatives | Q1 2025 recorded $20M in lean savings and an additional $8M from restructuring, supported by strong liquidity with $300M on hand ; Q3 2024 detailed over $15M in quarterly savings, significant annual cost-cutting targets, and solid liquidity measures | Q2 2025 reported further improvements with $25M in lean savings, $4M from restructuring year-over-year, lower capital expenditures (1.1% of sales), and maintained liquidity of $273M, along with active debt refinancing considerations | A persistent and robust focus on cost control and financial flexibility continues, with Q2 2025 reflecting enhanced savings and disciplined capital management that reinforce long-term stability |
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Margin Outlook
Q: Lines meeting 2030 margin targets?
A: Management explained that programs not launching for three years are already meeting hurdle rates akin to the 2030 margin targets, with additional benefits expected from disciplined pricing and vertical integration efforts in both fluid and sealing. -
Incremental Revenue
Q: Is net new business $300M of $400M incremental revenue?
A: They confirmed that on the sealing side, about $400M of incremental revenue was driven by $300M in net new business, while on the fluid side, roughly 80% of incremental revenue is already booked. -
Refinancing Impact
Q: What rate reduction can be expected refinancing?
A: Management indicated that refinancing the first and third lien notes could yield an improvement in rates by around 100 to 300 basis points, subject to market conditions and rating upgrades. -
Working Capital Unwinding
Q: Will the $75M working capital use unwind in H2?
A: They stressed that the roughly $75M working capital use mainly from higher accounts receivable is expected to unwind completely in the second half, aided by seasonality and improved collections. -
Tariff Impact
Q: How have tariffs affected the business?
A: Management noted that tariff impacts have largely been mitigated by successful pass-through agreements with customers, allowing the team to focus on operational execution and margin expansion.
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