Martinrea International Inc
TSX:MRE
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Martinrea International Inc
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Good morning, ladies and gentlemen. Welcome to the Martinrea International Second Quarter Results for 2019 Conference Call. [Operator Instructions] Please be advised that this call is being recorded. I would now like to turn the conference over to Mr. Rob Wildeboer, Executive Chairman with Martinrea International. Please proceed, sir.
Good morning, everyone. Thank you for joining us today. We always look forward to talking with our shareholders, and we hope to inform you well and answer your questions. We also note that we have many other stakeholders, including many of our employees on the call, and our remarks addressed to them as well as we disseminate our financial results and commentary through our network.With me this morning are Pat D'Eramo, Martinrea's CEO and President; and our Chief Financial Officer, Fred Di Tosto. Today, we will be discussing Martinrea's results for the quarter ended June 30, 2019. Pat, Fred, and I will make some comments, and then we'll open the call for questions, and we will endeavor to answer them.Our press release with key financial information discussed on a fairly detailed basis has been released. Our MD&A and full financials have been filed on SEDAR and should be available. These reports provide a detailed overview of our company, our operations and strategy and our industry and the risks we face. We're very open to discussing in our remarks, and we hope in the Q&A, some highlights of the quarter, the state of the industry today, how we are addressing the challenges and progress in our operations. As always, we want you to see how we see the world.As for our usual disclaimer, I'll refer you to the disclaimers in our press release and filed documents. Our public record, which includes an AIF and MD&A of our operating results is available on SEDAR, and you may look at the full disclosure record of the company there. And now here's Pat.
Thanks, Rob. Good morning, all. As noted in our press release, our good story continues with Q2 adjusted net earnings per share coming in at $0.66, at the midpoint of our $0.64 to $0.68 guidance range. Q2 2019 was a year-over-year improvement from our '18 second quarter EPS record of $0.64. Our adjusted operating income margin came in at 8.9% for the quarter, a good continuation on our path to our 2019 and '20 targets. This is on production sales of $898 million as compared to our guidance range of $870 million and $910 million. As expected, our net debt dropped during the quarter from $733 million to $696 million, bringing our net debt-to-adjusted EBITDA ratio to 1.48x. We expect Q3 EPS to be between $0.53 and $0.57. Adjusted operating income margin is expected to be impacted by higher tooling sales, but timing continues to move on us. Due to some delay in some of the customer programs along with engineering changes, we now see larger tooling sales falling into Q3, which we talked about as a possibility on our last call.As a reminder, we make low to no margin on tooling sales, therefore, despite continuing good performance, the increased tooling sales volume will likely dampen the operating margin percentage in Q3. We expect Q3 production sales to be between $820 million and $860 million, up year-over-year. New business wins for Q2, as noted in our press release, came in at approximately $50 million, representing annualized revenue at peak volume, including lightweight structures for Honda and Nissan and model assemblies for Ford.Quoting activity continues to remain high in our commercial groups. We expect some larger awards at the back half of 2019 or the front end of 2020. Overall, we continue to expect sales to remain strong in North America on truck, SUV and CUVs, also in European programs in China are lower than planned.You'll recall I discussed the need to rightsize our Brazilian business last quarter, and we did just that in Q2. Our Brazilian operations have now improved, validating the actions that we took. Volumes for CAF in China have decreased significantly. On the last call, I indicated that due to the lack of volume that we were contemplating downsizing and restructuring our fluids business in China. The CAF volumes, a significant portion of the business there, have not improved. Hence, we will restructure. As a result, we will take a charge in the second quarter. We will continue to promote our fluids business with other Chinese and China-based customers. Our fluids business in China has been very good since we opened the plant, but our key customer there has seen volume drop off, and we have responded quickly.We still believe China will be a strong market going forward. There will continue to be a lot of opportunity there. In order to continue to grow with our customers, we have established a partnership with Millison in our aluminum business. Millison's manufacturing focus is high-pressure die casting. As you are aware, we have a low pressure die casting plant in China. This partnership will allow us to minimize capital investment while satisfying our customer needs, allowing us to provide both low-pressure die-cast and high-pressure die-cast products. We will continue to focus on high-pressure die casting in the rest the world and work with Millison in the Chinese market.We have targeted and met or exceeded expectations with our financial performance now for 4.5 years, somewhat unprecedented in our space. In today's market, we are performing well, both in a relative and an absolute basis. We continue to target 8% operating income for this year and 9% for 2020, even in a flat market. On these calls, I typically walk you through a lot of specific activities, but to avoid redundancy, I'll just remind you that we continue to perform well in the items that are creating these positive results. If you want specifics, please ask during the Q&A.In conclusion, I'd like to tell the Martinrea team thanks for all your tremendous efforts. And with that, I'll hand it off to Fred.
Thanks, Pat, and good morning. As Pat has already noted, the second quarter was another strong quarter for us. Again, reflective of continued progress towards our financial goals. As we move into the second half of the year and look back, I would say I'm very pleased with our financial performance for the first 6 months of the year.At the end of the day, we delivered solid adjusted margins and earnings, very much in line with expectations despite the volatile global environment and generally outperforming our peer group from a margin perspective. Solid results from many angles.Now earnings profile for the first half year was, in fact, generally flat year-over-year, tempered by heavier than normal amount of launch activity, but as we look forward to the second half of the year, we expect that to change. We expect the year-over-year earnings trend to turn positive again in the back half of the year, and our Q3 guidance, as Pat outlined, clearly reflects that. A $0.53 to $0.57 EPS range for Q3, which will be a record third quarter for us, reflects a significant increase over the $0.43 we generated in Q3 last year. As a result, we continue to expect 2019 to be another record year for us from an earnings perspective.It is nice to see things play out as planned. We are very happy with the overall progress we are making as an organization, and I too would like to thank the Martinrea team for their hard work and dedication as we are making a difference. Second quarter total sales came in at just under $950 million, representing a 2.9% year-over-year increase, impacted to some extent by lower year-over-year tooling sales. Production sales for the quarter were $898 million, within our previously announced sales guidance range of $870 million to $910 million and up 4.8% year-over-year from $857 million reported in Q2 last year. This, despite some of the volume headwinds we are seeing in the overall market, in particular in Europe and the Rest of the World.The higher year-over-year production sales largely reflects the launch of new programs plus positive foreign exchange translation, partially offset by lower year-over-year production volumes in Europe, in particular, the Jaguar Land Rover. In China, largely with Ford, but also in Jaguar Land Rover. And in North America on certain light vehicle platforms, in particular the Ford Escape.Generally speaking, overall production in North America, where approximately 80% of our business resides, continues to be quite strong, with lower passenger car volumes being generally offset by higher volumes on CUVs, SUVs and trucks. Looking forward, we continue to expect total sales to be up year-over-year for the full year 2019. In addition to Q1 and Q2 results, this positive forward-looking sales trend is also reflected in our Q3 '19 guidance, which calls for production sales to be in the range of $820 million and $860 million, as Pat has already noted, up year-over-year from $803 million of production sales in the same period of 2018. Again, this despite some of the volume headwinds we are facing in certain parts of the world.As Pat already noted, adjusted net earnings per share in Q2 on a basic and diluted basis was $0.66 per share at the midpoint of our published earnings guidance range and up year-over-year, aided to some extent by a lower share count from our recent share repurchases. Overall, a very good quarter for us as we continue to deliver strong financial results.Consistent to what we have talked about on the last quarterly conference call, we did have some adjustments to earnings during the quarter related to some restructuring cost and noncash asset impairments, mainly in China and Brazil. Pat has already provided some further background on these items in his remarks, so I won't comment any further. You can also find further comments on these matters in our Q2 MD&A. Lastly, I just want to touch upon cash flow for a minute. Free cash flow specifically. We have been very consistent with our messaging on this topic. We have said for quite some time that you would start seeing our free cash flow profile turn positive in 2019, and I'm happy to report that our Q2 cash flow performance clearly reflects that. We generated free cash flow, as defined in our MD&A, at $57 million for the quarter, in part aided by a decrease in our tooling related working capital, which was still sitting at $95 million at the end of the quarter, a good result in line with what we have been seeing. With our Q2 performance, we are now free cash flow positive on a year-to-date basis and expect this positive trend to continue over the course of the remainder of the year and heading into 2020 as promised.As a result of the free cash flow generated, our net debt decreased nicely during the quarter. Our net debt is now back under $700 million again. As a result, net debt-to-trailing 12 months adjusted EBITDA decreased to 1.48x at the end of the second quarter, down from 1.57x at the end of the previous quarter, very positive momentum. We have said all along that we are committed to a strong balance sheet and are not deviating from that. We have a strong balance sheet for this industry and are committed to keeping it that way.With that, I'll now turn it back over to Rob.
Thanks, Fred. Some comments on capital allocation and our industry and our position in it. Just a few comments on a macro side, which are similar to the comments we made at our AGM just a few weeks ago. At the outset, we believe there are many positives that support the view that our industry and our markets are in good shape overall, while many are focusing on a negative sentiment and as reflected in valuations, incorrectly, in many cases, I believe, including for us.On a macro side, there is a general view that the economy is slowing and then as a result, the auto cycle is over or near over and auto volumes will go down. Also on a macro side, there's much concern over trade wars. Okay, we get it. Here's our thesis. The present is better than many think it is, and the future is good for our industry and for Martinrea in particular. Here, quickly, is my top 10 list of good things that are happening that will support auto sales at current or slightly lower levels overall for a while. One, worldwide auto sales are going up over time. Even with the recent slowdowns in China and Europe for various reasons, long-term economic growth, even if slower, we predict that 5 years from now, 10 years from now, there will be more cars being made. Two, U.S. auto sales, North American auto sales and production volumes are at a very healthy level. We believe that U.S. automotive sales this year will come in between 16 million and 17 million units, a healthy level. If you add Canada's 2 million units and Mexico's 1.5-or-so million units, you are over 20 million units. That's a lot of vehicles. Note, the volume levels today are similar to levels 15 or so years ago. As an aside, we make good money at lower volumes in the past. Three, the North American economy is still expanding. The U.S. economy as well as Canadian and Mexican are expanding. The growth rate may be slowing, but it's still above 2%. There's still underlying strength, especially in North America, and the world economy is still expanding even though slowing.Four, the USMCA is a good deal for auto and for us. So is NAFTA. Overall, the modernization of the agreement is good. The maintenance of a free-trade market is good for the supply chain and competitiveness. The North American content rules are good for North American-based suppliers. The antidumping-type rules are not a bad thing. In sum, we could've done a lot worse. And for us, we tend to produce and sell within the trade zone, whether it's Europe, North America or China.Five, unemployment rates are low and participation rates are rising. Unemployment rates are as low as they've been in a generation and the participation rate is increasing also. When people have jobs, when they have work, they can buy a vehicle, whether small or large, used or new. But this supports the demand. Six, the housing market is relatively healthy. The U.S. housing market is pretty good. We're still not caught up in the U.S. from the 2008, '09 crisis. We're not at replacement rate. When people buy homes, this generates a lot of activity, including construction work and purchasing of major purchases. People buy vehicles to assist in making their homes and filling the driveway, frankly.Seven, financing is available at lower rates, which just got lower in the U.S. Interest rates are fairly low. We are still seeing interest rates much lower than 20 to 25 years ago. This encourages buying activity, but perhaps, more importantly, we do not see rising interest rates as a constraint on demand, and financing is available. This all means that the cost of buying a car, owning a car, remains affordable. Eight, improved consumer debt levels, especially in the U.S. People act rationally, and people in the U.S. have been paying down debt levels as a percentage of wealth or income fairly steadily since the Great Recession. To put it another way, domestic debt levels are in better shape than they were. Note, there is much room for improvement.Nine, gasoline prices remain low. Oil and gas prices are low, and miles per gallon have improved since 10 years ago. For example, the Chevy Equinox today is 28 miles per gallon. In 2008, it was 18 miles per gallon. Think about that. The cost of driving a car has really not gone up, and despite the increasing level of electrification, 99% of all cars sold in North America still use gas, and internal combustion engines will be relevant for many years.Ten, people need and want to buy cars and light trucks, and we're adding new drivers every year. The average vehicle age today is 12 years-plus. So there's replacement demand. I think the story here is a little different than just replacement. The fact is that new vehicles have tremendous improvements in technology, safety, miles per gallon, et cetera. Many want to replace their vehicles to get this in their vehicles. And let's face it, and I think the people who have pushed autonomy missed this point. People like to drive. They like to drive vehicles, and especially lately, trucks. That includes a lot of millennials when they get older and teenagers. The volumes show it, and the fact people are buying so many trucks not as support vehicles but for pleasure shows it.We're adding new drivers every year. Something like 2 million new potential drivers enter the market each year in North America. Many want cars at some point, and that includes millennials. They only want cars a little later in life when they start families, move to the suburbs and don't want to rely on Uber to take the kids to the emergency clinic.What we're finding is that even if drivers are using Uber and Lyft, we need drivers for the Uber and Lyft vehicles, and they go through cars faster as they use them more. Ride-sharing does not hurt volumes. So many great reasons to be positive. There's some good underlying fundamentals about our industry and our place in it. We see it every day. And these are realities for our long-term decision-making, and they do influence our thinking and are reflected in our general margin and revenue assumptions that Pat and Fred talked about. Let's look at the positives. Sentiment is going to change at some point. My final comments relate to capital allocation. In the last several calls and releases, we talked about our use of capital, we get asked about it sometimes. Let me give you a very brief update on that. First, we invest in the business. We've won a lot of new businesses since the beginning of 2018. Some of it is on new models. Some of it is conquest business from other suppliers who were having issues or cannot or will not meet competitive prices. Of course, we continue to win repeat business, too. In terms of capital allocation, investments we have been making in our business have been bearing fruit, and further, we will continue to invest in our own business. This will be our priority. There's clearly tremendous value to it. Many people ask us about energy M&A or strategy investment opportunities, and we see a lot of what I would call noise. We're clearly not averse to M&A activity. After all, we've done it many times in our past. We applied a build-or-buy scenario and where it was cheaper and faster to buy than build, we did so, especially given the fact there were cheap assets available, although with a lot of fixing to do. We've been fixing very well as our margin improvement attests. I believe our 2019 operating margins are now at or above many of our competitors. We acquired a plant in Mississippi earlier this year from a troubled supplier, Vari-Form. The cost was nominal, and the revenue is not large, but we helped out a customer in this end. And we are retaining the business with a chance to grow it, the kind of deal we like to do. Our strategic investment in NanoXplore is something we are excited about. Graphene has wonderful prospects, and we're actively working on some graphene-enhanced product offerings. I know we just exercised our in-the-money warrants that were about to expire. In terms of our debt levels, we like and have a strong balance sheet. This is helpful not just from a funding perspective, but our customers frankly like companies with financial strength. They know we are there for the long term. Believe me, this industry has long memories and customers still don't like overleveraged suppliers. So we will maintain a strong balance sheet even as we fund our internal growth and make strategic investments. As Pat and Fred noted, in the quarter, we reduced our net debt-to-EBITDA ratio. We reduced the absolute debt levels. We had some solid free cash flow. As promised, in 2019, we will start generating free cash flow.In terms of returning capital to shareholders, as you recall, we increased our dividend last year, and that has represented some increased return. As well, we filed for a normal course issuer bid at the end of last August to purchase up to 5% of our outstanding common shares or just over 4.3 million shares, and we completed that in the first quarter. In the second quarter, we bought back no shares. We promised we would buy back some shares as a good investment of capital while still funding our growth, taking advantage of investment opportunities and maintaining a strong balance sheet. We kept our promise. We intend to renew our normal course issuer bid later this month, and we'll put out a press release at the appropriate time. The benefit, of course, to shareholders is less dilution of earnings and increased earnings per share number and, over time, support for higher share prices.Auto parts share prices are baked in the recession, which is, in my view, too conservative. And in terms of our company, I won't speak for others, the stock is undervalued. We're going to work on that, whatever investors' sentiment to our sector might be. In a flat overall market, this company and our team are doing a fantastic job, evidenced both by our absolute results and our improvements in key metrics relative to our peers. Ours is a great story. Our customers want our advanced technologies and products, whether they are lightweighting solutions or propulsion systems, and our team is delivering well. I would like to thank our people for their efforts and our customers for their support.Now it's time for questions. We see we have shareholders, analysts and competitors on the phone, so we may have to be a little careful with our answers, but we will answer what we can. Thank you all for calling.
[Operator Instructions] The first question is from Mark Neville from Scotiabank.
Maybe just first on China. You took the impairment charge this quarter. I guess I'm just curious of the plan moving forward. Do you still have facilities? Is there rightsizing that needs to be done, is there any costs associated with that? Just any more help on that would be great.
This should do it. We're continuing the business in China in our fluids business. We just reduced our workload or basically all of our work with CAF over the course of the next number of months. But we're going to continue to sell product and produce product for other customers there.
Okay. And then the rightsizing in Brazil, that's now complete?
That's complete as well. Correct.
And Fred, you mentioned, I think, $95 million of tooling working capital into Q2. I appreciate sort of the call from quarter-to-quarter to call those. What should that number be? Or sort of how do we think about the working capital you talked about?
Yes. I mean they've been extremely volatile as noted in the past. I would characterize $95 million, $100 million as higher than normal. Something in the range of around $50 million, give or take, is probably a more normal historical level. So I'm expecting that to decrease over the coming months, and that will help -- obviously help to free cash on the back half of the year as well. We saw some of that in Q2 and expect it more in Q3 and Q4.
Okay. Maybe just on the margin. Again, another good quarter. You're tracking sort of at above your targets. But I guess just regionally, at this point, is sort of North America doing, again, a good 9.5 this quarter. Is that about sort of where you think it should be or sort of where you hoped? And I guess is the rest of the improvement now sort of rest of the world in Europe? Or no?
I think there's still some upside in all our regions at this point. North America, obviously, has performed quite well and has matured extensively over the last number of years. But there's still some mix they have to play over the next couple of years and some new work coming online, so expect some more upside there. Obviously, we're starting to get up there. And then Europe, it's been a little more volatile just given some of the launch activities and some of the volume headwinds we have been facing there. I believe there's probably more upside in Europe at this point. And the rest of the world, again, very early, small in nature, but I expect that region, over time, as we launch work in China in particular with the aluminum business, to continue to trend upwards into the -- close to our average margins as a company.
And I guess for Europe, you mentioned higher launch but lower volumes. I'm just sort of curious what's the bigger headwind and, I guess, thinking that if these launch costs go away, if the volumes don't recover or remain flat, is it still, I guess, an issue you maybe already answered, but is there some way for that to go up?
Yes. I mean I think the biggest issue right now there is the volume and the headwinds. And looking forward in the short term, I'm actually expecting Europe, on a year-over-year basis, not to be down as much as it was in Q2, so we're starting to see that maybe improve to some extent but still some volume headwinds. And then some of the new work that we've launched and -- recently haven't hit margin volume expectations as of yet. So that could, over time, maybe rectify itself. But yes, I would characterize the volume as the biggest problem we have in Europe at the current time.
The next question is from Peter Sklar from BMO Capital Market.
Just back on China, CAF, is that Changan Ford? Or is it another customer?
No. That's who it is.
Ford and it's partner. Correct.
Yes. Yes. Okay. And like -- so that was the fluids business. What's the lesson to be learned with that? Is it just there was too much customer concentration? Or like were the programs not bid properly? I'm just wondering what the conclusion is.
We originally went over there for CAF. So the majority of our business, in fact, in the beginning, all of our business is with CAF or was with CAF. But over the course of time, we started to grow our other customers. The -- what I would call quick reduction in volume for CAF over the last few years, I think, took a lot of people by surprise, especially CAF, obviously. But it got to the point where they didn't need as many suppliers and, in our view, we discussed that with them, and we thought it was best to get out of that business, continue the fluids business, which has been very fruitful for us over there but try to localize more with more Chinese-based suppliers in China, frankly. And we started to do that.Certainly, looking back, I would have accelerated that quicker knowing what I know today. But outside of that, I think, it was quite a surprise over the last few years when we saw the reduction in that business come so quickly. And I think we responded to it very well, frankly.
Quite a surprise for CAF. But this is a -- our Chinese fluids business has been a very good news story. It allowed us to win a lot of worldwide platforms. We made money across the world. We made money every year, and then when the volumes changed, as Pat said, we reacted very quickly. So the lesson is be very careful where you go. Make money when you go. And then when the environment changes, react quickly. So I think that's -- I think it's a positive story overall.
Yes. Like I don't know a lot about CAF, but I noticed that their sales collapsed in 2018. But did they have some platforms that didn't sell? Or what happened to them?
I think that there's a lot of different reasons. Obviously, the OEM would be better at answering those than I would, but I think some of the models were delayed in change, which I believe you're seeing more of that change now. But I really don't know all the detail behind it. But again, when it happened, we talked to the customer a lot about it and reacted as quickly as we could. And I feel like we'll get through it with still healthy business at the end of the day.
Okay. I want to switch to Europe. So if you look at your European results relative to Q1, they tailed off quite a bit. Like what was going on at JLR? Were -- did some of the platforms you were exposed to have weak volumes? Because it was quite a drop-off in your performance relative to Q1.
Yes. The sedans definitely have dropped off, and the SUVs and CUVs they've launched have not hit the volumes as expected. I don't know if that's purely a Brexit thing, a sales thing or if they're having other supplier issues as far as being able to produce. But certainly, those volumes haven't come to play per plan. And so we've had to adjust to that, obviously.
Okay. And then the last thing I wanted to ask you, just a bit of an open-ended question. With what's going on at Tower, like does that open up any opportunities for Martinrea? Like how do you think the customer -- typically customers, I would think, don't like it when private equity owns a supplier. And I'm just wondering if you think there's going to be any fallout in the stamping sector and any additional opportunities for yourself.
It's very interim. And Tower was -- I guess a lot of companies are potentially for sale at any time. But Tower has been in the news as a potential acquisition target many times over the past decade, I would say. It was bought by a private equity that was looking to dispose of it at some point, like Cerberus used to be the owner and then they spun it out public and so forth.I think that OEMs are cautious with private equity because sometimes they get into negotiations that they don't like. The private equity guys look for price increases or so forth. There are exceptions to that, but there is a general concern about that type of situation, and OEM folks would probably tell you that, and I kind of indicated that in my remarks here. I think that in the context of the stamping business, it will be very interesting to see what happens to a number of suppliers when volumes are flat or not increasing or down a little bit, which is some of what we're seeingAnd I think that we're extremely well positioned. Don't forget, we're coming from a place where we've bought a lot of distressed assets, fixed them over the year. I think if you look at our margin profile, you can -- it shows that we fixed them there. Martinrea plants now. They're not old bug plants or whatever. And I think that we're very well positioned to take advantage of some of the stress in the marketplace. I think it'll be very interesting to see what happens when people are owned by a private equity, highly levered, a situation where maybe revenues are going down or EBITDA is going down and yet, there has to be a financing cost. There will be things that pop. And we saw that in 2001 to 2008. We were huge beneficiaries of that. I think we may see some of that again. We are extremely well positioned to take advantage of those opportunities, whether it is to do takeover work, whether it is to look for assets or whether it is just to continue to invest in R&D and lightweighting solutions, et cetera, when other folks are focusing on paying their debt loads and so forth.In terms of the overall, the reality is that the customers like to look at a range of suppliers. So whenever there's -- they're going to have 2 or 3 potential suppliers on everything. I think that in that extent, ultimately, the customer wants to see competitive bids. So that's -- those are some general comments. I don't know if Pat...
No. You're the expert here.
And was a merger between Martinrea and Tower ever a possibility? Or just the customers would not have allowed that?
Well, I think that we have probably a library of 50 pitchbooks from investment bankers and so forth that said would you be interested in buying Tower? A merger implies an equal combination. The issue was would be buy it. We weren't going to be bought by them. But at the end of the day, we looked at it. For us, we have a very good footprint in North America. And at the end of the day, just to add revenues and pay premiums for that, we never thought that it would be -- it would make sense for us, whether it's at this price or a different price.
I thought the attractive thing about Tower was the European footprint, at least from our perspective, because as Rob said, we're very well placed in North America. And of course, they sold that off. So there was too much redundancy at that point between their business and our stamping business.
Yes. They have a high customer concentration, too. So at the end of the day, it's interesting you see -- we see people make purchases from time to time and sales from time to time. We think that we've been very prudent in our acquisitions over time. We've only done 8, if you include that little plant that we bought earlier this year. But we probably looked at 1,000. So the fact is that our take-up rate is pretty low. We're pretty discerning.
The next question is from Kevin Chiang from CIBC.
When I think back to your Q1 call and talking about some of the longer-term targets you had out there, I think, until 2020, I think you have named or highlight some of the headwinds, and I think that was reflected in some of the impairment charges you took this quarter. When you sit here today, are you more confident in getting to those 2020 numbers or maybe less confident given what's happened over the weekend, maybe, to getting some of those revenue and margin targets you put out a few years ago? I just want to get a sense of how your sentiment might have changed over the past 3 months given all that's happened here.
I think first off, that what happened over the weekend, by 2020, will either be resolved or certainly less relevant. I think there's a tendency to react to those things or overreact to those things. And it's continued to put pressure on our industry in particular despite the fact sales overall the last few years have been very strong.So I don't -- we won't put a lot of bias in something like a tariff or a tariff battle that certainly will be over by then. At least we can all hope. But in general, when you look at Brazil, it's been a very volatile sales situation, and the fact that we restructured it now versus earlier, you could debate a little bit, but I think it was definitely prudent, and I think it set us up for a better future there. As that market will continue, I think it could go up and down quite a bit. China, we all know China is probably going to remain flat for a while until their economy gets moving again. So I think we positioned ourselves well. We continue, as I said to do the fluids work there and continue to expect to grow it. And with the partnership we just made with Millison, our ability to grow the aluminum business actually should accelerate once we start to see that change in their volumes. So -- and, of course, North America, we feel, as Rob noted, pretty good about. Fred, do you want to add some more?
Yes. I mean I think if you go back to quarter-over-quarter sentiment from our perspective, I don't think there's a whole lot of change. I mean we had the China and Brazil situation in front of us when we had our last call. So we reacted nicely to that, and I believe there is positive comment with that going forward. So generally speaking, I would say that we feel still pretty good about where we are.
That's helpful. I appreciate the color on the -- I guess renewing the NCIB in I guess a few weeks time here. When you look at that as a lever to use your free cash flow, obviously, very aggressive over the first, I guess, 9 months of the NCIB. Your stock still, let's say, performed like every other auto stock. When you look at the NCIB for the next year, is that how you feel the best way to potentially catalyze your share price higher? Or are there other things that you would consider, like would a SIB make more sense, an SIB make more sense versus an NCIB? Just trying to get a sense of -- like when you look back over the last year, the NCIB probably didn't achieve what you were hoping it would achieve in terms of your share price performance, and you'll probably do that again in a few weeks time.
I mean I ran the numbers last Friday as to 1 year share performance, and actually, while we were down, we were probably down less than just about anybody in our space because of Magna. Magna did a lot of NCIB purchases. And if you take a look at the 3-year return from last Friday back, I think we're the best performing auto part stock in our universe. That's not good enough, ultimately, on a relative basis, but we don't want to say we suck less than everybody else.The reality is though, that people are going to make cars for a long time. People are going to make parts for cars for a long time. My personal belief is that we have the best management team in the industry in terms of what we do, and we're incredibly well poised to take advantage of opportunities. We spent a lot of time doing that and so opportunities will arise. So in terms of the use of our cash, we're going to see what happens over the next 12 months. I think there's a balance. I think we invested our business. That's one of the reasons we're winning work.If you walk into a Martinrea plant, it's a pretty special place. They're pretty good plants. And that's because we're investing in that, and the customer see that, too. They want to see a supplier that's going to be around for a long term, probably one that's not going to get spun off by a private equity, which goes to Peter's question earlier on why one of the reasons customers don't necessarily like private equity. It creates destabilization in their supply base and that's a problem.I think that paying down debt on an absolute basis is a good thing, and the more free cash flow we can generate, that's an aspect of what we do. At the same time, we want to reward shareholders that our -- that have been loyal to us and that show faith in us. And if the -- if you buy back some of the stock, it may have a bigger equity stake in the company, and you're rewarding those people who see the vision that we do. And so there's a balance on that, and that's a vision actually that's shared by a number of our people. We have executives buying stock. We have stock appreciation rights to reward our key people. And we want to reward them more by improving the stock price.So there's a nominal perspective, and there's a relative perspective. I want us to do better, but I think this is -- the NCIB is one of the elements of our investing. I think it's appropriate. The shareholders that we've talked to have been pretty supportive of it, and we listen to our shareholders. At the same time, I think that shareholders also recognize we have to be prudent with our balance sheet and prudent with our investments.
And just a -- maybe a clarification question here. I think you said in terms of European sales, sedans were lower, SUVs are still ramping up and, net-net, those volumes are not coming as originally planned. Was it a combination of the 2? Or was it that sedans came in weaker than expected and the ramp-up was as expected? Or was it they both were underperformed? Or just want to get a sense of, I guess, the composition of that underperformance in Europe.
Yes. I think it's a combination of both, and it's pretty much concentrated with one customer, Jaguar Land Rover. So they have some challenge in the marketplace right now, and they are a significant customer to our aluminum group. So we're facing with that at the current time, and we'll keep a close eye on them going forward.
But at the same time, we're making good money there. Let's face it. We're making good money. This is a record quarter, and so we can talk about a little bit what happens in a plant in China or what happens in Europe. The fact is from a company base, we've got 47 plants. A lot of those plants are at record performance, and that's why you got a record quarter.
[Operator Instructions] The next question is from Brian Morrison from TD Securities.
Fred, just in terms of free cash flow story. Good story there. I just wanted to get a little more granularity on the outlook for the second half of the year. So if I understand it correctly, the Brazilian charge it's accrued for, will that be paid out in full in 2019? And just to confirm, China doesn't have any cash implications? The overall question really is do you expect positive contribution from working capital in the second half of the year?
I do. So the restructuring costs are -- were fully accrued in Q2 and most of that cash will flow out by the end of the year. There may be some that trickles into Q1, generally speaking. And in terms of working cap, I did touch upon this with one of the other questions that came about. So we still got $195 million tied up in tooling projects in our working capital. I'm expecting that to decrease over the course of the remainder of the year. So we'll see some positive impacts there from a free cash flow perspective.And in each of that, our cash taxes for the back half year will be slightly lower than the first half year, so that will help on a relative base when you compare it into 2 periods in the year.
Okay. That's positive. And then I guess turning to the launches forthcoming. I know the Escape is a big program forthcoming. With the outlook being as positive as it is, I assume that everything is on track. Maybe just outline the progression of the key launches as we get in the second half here.
Yes. I think we talked a little bit about the fact some had been delayed last quarter. I haven't seen any significant further delays, though there's been engineering changes and so forth that do delay tooling payments. But as far as the launches themselves, a big one, obviously, the Escape, affects 3 or 4 of our plants pretty substantially.A lot of the T1XX, the heavy-duty, those launches are pretty much up and running. The Maverick's pretty much up and running. The I6 engine is still launching. The diesel version of that engine is still pretty early in the launch cycle. We have a lot of early activity on things like the [ Daimler ] subframe in China, the Honda subframe in Brazil -- excuse me, in Mexico. So overall, I think the picture is pretty good. And our fluids launches, I think we have 150 or something this year, and they're all pretty much on schedule as well. So it's a lot of activity at one time, and it's one of the reasons you see the impact on the tooling being higher than normal because of all the work we had won, that kind of hit simultaneously. So certainly, the organization is hard at work getting this done, but no major bottlenecks in the moment at all.
Okay. And then you have a lot of new contract wins coming in 2020, 2021. Do you anticipate the launches to continue to be a headwind? Or should they sort of level off as we get into the next year?
I think you're going to kind of see almost a low for a period of months, and then it's going to pick up again as you get into later into '20 and early into '21. And then some at the beginning of '20 like in Nissan, that'll be pretty dominant. But the good news is they tend to be, in the coming years, spread out into different facilities. So the facilities that have multiple launches should reduce some. So from an activity point of view, I think it'll still be pretty high activity. But the concentration may be a little bit more spread out.
Okay. One last housekeeping question. You talked about healthy volumes, $16 million, $17 million. $16 million I assume by the confidence that you say that's healthy, that 9% operating margin that you're very comfortable with, that outlook at that level?
Yes. Again, it's very dependent on the program. If the right programs or the anticipated programs that are going to sell continue to sell, then I'd say yes.
So trucks and crossovers?
Yes.
There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Wildeboer.
Thank you all for a great call. If any of you has any questions, we can be reached at (416) 749-0314. Have a great day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.