Hammond Power Solutions (HPS) Q3 2024 earnings summary

Executive summary

• Strategic investments include a CAD 20 million capital program to expand custom transformer production in Mexico, expected to add over CAD 100 million in revenue capacity by early 2026.

• Acquisition of Micron Industries in October broadens product portfolio and OEM customer access in North America.

• Electrification, reshoring, and infrastructure renewal continue to drive long-term demand and project activity.

• Sales reached $192 million in Q3 2024, up 6.9% year-over-year, with growth driven by custom products and robust demand in data centers and infrastructure sectors.

• Recognized as the top performer in the TSX30 for a 928% three-year total shareholder return.

Financial highlights

• Sales grew 6.9% year-over-year for Q3 and 10.9% year-to-date, with custom products driving growth.

• Gross margin reached 33.8% in Q3 and 32.8% year-to-date, up due to favorable product mix.

• Adjusted EBITDA was CAD 34.4 million (17.9% of sales), the highest quarterly figure in 2024.

• EPS was CAD 1.37, up from CAD 1.21 in Q3 2023, despite higher share-based compensation.

• Net cash at quarter-end was CAD 32 million; net working capital as a percentage of sales rose to 17.6%.

Outlook and guidance

• Custom product backlog increased 4% quarter-over-quarter, with capacity expansions expected to reduce lead times and capture more OEM business.

• Margins may remain elevated in the near term due to product mix, but future margin compression is possible if price-sensitive stock items weaken.

• Cautious optimism for 2025 as distributors expect post-election stability and potential interest rate declines to spur construction.

• Management remains confident in long-term demand, supported by high project quotation activity and continued investment in custom transformer capacity.

• Micron acquisition expected to contribute to Q4 results and broaden product reach.