Phinia Inc.

04/30/2026 | Press release | Distributed by Public on 04/30/2026 09:40

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
PHINIA is a diversified industrial supplier and global leader in the development of fuel systems, electrical systems, and aftermarket solutions, with a strong portfolio of trusted brands that includes DELPHI®, DELCO REMY®, and HARTRIDGE™. With over 100 years of manufacturing expertise and industry relationships, PHINIA has approximately 12,500 talented employees and over 40 locations in 20 countries and is headquartered in Auburn Hills, Michigan, USA. PHINIA systems and solutions are designed to keep combustion engines operating at peak performance across a variety of applications: medium- and heavy-duty commercial vehicle (on-road vehicles used for commercial transport classified class 4-8, 14,001 pounds or heavier); light commercial vehicle (on-road vehicles used for commercial transport classified class 1-3, 14,000 pounds or lighter); light passenger vehicles (on-road vehicles used primarily for carrying passengers); and off-highway, industrial, and other (including construction and agricultural machinery, vocational vehicles, marine, industrial applications, power generation, and aerospace and defense). PHINIA's service solutions include vehicle repair and replacement parts, offering both new and remanufactured products through the original equipment manufacturer dealer network and the independent aftermarket channel.
Acquisition of Swedish Electromagnet Invest AB (SEM)
On August 1, 2025, PHINIA completed the acquisition of Swedish Electromagnet Invest AB (SEM), a provider of advanced natural gas, hydrogen and other alternative fuel ignition systems, injector stators and linear position sensors, for $47 million, comprised of $15 million of cash consideration and $32 million cash used to extinguish debt assumed through the acquisition. See Note 2, "Acquisition", for further discussion.
Key Trends and Economic Factors
The global economy continues to grapple with semi-conductor shortages, supply chain disruptions, and economic and geopolitical tensions. These factors may affect production, pricing, and consumer demand. In addition, evolving trade restrictions, including export controls, and increases in tariffs could have a material impact on our business, financial condition, or results of operations, including increasing our input costs and decreasing the demand for our products. Although the nature of these trade restrictions and tariffs continue to change, they increase the risk for elevated inflation more generally, which may drive an increase in our other input costs.
Outlook
We expect improved earnings and cash generation in 2026, as we expect foreign currency, operational efficiencies, and share gains to more than offset a softening original equipment (OE) market. Continued economic and geopolitical uncertainty is expected to continue to impact light vehicle (LV) volumes, which are expected to decline by mid-single percentages in our key markets. Commercial vehicle (CV) volumes are expected to remain flat in our key markets. Assuming constant foreign exchange rates and excluding sales from acquisitions, we expect a modest increase in sales. Additionally, we expect to continue to be impacted by other macroeconomic challenges in 2026, which may include but are not limited to elevated inflation, supply chain constraints, market volatility, higher tariffs (particularly in Mexico and China), evolving trade restrictions, government shutdowns, geopolitical tensions, and changes in international trade relations.
Despite the near-term uncertainties, the Company maintains a positive long-term outlook for its global business and is committed to new product development and strategic investments to support its product leadership and growth strategies. There are several trends that are driving the Company's long-term growth that management expects to continue, including expansion in the CV market, growth in overall vehicle parc that supports aftermarket demand, increased consumer interest in hybrid and plug-in hybrid
electric vehicles, adoption of additional product offerings enabling zero- and lower-carbon fuel solutions for combustion vehicles, and continued expansion in the aerospace and defense industry. In addition, we believe we are well positioned to continue to expand our differentiated offerings and capabilities across electronics, software and complete systems.
Use of Non-GAAP Financial Measures
This Form 10-Q contains information about PHINIA's financial results that is not presented in accordance with accounting principles generally accepted in the United States (GAAP). Such non-GAAP financial measures are reconciled to their most directly comparable GAAP financial measures in this Form 10-Q. The reconciliations include all information reasonably available to the Company at the date of this Form 10-Q and the adjustments that management can reasonably predict.
Management believes that these non-GAAP financial measures are useful to management, investors, and banking institutions in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes.
Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, because not all companies use identical calculations, the non-GAAP financial measures as presented by PHINIA may not be comparable to similarly titled measures reported by other companies.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2026 vs. Three Months Ended March 31, 2025
The following table presents a summary of the Company's operating results:
Three Months Ended March 31,
(in millions) 2026 2025
Net sales % of net sales % of net sales
Fuel Systems $ 582 66.3 % $ 529 66.5 %
Aftermarket 329 37.5 % 306 38.4 %
Inter-segment eliminations (33) (3.8) % (39) (4.9) %
Total net sales 878 100.0 % 796 100.0 %
Cost of sales 690 78.6 % 624 78.4 %
Gross profit 188 21.4 % 172 21.6 %
Selling, general and administrative expenses 115 13.1 % 107 13.4 %
Restructuring expense 3 0.3 % 5 0.7 %
Other operating expense (income), net 1 0.1 % (2) (0.3) %
Operating income 69 7.9 % 62 7.8 %
Equity in affiliates' earnings, net of tax (5) (0.6) % (4) (0.5) %
Interest income (2) (0.2) % (4) (0.5) %
Interest expense 20 2.3 % 19 2.4 %
Other postretirement (income) expense, net (1) (0.1) % 1 0.1 %
Earnings before income taxes 57 6.5 % 50 6.3 %
Provision for income taxes 20 2.3 % 24 3.0 %
Net earnings $ 37 4.2 % $ 26 3.3 %
Net sales and Cost of sales
Net sales for the three months ended March 31, 2026 totaled $878 million, an increase of $82 million, or 10%, compared to the three months ended March 31, 2025. Cost of sales and cost of sales as a percentage of net sales were $690 million and 79%, respectively, during the three months ended March 31, 2026, compared to $624 million and 78%, respectively, during the three months ended March 31, 2025. The change in net sales, cost of sales, and gross profit for the three months ended March 31, 2026 was primarily driven by the impacts below.
(in millions) Net Sales Cost of Sales Gross Profit
Three Months Ended March 31, 2025 $ 796 $ 624 $ 172
Volume and mix 17 18 (1)
Supplier costs - (3) 3
Tariff cost and recovery 12 9 3
Employee costs - 8 (8)
SEM acquisition 14 11 3
Foreign currency and other 39 23 16
Three Months Ended March 31, 2026 $ 878 $ 690 $ 188
Selling, general and administrative expenses (SG&A)
SG&A for the three months ended March 31, 2026 was $115 million as compared to $107 million for the three months ended March 31, 2025. SG&A as a percentage of net sales was 13% for the three months ended March 31, 2026 and 2025. SG&A expenses increased period-over-period, primarily attributable to increased employee costs, including stock-based compensation.
Three Months Ended March 31,
(in millions) 2026 2025 Change ($)
Employee costs $ 42 $ 35 $ 7
Research & development 29 28 1
Amortization of acquisition-related intangibles 8 7 1
Information technology 6 8 (2)
Other 30 29 1
Selling, general and administrative expenses $ 115 $ 107 $ 8
Restructuring expense
Restructuring expense was $3 million and $5 million for the three months ended March 31, 2026 and 2025, respectively. See Note 4, "Restructuring", for further discussion.
Other operating expense (income), net
Other operating expense (income), net was expense of $1 million compared to income of $2 million for the three months ended March 31, 2026 and 2025. The change in other operating expense, net was primarily driven by an increase in separation-related costs. Other operating expense (income), net was comprised of the following:
Three Months Ended March 31,
(in millions) 2026 2025 Change ($)
Separation-related costs (benefits) $ 2 $ (4) $ 6
Merger and acquisition expense 1 3 (2)
Other operating income, net (2) (1) (1)
Other operating expense (income), net $ 1 $ (2) $ 3
Equity in affiliates' earnings, net of tax
Equity in affiliates' earnings, net of tax was $5 million and $4 million in each of the three months ended March 31, 2026 and 2025, respectively. This line item is driven by the results of the Company's unconsolidated joint venture.
Interest income
Interest income was $2 million and $4 million in the three months ended March 31, 2026 and 2025, respectively. The interest income is primarily related to interest earned on funds held in money market, local overnight deposits, and short term investments.
Interest expense
Interest expense was $20 million and $19 million in the three months ended March 31, 2026 and 2025, respectively. See Note 13, "Notes Payable and Debt", for further discussion.
Provision for income taxes
Provision for income taxes was $20 million for the three months ended March 31, 2026, resulting in an effective tax rate of 35%. This is compared to $24 million, or 48%, for the three months ended March 31, 2025. The effective tax rate for the three months ended March 31, 2026 decreased as compared to the prior year as a result of an uncertain tax position recorded discretely in the three month period ended March 31, 2025 that did not recur in the three month period ended March 31, 2026.
For further details, see Note 7, "Income Taxes," to the Condensed Consolidated Financial Statements for the three months ended March 31, 2026 and 2025.
Net earnings per diluted share and adjusted net earnings per diluted share
The Company's net earnings per diluted share was $0.96 and $0.63 for the three months ended March 31, 2026 and 2025, respectively. The Company's adjusted net earnings per diluted share was $1.29 and $0.94 for the three months ended March 31, 2026 and 2025, respectively. The Company defines adjusted net earnings per diluted share, a non-GAAP measure, as net earnings per diluted share adjusted to exclude: (i) the impact of restructuring expense, separation-related costs, merger and acquisition costs, impairment charges and other gains, losses and tax effects and adjustments not reflective of the Company's ongoing operations; and (ii) acquisition-related intangibles amortization expense because it pertains to non-cash expenses that the Company does not use to evaluate core operating performance. Management believes that adjusted net earnings per diluted share is useful to investors in assessing the Company's ongoing financial performance, as it provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of the Company's core operating performance.
Three Months Ended March 31,
2026 2025
Net earnings per diluted share $ 0.96 $ 0.63
Amortization of acquisition-related intangibles 0.21 0.17
Restructuring expense 0.08 0.12
Separation-related costs (benefits) 0.05 (0.09)
Merger and acquisition expense 0.02 0.07
Tax effects and adjustments (0.03) 0.04
Adjusted net earnings per diluted share $ 1.29 $ 0.94
Results by Reportable Segment for the three months ended March 31, 2026 and 2025
The Company's business is comprised of two reportable segments: Fuel Systems and Aftermarket.
In the fourth quarter of 2025, the Company made a strategic decision to shift a significant portion of the OES business, previously reported in its Aftermarket segment, to the Fuel Systems segment, as distribution will now be handled by the Fuel Systems locations that manufacture the products. This is expected to streamline the sales structure to external customers while also reducing administrative efforts. The reporting segment disclosures have been updated accordingly which included recasting prior period information for the new reporting structure.
Segment Adjusted Operating Income (AOI) is the measure of segment income or loss used by the Company. Segment AOI is comprised of segment operating income adjusted for restructuring, separation-related costs, merger and acquisition costs, intangible asset amortization expense, impairment charges and other items not reflective of ongoing operating income or loss. The Company believes Segment AOI is most reflective of the operational profitability or loss of its reportable segments.
Segment AOI excludes certain corporate costs, which primarily represent corporate expenses not directly attributable to the individual segments. Corporate expenses not allocated to Segment AOI were $24 million for the three months ended March 31, 2026 and 2025.
Refer to Note 21, "Reportable Segments and Related Information" to the Condensed Consolidated Financial Statements, for more information.
The following table presents Net sales and Segment AOI for the Company's reportable segments:
Three Months Ended March 31,
2026 2025
(in millions) Net Sales to Customers Segment AOI % Margin Net Sales to Customers Segment AOI % Margin
Fuel Systems $ 549 $ 51 9.3 % $ 490 $ 46 9.4 %
Aftermarket 329 56 17.0 % 306 51 16.7 %
Totals $ 878 $ 107 $ 796 $ 97
The following table presents the year-over-year change in net sales and Segment AOI for the Company's reportable segments for the three months ended:
Fuel Systems Aftermarket
(in millions) Net sales Segment AOI Net sales Segment AOI
March 31, 2025 $ 490 $ 46 $ 306 $ 51
Core business drivers 13 2 4 3
Tariff cost and recovery 4 1 8 2
SEM acquisition 14 1 - -
Foreign currency, SG&A and all other 28 1 11 -
March 31, 2026 $ 549 $ 51 $ 329 $ 56
The Fuel Systems segment's Segment Adjusted Operating margin was 9.3% for the three months ended March 31, 2026, compared to 9.4% for the three months ended March 31, 2025. The Segment Adjusted Operating margin decrease was primarily due to unfavorable product mix in Europe and Asia, partially offset by cost control measures and supplier savings.
The Aftermarket segment's Segment Adjusted Operating margin was 17.0% for the three months ended March 31, 2026, compared to 16.7% for the three months ended March 31, 2025. The Segment Adjusted Operating margin increase was primarily due to cost control measures and tariff recoveries.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company maintains various liquidity sources, including cash and cash equivalents and the unused portion of its $500 million revolving credit facility maturing in July 2028 (the Revolving Facility). As of March 31, 2026, the Company had liquidity of $808 million, comprised of cash and cash equivalent balances of $328 million and availability on the Revolving Facility of $480 million. Given the Company's strong liquidity position, management believes that it will have sufficient liquidity and will maintain compliance with all covenants through at least the next 12 months.
At March 31, 2026 and December 31, 2025, the Company had $328 million and $359 million of cash and cash equivalents, respectively, of which $315 million and $330 million, respectively, was held by our subsidiaries outside of the United States. We believe our existing cash and cash flows generated from operations and the Revolving Facility will be responsive to the needs of our current and planned operations for at least the next 12 months and the foreseeable future thereafter.
We utilize certain arrangements with various financial institutions to sell eligible trade receivables from certain customers in North America and Europe. We may terminate any or all of these arrangements at any time subject to prior written notice. While we do not depend on these arrangements for our liquidity, if
we elected to terminate these arrangements, there would be a one-time unfavorable timing impact on the collection of any outstanding receivables.
Cash Flows
Operating Activities
Net cash provided by operating activities was $53 million and $40 million in the three months ended March 31, 2026 and 2025, respectively. The increase in cash from operating activities for the three months ended March 31, 2026 compared with the three months ended March 31, 2025 was primarily due to increased net earnings.
Investing Activities
Net cash used in investing activities was $32 million and $35 million in the three months ended March 31, 2026 and 2025, respectively, related to capital expenditures. As a percentage of sales, capital expenditures were 3.6% and 4.4% for the three months ended March 31, 2026 and 2025, respectively.
Financing Activities
Net cash used in financing activities was $50 million and $117 million in the three months ended March 31, 2026 and 2025, respectively. The decrease is primarily due to borrowings on the Revolving Facility and lower stock repurchases.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates disclosures appear in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies And Estimates," in the Company's Form 10-K filed on February 12, 2026. There were no material changes to this information during the quarter ended March 31, 2026.
Phinia Inc. published this content on April 30, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on April 30, 2026 at 15:40 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]