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DATE
Thursday, April 30, 2026 at 8:30 a.m. ET
CALL PARTICIPANTS
- President & Chief Executive Officer — Olivier Rabiller
- Chief Financial Officer — Sean Deason
TAKEAWAYS
- Net Sales -- $985 million, reflecting 12% reported growth and 6% constant currency growth, with increases across every vertical and region.
- Adjusted EBIT -- $151 million, a $20 million year-over-year increase with a 15.3% margin, up 40 basis points year over year, aided by foreign exchange benefits and offset by tariff pass-throughs.
- Adjusted Free Cash Flow -- $49 million, matching management’s expectations; working capital usage primarily resulted from strong sales and is expected to recover during the year.
- Liquidity Position -- $772 million total, composed of $630 million undrawn revolver capacity and $142 million in unrestricted cash, with no near-term debt maturities.
- Net Leverage Ratio -- 1.92x, unchanged sequentially from Q4 2025.
- Share Repurchases -- $87 million repurchased under the $250 million program, reducing outstanding shares to approximately 188 million.
- Dividends Paid -- $16 million paid in the quarter; a second-quarter dividend of $0.08 per share is scheduled for June.
- Outlook Raising -- The high end and midpoint of the 2026 outlook were increased, now implying midpoints of $3.75 billion net sales (2% constant currency growth), $560 million adjusted EBIT (14.9% margin), and $415 million adjusted free cash flow.
- Turbo and Zero-Emission Awards -- Multiple new wins secured, including gasoline VNT turbo for hybrid and range-extended EVs, a second commercial vehicle E-Powertrain award in China with production slated for 2027, and a major production award for an industrial compressor with TONFY targeting battery energy storage cooling.
- Industrial and Commercial Vehicle Growth -- Double-digit sales growth in commercial vehicle, industrial, and aftermarket segments, with specific power generation industrial sales targeted for low double-digit percentage growth in 2026.
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RISKS
- Rabiller stated, "bit too bullish just to give you an outlook that is disconnected from what's happening around us," highlighting caution due to macroeconomic and geopolitical uncertainties despite current strong performance.
- Deason noted, "year-over-year operating performance was slightly negative, largely as a result of timing and in line with our expectations," signifying margin headwinds from the timing of productivity measure execution.
SUMMARY
Management identified notable share gains in passenger gasoline turbo, commercial vehicles, and industrial segments, emphasizing new awards and customer adoption as drivers for the improved 2026 outlook. Operating performance was supported by volume gains and favorable foreign exchange, offset by some timing-related margin softness and tariff pass-throughs. Strong cash generation enabled both continued share repurchases and dividends, while net leverage remained stable and liquidity robust. Multiple important project awards, including in zero-emission E-Powertrain and battery energy storage system compressors, were announced, indicating expanding exposure to new energy applications.
- Rabiller confirmed increasing interest and momentum in the industrial oil-free compressor line, with shipments for Trane proceeding and a diversification of customer base beyond prior agreements.
- Significant demand in China accelerated growth in E-Powertrain and battery storage cooling, attributable to rapid technology adoption and industry leadership among local customers.
- Business win rate remained strong at "about 50% of what's available" annually, supporting continued share of demand gains and sustained new program launches.
- Deeper segment color indicated commercial vehicle recovery and ongoing off-highway improvement in both North America and China, with off-highway seen at a potential cyclical low point at present.
- Zero-emission revenue composition details will be released at the upcoming Technology and Investor Day, as previewed by management in response to investor requests for further transparency.
INDUSTRY GLOSSARY
- VNT Turbo: Variable Nozzle Turbocharger—an advanced turbocharger with adjustable vanes to optimize boost across different engine loads, enabling higher efficiency for gasoline hybrids and range-extended electric vehicles.
- E-Powertrain: Electrified powertrain system for vehicles, comprising electric drive units, power electronics, and energy management tailored for commercial or passenger vehicles.
- Battery Energy Storage System (BESS): Large-scale system using rechargeable batteries to store and deliver electricity for grid support or industrial applications, requiring specialized thermal management solutions.
Full Conference Call Transcript
Olivier Rabiller: Thank you, Cyril, and thank you all for joining the call today. We started the year by delivering another very strong set of financial results in the first quarter, driven by growth in a muted industry and disciplined operational execution. Net sales for the first quarter were $985 million, up 6% at constant currency. We delivered growth across all verticals, including commercial vehicles and industrial. Considering that light vehicle production was down in Q1, Garrett's growth reflects share of demand gains in passenger vehicles as well as continued strong performance in commercial, off-highway and industrial. Through continued productivity actions and disciplined execution, we have been able to convert this growth into a very solid operating performance.
Adjusted EBIT was $151 million, and our adjusted EBIT margin was 15.3%. In addition, we generated an adjusted free cash flow of $49 million in the quarter. Together, the strong results support our decision to increase the upper range of our 2026 full year outlook. Lastly, we continue to allocate capital in line with our stated framework and our commitment to return capital to shareholders. During the first quarter, we maintained our share repurchase activity, buying back $87 million of common stock, and we also paid $16 million in quarterly dividends. With that, let me now turn to Slide 4 to share more on Garrett's continued success across our differentiated technologies.
Indeed, we continue to win across our turbo portfolio with multiple gasoline awards, including VNT turbo for hybrids and range extended electric vehicle applications. At the same time, we kept on the successful trend we have seen in industrial as we secured additional wins, including for large power generation applications. Turning now to our zero-emission technologies. We have made solid progress in Q1 2026 as we secured our second commercial vehicle E-Powertrain production award in China with start-up production planned again for 2027. We also won a major production award for our industrial cooling compressor with TONFY in China, a leading supplier for battery energy storage system cooling solutions. Overall, I'm very pleased with our progress.
These wins demonstrate customer adoption of our differentiated technologies across a broad range of applications, supporting both portfolio expansion and growth while continuing to deliver strong financial results. I will now hand it over to Sean, who will talk you through our financial results and outlook
Sean Deason: Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 5. As Olivier highlighted, we delivered strong financial performance in the first quarter. Our net sales were $985 million, driven by sequential growth across all verticals. This was driven by share of demand gains in diesel and gasoline applications, recovery of commercial vehicle volumes and continued demand for industrial applications. We delivered $151 million of adjusted EBIT in the quarter, equating to a 15.3% margin. This represents both a year-over-year and a sequential improvement driven by strong volume conversion and favorable foreign exchange. Finally, adjusted free cash flow was $49 million as the business continues to convert earnings into cash in line with expectations.
Now moving to Slide 6. We show our Q1 net sales bridge by product category as compared with the same period last year. In the quarter, net sales increased by $107 million versus the prior year or 12% on a reported basis and 6% on a constant currency basis. Double-digit growth in commercial vehicle, industrial and aftermarket contributed significantly to the strong performance. We also benefited from continued gasoline share of demand gains and new launches in diesel. This sales growth occurred across all key regions. In North America, the key drivers of sales growth were off-highway, industrial and aftermarket.
In Europe, we saw share of demand gains in light vehicle gasoline and diesel as well as a recovery in off-highway applications. And in China, growth was driven primarily by industrial and on-highway applications. Turning to Slide 7. During the quarter, we generated $151 million in adjusted EBIT, representing a $20 million increase over the same period last year. Our margin rate of 15.3% reflects a 40 basis point improvement year-over-year, 20 basis points of which are due to favorable foreign exchange currency impacts, partially offset by tariff pass-throughs. The increase in adjusted EBIT was primarily driven by volume and favorable mix from our strong growth in commercial vehicle, industrial and aftermarket.
In the quarter, year-over-year operating performance was slightly negative, largely as a result of timing and in line with our expectations as we begin to execute on our productivity measures. We expect to generate positive operating performance through the balance of this year, continuing to benefit from sustained fixed cost actions and variable cost productivity. Turning now to Slide 8. I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter. We delivered positive adjusted free cash flow of $49 million, aligned with our full year expectations. The working capital used in the quarter was primarily driven by our strong sales and is expected to be recovered throughout the year.
All other bridging items were also in line with expectations. Now moving to Slide 9. We ended the quarter with a liquidity position of $772 million, consisting of $630 million in undrawn capacity from our revolving credit facility and $142 million in unrestricted cash. We have ample liquidity with no near-term debt maturities, and our net leverage ratio remains unchanged versus the prior quarter at 1.92x. Moving to Slide 10. During the first quarter, we repurchased $87 million of common stock under our $250 million share repurchase program, further reducing our outstanding share count to approximately 188 million.
We continue to target returning approximately 75% of our adjusted free cash flow to shareholders over time through dividends and share repurchases, the latter of which will vary over time and depend on various factors, including macroeconomic and industry conditions. As mentioned by Olivier earlier, the Board declared our quarterly dividend for the second quarter of $0.08 per share, which will be payable in June. I will now transition to Slide 11 to discuss our 2026 outlook. Following our first quarter performance, we anticipate demand across all verticals to be strong through the first half of the year.
Although our industry assumptions remain unchanged versus our initial outlook, we expect to continue to benefit from share demand gains in light vehicle, continued recovery in commercial vehicle and growth of industrial applications, particularly for stationary power generation. As a result, we've increased our high end and midpoint outlook across all metrics to reflect the stronger performance to date. Given macroeconomic uncertainties and geopolitical events, we are maintaining the low end of our outlook range at this time. Our updated outlook implies the following midpoints: net sales of $3.75 billion or 2% growth at constant currency, adjusted EBIT of $560 million, implying a 14.9% margin and adjusted free cash flow of $415 million.
With that, I will now turn back the call to Olivier for closing remarks.
Olivier Rabiller: Thanks, Sean. Let's now turn to Slide 12. As we announced during our Q4 earnings call and in our subsequent press release, we will host our 2026 Technology and Investor Day in person in New York City on May 20. We will outline the next phase of the company's strategic evolution, including progress across turbo, zero-emission vehicle and industrial technologies. Beyond the presentation, it is a fantastic opportunity to interact with management, see and touch new hardware and better understand the way Garrett is expanding its technology differentiated portfolio, both in auto, commercial vehicle and industrial. Let me wrap this up on our final slide.
We delivered a strong first quarter, driven by share of demand gains in gasoline turbo and growth in commercial vehicle, off-highway and industrial. Adjusted EBIT reached $151 million, and we generated $49 million of adjusted free cash flow. In zero-emission technologies, specifically, we secured our second series production award for commercial vehicle high-speed E-Powertrain, further validating the long-term potential of this technology. In parallel, progress continues with our new industrial compressor offering as we secured a production award in battery energy storage systems. Alongside this operational and technology execution during the quarter, we returned more than $100 million to shareholders through share repurchases and dividends, reaffirming our commitment to disciplined capital allocation and shareholder return.
Lastly, based on the strong start of the year, we also raised our full year 2026 outlook, reflecting the strength of our execution and confidence in our trajectory. So thank you for your time. And now operator, we are ready to take on questions.
Operator: [Operator Instructions] Our first question comes from Nathan Jones of Stifel.
Nathan Jones: I guess I'll start with some questions on the oil-free compressor side. I don't know how much of that you want to answer today and how much you want to say for the Analyst Day next month, but I'll ask them. Any updates that you can give us on the progress with shipping the first units to train? Any updates you can give us on -- I guess I'll just ask a broad question, the interest levels that you're seeing from other potential customers and how that's progressing?
Olivier Rabiller: Yes, indeed. I think we alluded to it a little bit last time because we are fresh from the big congress that's happening every year in Vegas about air conditioning systems. And since then, we've confirmed a lot of inbounds from a lot of people in the industry. To your point about shipping units, I mean shipping the first unit for testing and everything will happen in the coming weeks already. And then what we said is that we would be in production from 2027. So it's on a fast pace. The win we just report, which is in a different system, which is a battery energy storage system.
So you have -- you need a lot of cooling to cool these batteries. And these batteries are supplied by the way, this module are supplied by the biggest battery makers in the world. It's a very important one as well because it validates that our technology is not only for the scope that we expressed last time and the discussion we had about our agreement with Trane, but it's ranging beyond that into some other applications.
So we'll share indeed more during the Investor Day, but a lot is happening, and you may have seen a lot of points, a lot of communications already from us, whether it's on the BSS, whether it's on our exhibition that we had in China at the leading show for air conditioning. And all of that validates the interest that we see from the industry, the broad industry that's all involved into cooling.
Nathan Jones: Is there any update you can give us on -- I know there's some exclusivity with Trane on some products in some markets for some period of time. Is there any update you can give us on what that is. It's certainly been a focus area from investors that we've spoken to.
Olivier Rabiller: I've told you that we are having discussions. And by the way, we are announcing a new project with a new customer. So that shows that we are talking to a broad industry scope with a broad industry applications. More to come when we present all of that with real hardware and you can feel and touch it because it's not PowerPoint, clearly not, when we are all in New York. But clearly, the interest goes beyond what we've announced with Trane, although we are working extremely well with Trane and we are cooperating very well. It goes beyond that. XXX
Nathan Jones: And then could you say another E-Powertrain win? Is there any details you can give us on that? Talking about the size of it, potential revenue out of it. I think you said start of production in '27, but just any color you can give us on the scale and scope of this award?
Olivier Rabiller: The first point, I would say it's not exactly for the same application. The first application was heavy duty. So we are talking about trucks that are more on the medium-duty side. But we are extremely proud because it really reflects that even in the most competitive market in the world, that is China when it comes to electric, our technology is really validated by customers as being a way to differentiate for themselves. We've announced the first partnership with HanDe. HanDe is the biggest player of the industry when it comes to transmissions in China and E-Axle. So that gives you a little bit of a scale.
So we'll not share numbers today, but it's a very significant win for the company [indiscernible].
Operator: Our next question comes from James Mulholland of Deutsche Bank.
James Mulholland: So I just want to double-click on your industrial sales for the year. Last year, you had guided to about $100 million in sales related to power gen with double-digit growth for this year. Could you give us an update on that progress? And since double digits is a pretty wide range, would you be able to put a bit of a finer point on that?
Sean Deason: Yes. So with industrial, we entered -- sequentially, we saw it flat, but we expect that it is going to grow significantly. And I believe we said low double-digits, and so we -- and so that's where we would remain, low double digits. That is very significant anyway. And you see that when you look at the revenue growth bridge that we have into the financials that we published today, it is clear that there is a significant growth on commercial vehicle. Not everything is with industrial indeed, but a significant portion of it. So yes, it will keep on growing.
James Mulholland: And then--
Sean Deason: And we are --
James Mulholland: Go ahead.
Olivier Rabiller: No, I'm just saying and we are very happy with it.
James Mulholland: Great. And then since you brought a broader commercial vehicle, recognizing that North America is more off-highway and Europe is more indexed to Class 8. We've seen some trucking manufacturers come out with pretty good numbers on orders. So could you maybe unpack a bit of what you're seeing in both of those geographies? And is there maybe a little bit of conservatism in that 1% to 2% growth for the year?
Olivier Rabiller: Today, I will not relate -- today, commercial vehicle is, as you said, it's a little bit of a mixed bag of several things. So we have off-highway, and you've seen that the off-highway industry is starting to recover. There are some other people publishing results today that our customers that can give you hints about that recovery coming up.
But I would say beyond that -- and we think that the recovery is probably, once it starts, it will be for -- if there is no crisis, it will be for a longer period because today, when you look at on-highway and off-highway, we are pretty much on the low point that we reach in 2024, and the industry has not yet recovered that much from that. So we are optimistic that this trend will continue.
And I would say the growth that we are seeing is not only driven by Europe on-highway, it's also driven by a recovery that we are seeing on-highway in China, which is probably more linked to share of demand gains and a significant introduction of new products that we have on that -- in that region. So your analysis is good. I'm just adding China in the mix on top of the rest.
Operator: The next question comes from Jake Scholl of BNP.
Thomas Scholl: First, profitability in the quarter finished towards the high end of your guidance range for the year. Could you just discuss some of the puts and takes that you see going forward?
Olivier Rabiller: The puts and takes for the full year outlook?
Thomas Scholl: Yes.
Olivier Rabiller: Quite frankly, we are very pleased with what we see in Q1. And quite frankly, at this point in time, we have not seen a material impact of the consequences of the war in the Middle East on what we see in the company. But we are very mindful that on the one hand, we have a very nice trajectory with organic growth that we highlighted in Q1, and on the other hand, we are having a world out there that everybody is looking at and trying to understand where it goes. So one more time, we have not seen anything specific.
But it would be, in my view, a little bit too bullish just to give you an outlook that is disconnected from what's happening around us.
Thomas Scholl: And then could you talk a little bit more about what's driving some of your success in China? You guys have obviously seen some pretty significant wins, both through e-powertrain and e-compressor in the last few quarters. And then specifically within the e-compressor, can you talk about if there's any difference from your perspective for a liquid-cooled application like this battery storage system with HanDe or air cooling like a traditional HVAC?
Olivier Rabiller: So a few dynamics. The first point is to say that when it comes to specific applications that are linked to commercial vehicle electric mobility, so think about e-powertrain for trucks and think about the announcement that we did last quarter about cooling compressor for buses. China is indeed the biggest place in the world that committed with a very high number -- that committed to a very high number of electric trucks, and that drives a lot of development and a lot of demand from customers. When it comes to the specific point of battery energy storage system, you know that the 2 biggest battery makers in the world are in China.
So indeed, they are relying not only on global suppliers, but also on local fast-growing company to help them supply what they need in order to develop that battery business and battery energy system storage that we have, the battery cooling that goes on that is clearly linked to that growth. And indeed, it's happening in China, I would say, a little bit faster than anywhere else in the world as a consequence of the 2 major players being in China. But we should not think that all of that comes from China.
It's just that China usually works faster and is currently into another -- technology adoption pace that is higher than what we see in the rest of the world. But remember, the first award that we presented for cooling system was coming with Trane. And then we are indeed working with many more customers around the world than Chinese when it comes to e-powertrain, whether it's for passenger vehicle and commercial vehicle. It's just that we -- the speed in China is just faster.
Operator: Our next question comes from Hamed Khorsand of BWS Financial.
Hamed Khorsand: So first off, these design wins that sparked this increase in sales, when did you win them? And how are you positioned in design wins now for future quarters?
Olivier Rabiller: For the wins, we usually win businesses that are translating into volume, that's before we start production. So I would say, when you look at the trend we had, and we've been very consistent with that, where we say that on average, every year, we win about 50% of what's available. We know that the math between the business win rate to the share of demand doesn't go exactly 1:1. But we know that when we win constantly at that level, the share of demand of the company is increasing. And this is exactly what's happening.
It was a little bit hidden 3, 4 years ago because we were having some other points that were affecting the top line at the same time when it comes to diesel going down. And you know that we've been doing a massive rebalancing and transformation in this company, moving from revenue at the time of the spin-off that was about 42%, 43% diesel to what it is today, where it's about the same amount on the gasoline side and a significant portion of that into variable geometry. So that rebalancing has probably dampened a little bit the top line.
But now you see that coming, and it's all driven by the success of the wins and the programs that we are on with customers. And the trend continues.
Hamed Khorsand: And my other question is on 0 emissions. Is it still too early to break it out as to what the composition of that is to total sales?
Olivier Rabiller: If you are a little bit patient for a few weeks, you will know much more about it.
Hamed Khorsand: Very good.
Olivier Rabiller: But we will indeed disclose more information in 3 weeks.
Operator: The conference has now concluded. The question-and-answer session has concluded. Thank you for attending today's presentation. You may now disconnect.
