Garrett Motion (GTX) Q4 2025 earnings review
Diesel Rebounds, Gasoline Stalls: A Strong Finish to 2025
Garrett Motion ended FY25 on solid footing, delivering 6% reported revenue growth ($891M) and beating the prior year's profitability metrics. The narrative flipped in Q4: Diesel and Commercial Vehicles—previously laggards—drove growth (+6% and +7% constant currency, respectively), while the Gasoline segment unexpectedly contracted (-3%). Despite a tax-driven dip in Net Income, Adjusted EBIT margins remained robust at 13.7%. Management issued confident FY26 guidance, projecting continued top-line acceleration and stable cash flows.
🐂 Bull Case
After struggling for most of the year, Commercial Vehicles (+7% CC) and Diesel (+6% CC) surged in Q4. This diversification protects the topline as gasoline demand fluctuates.
Adjusted Free Cash Flow reached $139M in Q4 and $403M for FY25. With liquidity at $807M and a new $250M buyback authorization, capital returns remain a strong thesis.
🐻 Bear Case
Gasoline products, the primary growth engine in Q1-Q3, reversed course to shrink 3% (constant currency) in Q4. If this indicates a broader slowing in light vehicle production, the FY26 outlook may be at risk.
Gross margin compressed 80bps YoY to 20.8% due to unfavorable mix and pricing pass-throughs. While cost controls protected EBIT, structural pricing pressure remains a concern.
⚖️ Verdict: 🟢
Bullish. The company demonstrated impressive resilience by pivoting growth from Gasoline to Commercial Vehicles in a single quarter. FY26 guidance suggests acceleration, and the valuation remains supported by strong free cash flow and buybacks.
Key Themes
Gasoline Segment Reversal
Reversing. For the first three quarters of 2025, Gasoline was the growth engine (up 6% in Q1, 4% in Q2, 10% in Q3). In Q4, it suddenly contracted 3% on a constant currency basis. Management cited 'weaker gasoline demand' specifically, a sharp pivot that warrants monitoring against the backdrop of global EV penetration.
Commercial Vehicle & Industrial Strength
Accelerating. Commercial Vehicle sales grew 7% in constant currency (9% reported), a significant improvement from the flat/negative trends earlier in the year. The industrial portfolio is expanding rapidly, with new wins in power generation and marine sectors, diversifying revenue away from pure automotive cycles.
Gross Margin Pressure
Decelerating. Gross margin dropped to 20.8% from 21.6% a year ago. The primary drivers were unfavorable product mix ($10M impact) and price pass-throughs ($15M). While Adjusted EBIT margin remains healthy due to SG&A discipline, the core product profitability is facing headwinds from mix shifts.
Data Center & Industrial Cooling Innovation
New Opportunity. Garrett explicitly highlighted its entry into 'industrial HVAC compressors' using oil-free high-speed centrifugal technology—originally developed for autos. With data center cooling needs exploding, this adjacent market entry leverages existing IP for a high-growth sector. This moves the narrative beyond just 'turbos for cars'.
Capital Return Execution
Stable. Garrett repurchased $208M of shares in FY25 (8% share reduction) and just authorized a new $250M program for FY26. Combined with a dividend yield, the shareholder yield remains attractive, supported by $403M in Adjusted Free Cash Flow.
Other KPIs
Stable. Down 100bps from 14.7% in 24Q4, primarily due to the flow-through of lower gross margins. However, it remains well within the annual target range (FY25 ended at 14.2%), demonstrating effective OPEX control despite inflationary pressures.
Decelerating. Down 16% YoY from $100M in 24Q4. The decline was driven almost entirely by tax expense ($19M expense vs $1M benefit in prior year). Operationally, the business performed well, but tax volatility obscured the bottom line growth.
Strong. Although down slightly from $157M in 24Q4 due to working capital timing, the full year result of $403M exceeded the high end of prior guidance ($350-$420M range from Q3), validating the company's cash generation capability.
Guidance
Accelerating. The midpoint of $3.7B implies ~3.2% reported growth vs FY25's $3.58B. This assumes a relatively flat constant currency environment (-2% to +2%), suggesting FX tailwinds (Euro/USD 1.17 vs 1.13) are doing some heavy lifting.
Accelerating. Midpoint of $545M implies ~7% growth over FY25's $510M. This outpaces revenue growth, suggesting management expects margin expansion (likely mix improvement or productivity gains) to resume in 2026.
Stable. Midpoint of $405M is essentially flat vs FY25's $403M. While solid, it suggests that the earnings growth is being consumed by working capital or slightly higher Capex (guided to 2.5% of sales) rather than flowing entirely to FCF.
Key Questions
Gasoline Demand Durability
Gasoline demand swung from +10% growth in Q3 to -3% contraction in Q4. Was this purely customer inventory management, or are you seeing a structural shift in light vehicle production mix earlier than anticipated?
Industrial Cooling Economics
You announced an industrial HVAC compressor portfolio. How material is the revenue contribution from this segment in the FY26 guidance, and are the margins accretive to the corporate average of ~14%?
Tariff Recovery Mechanics
You recovered $10M in tariffs this quarter, but new trade actions are a risk. Does the FY26 guidance range fully bake in current tariff structures, and what is the sensitivity if US/EU trade relations deteriorate further?