Martinrea International Inc. (MRE) Earnings Call Transcript & Summary

Good evening, everyone, and thank you for joining us today. We always enjoy speaking with our shareholders, bringing you up to date on the business, and taking your questions. We also want to acknowledge that we have other stakeholders, among them many of our employees who are on the call, and our comments will be directed to them too, since we share our results and commentary across our network. Joining me this evening are Pat D'Eramo, Martinrea's CEO, our President, Fred Di Tosto, and our CFO, Peter Cirulis. Today we will be discussing Martinrea's results for the third quarter ended September 30, 2026. I would point you to our customary disclaimer in our press release and in our filed documents. On this call, Pat will cover operations, lay out some key highlights for the quarter, and speak about the strategic initiatives we are pursuing, including TruNorth Kaizen and broader opportunities in defense. Fred will give an overview of our operating segments and spotlight some new business wins and growth opportunities. Peter will go through the Q3 results and 2026 outlook, and I will wrap up with some comments on trade, geopolitics, and capital allocation. Our Q3 results show that operational improvements and cost discipline are offsetting lower industry volumes and cost pressures. At the same time, we are simplifying the portfolio, strengthening the balance sheet, and steering capital toward higher return opportunities in North America, industrial markets, and defense. To get things started, here's Pat.

Thanks, Rob, and good evening to everyone. During our previous call, I outlined several key priorities that form part of our three-year strategy. As a reminder, those priorities include expanding our business in both automotive and non-automotive areas, concentrating on margins and free cash flow, partnering in regions that carry more risk or where we lack scale or other competitive advantages, while limiting our investment in those regions, and finally, making sure our investments succeed. We are witnessing substantial growth in both our core automotive business and our non-automotive end markets — in fact, this is the highest level of activity we have seen in years. On the automotive side, we're expanding alongside our customers in North America, and also with OEMs based in Europe and Asia. Opportunities are opening up for us through program extensions, plus takeover work involving suppliers that are in financial difficulty or underperforming, and from OEMs moving or bringing production back to North America. Outside of automotive, TruNorth Kaizen has gotten off to a great start, and our industrial business is seeing strong growth. On TruNorth, last quarter we announced a contract win with Raytheon valued at CAD 7 million aimed at helping boost throughput on the Tomahawk cruise missile. We're happy to share that this purchase order has increased by another CAD 5 million, thanks to the solid results from the work we've done so far. By partnering with Raytheon's team, we're assisting them in raising the throughput of these missiles, using our established lean principles, processes, and tools to boost manufacturing performance. This collaboration is going to streamline manufacturing flow, line design, and production processes in order to improve efficiency and cut lead times, which helps scale production to meet the requirements of the U.S. Department of War. We've achieved a great deal of success in helping Raytheon boost efficiency over this short period, which clearly shows our strength and the way we approach operations. That win should open additional doors for TruNorth. Margins run higher in this line of work, there's plenty of runway to expand, and it won't demand capital spending; our view is that, as time passes, the ties we've built via TruNorth may create chances to serve as a Tier One supplier to the defense primes. That might cover organic work for our facilities, plus buying a supplier that operates within the defense supply chain. To support this, we've established a formal vehicle: TruNorth Aerospace & Defense USA, a Delaware corporation we own in full. In industrial, we're seeing a lot of business awards, and we expect sales to more than double over the next couple of years. That growth comes from expanding sales with our existing non-automotive customers, and also from diversifying into new sectors, including power generation and storage for data centers and defense. This shows we can take our manufacturing experience and skill and apply them to new opportunities in higher growth verticals. We've only just started to tap the opportunity, and we're excited about what's coming next. We're pursuing that growth carefully and profitably, keeping our focus on margins and returns. We continue to hold expenses in check and drive operational excellence via the Martinrea Operating System, and at the same time we're broadening the rollout of machine learning systems throughout our plants. During the last call, I mentioned that we intended to make plant-level performance goals more precise and to merge or shut down sites that weren't performing well. In line with that, we finished a number of noteworthy divestitures within the rest of world segment. Peter will provide the details on those divestitures when he speaks. In addition, we're preparing a substantial restructuring effort in Europe, and Fred will cover it during his remarks. Those actions should support better margins and allow us to shift capital toward opportunities offering higher returns within our core North American segment. This should help us boost free cash flow, and it aligns with our approach of capping exposure and investment in regions carrying more risk. Moving to the quarter, Q3 results pleased us, finishing ahead of the same period a year earlier. We raised adjusted operating income and adjusted EBITDA, both in dollar terms and as a share of sales. On the whole, we continue to strengthen our operations, which offsets today's industry conditions and lets us deliver solid operating margins. With how we've performed so far this year, we're still on course to hit our full year 2026 outlook. Peter will cover our financial results and the outlook in more detail later in the call. So, to wrap up, I want to express appreciation to the Martinrea team for their dedication and hard work and for their continued commitment to improving this business each day; over to you, Fred.

Thanks, Pat. Good evening, everyone. The results we posted for the third quarter show that we keep delivering; we are handling well the things we can control and going after growth opportunities in a careful way that is profitable, with an unwavering emphasis on return on investment. Now to our segments, beginning with North America: the Q3 adjusted operating income margin was 7.1%, which is 20 basis points above the 6.9% margin from Q3 of last year, on production sales that fell roughly 5%, which shows effective cost control and strong operational execution. We keep performing consistently at a high level in North America, our primary growth engine, where more than three-quarters of our business is generated. In Europe, we recorded positive operating income of EUR 1.2 million for Q3. That compares with approximately break-even during Q3 of last year, and with an operating loss of EUR 7.5 million in Q2 of this year. It's a solid quarter-over-quarter gain, yet considerable work remains before this segment returns to a profitability level we'd consider acceptable—which, in our view, ought to sit closer to the mid-single digit adjusted operating income margin range. Broadly, conditions across Europe reflect an environment that remains far below expectations. That's the reality, and we recognize we can't merely hide behind it while hoping better days will come. Decisive action is required. We've mentioned previously that maintaining a European footprint is necessary for serving our customers worldwide and for securing contracts with German OEMs across both Europe and North America. An exit from the region is therefore not something we're evaluating. That being said, our purpose as a business is to earn profits and deliver returns exceeding the cost of capital; in Europe today that isn't occurring, and it must be addressed; it has become evident to us that more substantial changes are required than those we had been considering earlier. As a result, we are preparing significant restructuring work in Europe. Getting Europe to break even in 2026 remains our near-term objective, and we believe we can get there as long as the volume-linked recoveries we're expecting from customers come through, which we anticipate wrapping up before this year ends. Building on that, the restructuring steps we're currently developing are designed to create a more competitive cost structure and drive a substantial improvement in 2027. Those steps should involve cutting staff, consolidating some administrative functions, pursuing vertical integration opportunities, and reviewing operations that are underperforming. With these actions in place, we foresee stronger financial performance in Europe during 2027 and afterward. Turning to the next item, the Rest of World segment posted an adjusted operating loss of about CAD 1 million. That figure mirrors the flow-through effect of reduced production sales along with the contribution we no longer receive from certain divestitures completed recently. Among those divestitures are an 85% equity stake in our fluids plant in China, which closed in Q2, and 100% of our aluminum plant in Brazil, which closed during the third quarter. In addition, we reached an agreement to sell a 95% equity stake in our aluminum plant in China — the final plant we still had in that region. That transaction closed after the quarter ended. Peter will address these deals along with the remaining divestitures in his remarks—covering the timing of cash proceeds and the financial impact. Through these divestitures, we’ve mostly exited the operations that make up our Rest of World segment, except for a small operation in South Africa and minority stakes we’re retaining in the divested businesses so the handover to the buyers of these assets goes smoothly and to support our customers; now on to new business. I'm glad to share that we've secured fresh business totaling CAD 160 million in annualized sales and mature volumes. About CAD 95 million of that comes from assorted structural components within our Lightweight Structures commercial group, working with Ford, Mercedes-Benz, and BMW. Just under CAD 10 million sits in our Propulsion Systems commercial group with Stellantis, and roughly CAD 55 million is in our Flexible Manufacturing group with Caterpillar, John Deere, Volvo Truck, General Dynamics, and General Motors. Within that total is a Caterpillar award valued at CAD 50 million in annualized sales for energy storage units destined for data centers starting early next year, along with a smaller General Dynamics contract covering components for armored vehicles. We see solid opportunities in both of these markets to bring our capabilities to bear and generate business growth; the prospects here have us genuinely excited, and these recent business awards show we can play a meaningful role in these markets. Over the past 12 months, new business awards came to roughly CAD 565 million in annualized sales and mature volumes — the strongest level of award activity we've seen in several years. These awards cover automotive, industrial, data center, and defense applications, which gives us greater diversification across customers and end markets. Quoting activity continues to be robust, although the timing and conversion of future awards will hinge on customer decisions and market conditions. That's all from me. Thanks for your time. I'll pass things along to Peter now so he can walk us through the financial results and outlook in greater detail.

Thanks, Fred, and good evening, everyone. On our last call, I walked through our results using the two lenses we apply to judge how we run the business, how well we are operating, and how effectively we are deploying capital. Each is a leading indicator of the value creation arc we are on, and I will update you on both. Operationally, the quarter played out pretty much as we had expected, with financial results up year-over-year and in line with the quarterly results profile we laid out on the last call. Adjusted operating income margin was 5.6%, 10 basis points higher than quarter three of last year, on production sales that fell about 5%. Lower volumes—particularly in EV programs—plus higher aluminum costs are being offset by our lean efforts and commercial recoveries, and we keep progressing toward the 2026 outlook. On capital deployment, this quarter was a defining one. On the previous call, we said investment would be limited in regions where we lack scale or a competitive edge. We have now acted on that. Four transactions have closed since the year began. In June, we completed the sale of an 85% equity stake in our fluids plant in China for roughly CAD 1 million. In August, our aluminum plant in Brazil was sold for approximately CAD 12 million on a present value basis. Roughly CAD 5 million is expected to come in during this year, with the remainder paid across the following three years. The buyer additionally assumed the historical Brazilian tax assessment contingency of about CAD 38 million that we disclosed in our year-end financial statements. On October 15th, we completed the divestiture of a 95% equity interest in our Chinese aluminum plant — the last manufacturing site we still operated in that country — for around CAD 50 million, pending post-close working capital adjustments. That same day, October 15th, we divested our Shelbyville, Kentucky facility, which had been idled following the conclusion of the Ford Escape program, for approximately CAD 43 million, about triple its carrying value. At closing, CAD 5.7 million came in, with the remainder structured as an interest-bearing note that comes due in 2029. All together, the asset sales should bring in roughly CAD 107 million in consideration after transaction costs are deducted. From that figure, we anticipate collecting around CAD 60 million during this calendar year, while the rest will be paid out across the following three years. Let me touch on the accounting side, since it clarifies why reported and adjusted results diverged this quarter. On the divestiture of foreign operations — chiefly Brazil — we booked a loss of approximately CAD 9 million. That loss mostly reflects the recycling of cumulative currency translation losses accumulated in equity over the years. This charge involves no cash, leaves total equity unchanged, and has been left out of our adjusted figures. We'll put the cash we receive straight toward lowering debt. Taking into account free cash flow from Q4, we anticipate finishing the year under our 1.5x leverage target, even while continuing to repurchase shares at opportune moments through our normal course issuer bid. In general terms, these actions shift capital out of riskier jurisdictions and into expanding our core North American footprint, where we see stronger return opportunities. Rob will cover capital allocation in more depth during his remarks. Turning to quarter three in more detail, adjusted operating income came to CAD 66.7 million, an increase of 2.6%. Production sales fell roughly 5%, mostly because the Ford Escape program wrapped up, though CAD 15.8 million in sales from the Martinrea Tulsa acquisition, which closed in quarter four of the prior year, partly offset that. On adjusted operating income margin, we recorded 5.6%, which is 10 basis points above the 5.5% margin posted in quarter three of last year, as lower SG&A expenses and ongoing operating improvements more than offset the effect of lower production sales. Also worth noting is that tooling sales were relatively elevated versus both quarter two and quarter three of the prior year. Had tooling sales been at last year's quarter three level of CAD 31.6 million, our quarter three adjusted operating margin would have been roughly 5.9%, about 40 basis points better year-over-year and consistent with our quarter two 2026 performance, which demonstrates that our underlying trajectory is still intact. We also continued to absorb higher aluminum costs. Certain recoveries began appearing in the quarter, and we expect the rest to come through once spot prices stabilize. The timing will depend on how the situation in Iran evolves. Adjusted EBITDA was CAD 144.9 million, up 3.2% year-over-year, with margin 50 basis points higher, driven by the same factors I just described. Moving on, free cash flow before principal lease payments under IFRS 16 was CAD 58.5 million, up from CAD 44.5 million in quarter three of last year. Including principal lease payments, free cash flow was CAD 42.9 million compared with CAD 30.5 million in quarter three 2025. That year-over-year gain mainly reflects stronger EBITDA and better working capital flows, partly offset by higher CapEx. On the prior call, I said the receivables build would reverse. Receivables were a CAD 26 million source of cash this quarter. Overall, free cash flow falls within our 2026 guidance range. Adjusted earnings per share for quarter three were CAD 0.52, equal to quarter three of last year. On the earnings side, reported EPS was CAD 0.38. The gap versus that number is mostly related to a non-cash disposal connected to the sale of the Brazilian aluminum plant, along with CAD 2.4 million in restructuring charges, and within that we saw $35 million, $9 million, and $9.3 million. When you look at it on an adjusted basis, the effective tax rate came in higher once normalized—29.6% compared with 21.6% a year earlier—and that reflects shifts in where our income was earned geographically, plus tax benefits in some jurisdictions; those were offset by lower SG&A and R&D spending, a CAD 2.6 million reduction in finance expenses, and a share count roughly 4% below last year's level. Shifting to the balance sheet, net debt excluding IFRS 16 lease liabilities fell by about CAD 31 million during quarter two, ending at CAD 770 million, and that figure lines up with the free cash flow we generated in the quarter. We accomplished all of this while repurchasing approximately 941,000 shares under our normal course issuer bid, spending CAD 9.3 million on those buybacks. Our net debt to adjusted EBITDA ratio stood at 1.56x when the quarter closed, an improvement from 1.63x in quarter two. We expect net debt to fall below CAD 700 million by the time the year ends. It is clear that our balance sheet remains strong. We are reaffirming our 2026 outlook, which calls for total sales between CAD 4.5 billion and CAD 4.9 billion, an adjusted operating income margin of 5.5% to 6%, and free cash flow ranging from CAD 125 million to CAD 175 million, along with approximately CAD 300 million in CapEx. That outlook assumes solid operational execution in a market that is fairly flat. Keep in mind that our guidance incorporates a modest sales decline relative to 2025, which is a consequence of the Ford Escape program ending. The divestitures trim roughly CAD 35 million from our full-year 2026 sales outlook. So far this year, our adjusted operating income margin stands at 5.7%, which falls inside the range. Some variability typically shows up in the fourth quarter because of tooling timing, customer holiday shutdowns, and commercial settlements. Given our year-to-date performance and what is still ahead, we anticipate full-year 2026 results landing within our guidance range on every metric. We stay committed to consistent execution and to generating free cash flow through economic cycles, grounded in the parts of the business we control, and that is precisely what we delivered in the third quarter; since emerging from the pandemic and the associated supply shortage challenges, we have expanded the company, improved margins, produced record free cash flow, and returned significant capital to shareholders via share repurchases and dividends. We also further streamlined our footprint by exiting China and Brazil and monetized an idle asset in Shelbyville; we look forward to continuing on this path of value creation. With that, I will hand things back to Rob.

Thanks, Peter. At the start of every call, I usually make a point along these lines: we want you to see how we look at the world. So let me share a few remarks on the world we work in and on how we allocate capital. On geopolitics, the world is complex, bringing many challenges but also many opportunities; one of our core beliefs is that challenges make us better, and they truly do. We also believe that change and uncertainty open doors for those who are nimble, strategic, and talented. Whatever is changing, this world needs people who build things the right way. It needs a strong industrial base. There's a saying I like: when the water is murky, that's where the fish are. The geopolitical landscape is pushing supply chains to become more regionalized, boosting domestic manufacturing investment, and putting a sharper focus on supply chain security. Those trends reinforce our approach of investing capital in markets where we have scale, strong customer relationships, and lasting competitive advantages. Right now, what's top of mind for us is the difficulty created by tariffs and trade policy. Will tariffs arrive? How will they affect us? Where will things end up? After the U.S. midterms, will the outcome be better or worse? Will America end up with no tariffs or low tariffs, or not, in auto parts and assembly? What are the costs and the benefits? These concerns are real. The tariff cloud keeps hanging over us in Canada, in auto assembly, and much less so in auto parts; these issues won't vanish overnight or permanently, but we are managing them. As you know, USMCA-compliant auto parts generally get preferential tariff treatment, which helps limit our direct exposure, though we continue watching possible indirect effects on customer volumes, commodity costs, and supply chains. Where tariffs apply, we typically pass them along to limit exposure. Given the policies now in force and the shape of our North American footprint, we believe the direct tariff impact remains manageable, and I expect it to stay that way. We are also contending with technology, with AI and deep learning across society broadly, but also in how we manufacture, how we become more efficient and lower cost, and how we sharpen competitiveness. How do we handle or capitalize on new things, such as graphene or aluminum-air batteries? Where do we put our money? So on capital allocation, how do we approach it, and how do we do so given geopolitical, tariff, and technological opportunities? This is our capital allocation framework, and we believe it performs well. To succeed in business, you must invest in your business, and in our case that means committing $4 billion. Staying sustainable over the long term means you have to turn a profit, and that is what we do. Other than a handful of difficult quarters during the 2020 pandemic and the 2008 and 2009 global financial crisis, we have recorded adjusted operating income above zero in every quarter since our founding, even while more than half of our large competitors have gone through bankruptcy at some point or another. Given where we direct our investment focus, we have acquired companies at times, and we did a lot of that in the earlier days, or we have directed money into the operations to make them stronger and hone their competitive edge over the long term, which is something we have done a great deal of lately. As an example, during the last several months we installed a 3,000-ton press at Saline and a 3,500-ton press at Ridgetown, following major press installations at other locations, including Hopkinsville, Kentucky. These press lines are world-class and leading-edge, built to operate for decades, equal to anything anywhere; that is what investing in your business for the future looks like. As Pat and Fred said in their remarks, we are quoting and winning a great deal of business right now, and that will help us sustain and grow in the years ahead. So where have we concentrated our investment? In regions where we believe we hold a geopolitical edge: North America, Canada, the U.S., Mexico. We truly believe in a strong North America and in our very strong standing as a leading manufacturer here. At the same time, regarding our operations in Brazil and China, we concluded that the long-term risk-return profile there was no longer as appealing as the opportunities we have elsewhere in the portfolio. So we chose to monetize those assets and redirect capital toward markets offering stronger returns and strategic advantages. I want to stress that the people there, our workers, are dear to us. Wonderful people. We put arrangements in place that help secure their future. We do hold a small minority interest in our China operations, alongside partners who have been good to work with. We also direct money into technology, R&D, and strategic investments, both internally and as a third-party strategic investor. We take a value investment approach, we contribute operational expertise, and we gain something special from the relationship; take graphene and NanoXplore, for instance, where we believe in graphene's future. It is going to take off. The relationship has benefited us through some products that use graphene, and we are exploring other applications for it. We have investments in aluminum-air battery technology and an AI company, among others as well. Internally, we are investing in some excellent technologies. You ought to visit our Alfield facility, and we would be glad to have you. The capabilities there show clearly how we apply automation, machine learning, and advanced manufacturing technology to boost plant performance; we refer to it as Factory Engine. Our approach has delivered roughly $4 billion in value along the way. Our prime minister, our premier, and a lot of our top politicians have visited the facility multiple times. They recognize what Canadian manufacturing's future looks like. The geopolitical realities I talked about have pushed defense spending higher around the world, particularly in the U.S. and Canada. As Pat said, we see significant opportunities in defense and we are winning work. That same pattern appears in Canadian procurement programs. Our governments get why a stronger supply chain matters, and frankly, military procurement supply chains these days are in rough shape; they are coming to the auto supply base; where it makes sense, we will direct money there, and we view this as a growth area. You have heard about our industrial growth. That represents another big opportunity. We intend to invest in it. We do expect we might secure a fair amount of new work, similar to what happened in 2019. If it is profitable, we will commit capital to it. Keep in mind that in 2019 our revenue run rate was under CAD 4 billion. Since that time we have added approximately CAD 1 billion in sales, largely organically. So far, 2026 has been a strong year for quotes, and let us see what the months ahead bring. As you know, a strong balance sheet is something we want and need in this industry; it is cyclical, and many areas are capital-intensive. We have maintained that strength. Over the past several years, we have paid down debt that climbed during the COVID period, partly because of pandemic headwinds, partly because of industry overinvestment in EVs, and partly because of investing in growth. Cash from our dispositions has gone into our bank, reducing debt further; that lowers our cost of debt and gives us debt capacity to seize opportunities. A strong balance sheet also helps when quoting work from customers. As we have noted, we have taken some takeover business from other suppliers, several of which face financial challenges. We return capital to shareholders in a balanced manner, through dividends and orderly share repurchases. This year, we have been repurchasing shares. Some would say not fast enough, others too fast; but steady we have been. Over the last year, we have repurchased shares at a pace of roughly 1% of our outstanding shares each quarter. Over time, that becomes a very significant number. Each quarter, every one of our shareholders ends up owning a little more of our company without paying anything. Before we open the call for questions, I want to thank our people for their continued commitment and our shareholders and other stakeholders for their support; we are operating in a complex environment, but we are executing well, strengthening the business, and positioning Martinrea for sustainable, profitable growth. We will now be pleased to take your questions.

Hi there. Appreciate you taking my question, and it's genuinely nice to see all the progress and the work you folks are putting in. I'm certain it isn't easy, and I'm sure it will lead to positive results in 2027. My first question concerns Q4, specifically the implied guide you're providing. There are quite a few ranges for Q4. I appreciate you restating the guidance, but I'm just curious whether, if we compare Q4 with what we saw in Q3, we should expect anything meaningfully different. Are there production slowdowns, with sales likely declining sequentially? I'm just trying to get a feel for how Q4 is shaping up.

Sure, Michael. Typically we avoid giving exact quarterly projections, but what I can say is that it lines up with my prior comments: the fourth quarter matches what you could describe as the mountain shape, or the pattern I've been outlining; thus Q1 comes in somewhat lower, then it rises to a peak around mid-year, and declines again on a seasonal basis for us in Q4. I'd say it also aligns with what a number of our peers in the industry have recently reported, though year-over-year comparisons may appear strong in the market—you'll recall that the prior year was unusually weak owing to the aluminum supplier fire in North America. So we don't expect it to be that low when it comes to last year. Looking at the top line sequentially, there's a lot of variability right now—as I noted earlier, some customers are announcing shutdowns and making changeovers. A major program of ours is switching over for a model year, so order releases are fluctuating quite a bit here and there. It's a bit soon to pin down the range, but the guidance currently implies sales of roughly CAD 1.1 to CAD 1.4 for the quarter, if that's useful to you. As we wrap up the year, expect a bit of choppiness—something I think lines up with what a few of our competitors have mentioned too.

All right, thank you. I'm hoping to dig a little deeper into what Europe might look like for us next year. Should we begin to build some of that in? Is the thinking that sales will begin to fall off as this restructuring plays out? And should we expect restructuring charges that might be fairly sizable to run through the P&L?

Yeah, I can take that one. From a top-line standpoint, I think we've already absorbed a good part of the impact. Volumes in Europe have been lower, and the way we see it at the moment is that they won't rebound any time soon, and that market is shifting for a number of reasons. So we decided it was time to act, to be proactive and right-size the cost base there. That said, it isn't really a bet on weaker sales; we're simply responding to where things stand today. As for the restructuring work, we're in the middle of that effort as we speak. It's obviously fairly complex in Germany especially, given the unions, the negotiations and all of that; we're making solid headway, and our current plan is to finish the majority of the restructuring, from a workforce reduction standpoint, before this year ends, though some of it may slip into next year; so I'd expect that as we enter next year, our run rate will be improved compared with where it stands today.

Alright. Regarding the cash and those asset sales, could you give us some indication — should we expect roughly CAD 60 million of cash coming in during Q4? Is that what you're pointing to?

That's right, Michael, roughly CAD 60 million in quarter four, and it will go toward paying down the debt.

We already have it, so that is a good position.

We can state this confidently.

With a great deal of confidence.

Having money in the bank is great.

Money in the bank.

Alright, thank you. I'll rejoin the queue.

Thanks.

Thanks, Michael.

Hi there, good evening, everybody. Appreciate you taking my questions. You mentioned hoping to bring operating margins in Europe back up to the mid-single digits. Do you expect the restructuring you're doing right now will be enough to get you there, or would you still need some help on the volume side?

Looking at it from the restructuring angle, that's a major step toward it, so clearly it's a key component. I'd also point out there are a few other elements we mentioned in our comments. One I'll call out right now is vertical integration, so there are opportunities to bring some work in-house and so on. That will support our margin profile in Europe. Restructuring is the largest piece, but other elements will follow.

Yeah, Ty, just to build on that a bit—we’ll have next-generation programs, since we’re winning a lot of business right now that’s coming up in our European segment too, in the latter half of the year, of next year, and at the start of 2028.

Okay, great. That's really helpful. You mentioned allocating more capital toward certain industrial markets where you're seeing solid growth. I suppose, just broadly speaking, how are you thinking through those investment choices, particularly for verticals like power and batteries that are somewhat newer for you? And given the robust growth you're seeing in industrial and across North America generally, is there a chance CapEx could edge up above what D&A is over the coming few years?

In our industrial business specifically, I'd say capital tends to run lower; it isn't a capital-intensive operation the way stamping or casting is. There are plenty of new business opportunities. The quotes have been coming in more than I've ever seen during my time here, and we've won more business in this space than we have, again, the entire time I've been here, just over the past year. So we see a great deal of opportunity. Power generation is definitely a major part of that. The story is that finding a supplier with the capability is a struggle for customers, and they came across us, toured some of the work we were doing, and almost immediately handed us the work, and we're already well underway; so we see a lot of potential there.

Regarding the auto side, there's a great deal of business we're quoting. Should we land a large share of it, capital will need to be directed toward it, as I mention in my remarks, yet it must clear our hurdle rates.

Okay, thank you. Perhaps I could just follow up on the industrial side of things. I was hoping you might give us a bit more detail about that CAD 50 million award from Caterpillar. For instance, what exactly will you be producing, and which capabilities do you already possess that let you win that work, given that this is a fairly new space for Martinrea?

In essence, it's a muffler — though not the kind you'd find at the back of a car. What we're really talking about is an enclosure, an insulated one, that sits atop diesel generators and comparable equipment to cut down on noise. Many of the parts are assembled using brake presses and similar machinery, which is fairly standard for industrial operations. It just so happens that we're in a position to have that capability, and we have the capacity as well. In fact, we had already been building — I think this was late last year, earlier this year — we were already producing similar units for a smaller customer engaged in comparable work. Truly, it's work we already do; the only difference is a much larger volume, fueled by how popular data center construction has become. Reported EPS came in at $0.38.

These are large units, like 18 ft long —

Yeah.

8 ft high.

All right, that's genuinely useful context. Appreciate the remarks, and best of luck.

Thanks.

Thank you so much. Great job on the progress—from a capital structure standpoint, this is among the more interesting releases I've come across. Peter, sorry to ask you to go over this again, but could you walk us through how the asset sales broke down once more—the ones totaling 107 million from China through Kentucky?

Yeah, absolutely. Brian, the first one, which we announced in the second quarter, was Anqing. It's a fluids plant of ours that produces fluid products in China. We announced it there. Proceeds came to roughly 1 million. That was the first, quite a small one. Then came Brazil in the third quarter. The overall deal in Brazil was around CAD 15 million. It was split up over time. After the quarter, there was Yueyang, China—our aluminum-producing facility in that location. On sale, that brings roughly CAD 50 million in proceeds. We'll be working through the CTA and so on as we move along here in the fourth quarter. But those are the proceeds from the sale. The final gain or loss gets calculated as we complete the working capital adjustments with the buyer; then Shelbyville. Shelbyville totaled about CAD 40 million, CAD 42 million in proceeds. $4 million of that came in upon signing on October 15th, and the remainder will come over a couple of years through a funding facility we've arranged with the buyer.

All right. Do these asset sales carry any cash tax consequences? You mentioned earlier that CAD 60 million has already come in so far.

Yes, there will be a certain effect. We have not yet worked all of that through with the tax sale.

That won't amount to a big share.

Yeah. Well, let me give you a bit of context for the people listening on the reasoning. Anqing was a fluids plant quite a few years back. Being located in China mattered for global programs serving customers like Ford or General Motors. That benefit, and the requirement to operate on a global basis, is gone now, and in that setting the plant had no future. It served us well; we performed strongly in the program, fine people, yet ultimately there was no future there, and that drove the decision. On Brazil, much the same story. Plenty of problems in Brazil. Reading the newspapers is enough to see them, and several customers had departed; against that backdrop, and with the tax burden as well, we kept it running roughly flat over a long stretch; it consumed a great deal of resources, people included, and we concluded that if the right buyer turned up who could look after our customers and our employees, we'd sell, and that's what happened. Had we found the right buyer three years ago, we'd have done it then. We didn't. Now we have the right buyer, one already in the business. Easy to work with. Yueyang Aluminum, much the same. As you can see, product volumes in China and sales in China have fallen sharply; supplying there is hard. Being a supplier in China now is harder than it was a few years back. We found the right buyer and the right terms, and the facility is in good hands. With Shelbyville, we had an asset of close to a million sq ft sitting empty because the customer that held virtually all the business there halted the program; we're left with a big empty building. Ultimately we could have kept it for real estate speculation or whatever, but we found a buyer that met our price range and paid a solid amount. We've put that cash back to work both ways, but that's the reasoning.

Yeah, I hear you, and I appreciate that. So I suppose what I want to ask next is this: what does the cash cost look like when it comes to restructuring the European operations? What kind of total are we talking about, roughly?

At the moment we're still working through that level of detail, so we're not ready to put a number out there, but obviously there will be a cost tied to it; however, we could give some more color once we get —

Could I put that a different way? You mentioned net debt will come in under CAD 700 million by year-end. Is that figure inclusive of the cash costs tied to Europe?

My sense is the cash costs will, in the end — what I mean is, from a workforce reduction standpoint the activity will wrap up by the end of the year, though the cash will probably land next year.

Is that an offset to the CAD 700 million in proceeds, or does it fall well short of that figure?