PHIN

PHINIA INC. 10-Q Summary: Period Ended June 30, 2026

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026, for PHINIA Inc., a diversified industrial supplier and global leader in fuel systems, electrical systems, and aftermarket solutions. The company operates through two reportable segments: Fuel Systems and Aftermarket. PHINIA serves commercial vehicle, light vehicle, and off-highway/industrial markets globally with approximately 12,500 employees across 20 countries.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 6% in Q2 and 8% YTD compared to 2025. Growth was driven by the Swedish Electromagnet Invest AB (SEM) acquisition, favorable foreign currency impacts, and customer pricing, partially offset by volume/mix headwinds and tariff costs.
• Profitability: While gross margin expanded to 23.0% in Q2, operating income declined 10% to $80 million due to increased Selling, General, and Administrative (SG&A) expenses and higher restructuring costs ($8 million in Q2 vs. $2 million in Q2 2025).
• Segment Performance:
  • Fuel Systems: Sales rose to $584 million (Q2) and $1.133 billion (YTD). Adjusted Operating Income (AOI) margin was 11.0% in Q2, down slightly from 11.2% due to unfavorable product mix in Asia.
  • Aftermarket: Sales rose to $356 million (Q2) and $685 million (YTD). AOI margin remained stable at 17.1%.
• Restructuring: The company recorded $11 million in restructuring expenses YTD 2026 (vs. $7 million YTD 2025) as part of a strategic initiative to align infrastructure and reduce costs, with total expected charges of approximately $40 million through 2027.
• Tax Rate: The effective tax rate for the six months ended June 30, 2026, was 38%, down from 42% in the prior year, primarily due to the absence of a discrete uncertain tax position recorded in the prior period.

Guidance, Outlook, and Risks

• Outlook: Management expects improved earnings and cash generation in 2026 compared to 2025. They anticipate foreign currency benefits, operational efficiencies, and share gains will offset a softening Original Equipment (OE) market. Light vehicle volumes are expected to decline by mid-single digits, while commercial vehicle volumes are expected to decline by low-single digits.
• Acquisition: On June 30, 2026, PHINIA entered a definitive agreement to acquire the stoba Group for approximately $150 million, expected to close in Q4 2026. Funding will come from available liquidity.
• Capital Allocation: The company continues its share repurchase program. As of June 30, 2026, $534 million had been repurchased under the $750 million authorization. Dividends of $0.30 per share were declared in Q2.
• Risks: Key risks include geopolitical tensions, trade restrictions (tariffs), supply chain disruptions, semiconductor shortages, and the acceleration of electric vehicle adoption which may impact internal combustion engine demand. The company is also monitoring the impact of the "One Big Beautiful Bill Act" (OBBBA) on tax provisions.

Investor Verification Checklist

• Acquisition Integration: Verify the financial contribution and integration progress of the SEM acquisition and the status of the proposed stoba Group acquisition.
• Tariff Reimbursements: Confirm the timing and certainty of expected federal tariff reimbursements (IEEPA) and their impact on future cost of sales.
• Restructuring Execution: Monitor the realization of the estimated $30 million in annual savings from the ongoing restructuring program.
• Market Volume Trends: Track actual light and commercial vehicle volume declines against management's mid-to-low single-digit forecasts.
• Working Capital: Review the sustainability of the improved operating cash flow ($144 million YTD) driven by inventory optimization.