Hammond Power Solutions (OTC) (($TSE:HPS.A)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Hammond Power Solutions (OTC) highlighted a mixed sentiment, with strong revenue growth and a significant backlog increase being overshadowed by challenges in profitability. The company expressed optimism for future quarters, but current margin pressures and economic uncertainties in certain markets remain significant hurdles.
Record Revenue Growth
Hammond Power Solutions reported a remarkable revenue of $218 million, marking the second-best quarter for shipments in the company’s history. This represents a 14% increase compared to Q3 2024, primarily driven by U.S. shipments and gains across all market channels.
Significant Backlog Increase
The company experienced a 28% growth in its backlog compared to the beginning of the year. This increase was mainly fueled by the U.S. distribution network and OEM business, indicating strong demand and future revenue potential.
Expansion of Manufacturing Capacity
Hammond Power Solutions is expanding its manufacturing capacity with new facilities and equipment in Mexico. This expansion is expected to add approximately $100 million of capacity, bringing the total manufacturing capacity to around $1.2 billion by 2027.
Strong Data Center Segment Performance
The data center segment showed robust performance, with accelerated activity and several large orders received. This segment accounted for 53% of the total Q3 closing backlog, highlighting its importance to the company’s growth strategy.
U.S. and Mexico Market Growth
Shipments to the U.S. and Mexico saw a significant increase of 21% compared to the previous year, underscoring the strength of these markets in driving the company’s revenue growth.
Profitability Decline
Despite the revenue growth, profitability took a hit as the gross margin decreased to 30.1% from 33.8% in Q3 2024. This decline was attributed to ongoing material cost pressures and overhead expenses.
Impact of Tariffs and Input Costs
Changes to steel and aluminum tariffs negatively impacted certain products, contributing to reduced margins and highlighting the challenges posed by fluctuating input costs.
Unabsorbed Overheads in New Facilities
The newer factories in Mexico negatively impacted margins by 233 basis points due to unabsorbed overheads, presenting a challenge in the company’s expansion efforts.
Weakness in Canadian Market
The Canadian market showed signs of weakness, with sales decreasing by 3%. This was attributed to slower economic growth and greater uncertainty in the region.
Decrease in Adjusted EBITDA
Adjusted EBITDA decreased to $30,290 million from $34,377 million in Q3 2024, despite higher sales volumes. This was primarily due to lower gross margins.
Forward-Looking Guidance
Looking ahead, Hammond Power Solutions provided guidance indicating continued strong performance, with expectations of improved margins in the fourth quarter due to recent pricing adjustments. The company anticipates that its increased backlog will help alleviate under-absorption challenges and expects positive impacts from these pricing actions.
In conclusion, the earnings call for Hammond Power Solutions painted a picture of robust revenue growth and a promising backlog, tempered by challenges in profitability and economic uncertainties. The company’s strategic expansions and market growth in the U.S. and Mexico are promising, but managing costs and margins will be crucial moving forward.