Linamar Corporation (OTCPK:LIMAF) Q2 2022 Earnings Conference Call August 10, 2022 5:00 PM ET
Company Participants
Linda Hasenfratz – Chief Executive Officer
Dale Schneider – Chief Financial Officer
Jim Jarrell – President & Chief Operating Officer
Conference Call Participants
Mark Neville – Scotia Bank
Krista Friesen – CIBC
Peter Sklar – BMO Capital Markets
Brian Morrison – TD Securities
Operator
Good afternoon, ladies and gentlemen, and welcome to the Linamar Q2 2022 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Today’s call is being recorded on Wednesday, August 10, 2022.
And I would now like to turn the conference over to Linda Hasenfratz, Executive Chair of the Board and Chief Executive Officer. Please go ahead.
Linda Hasenfratz
Thank you. Good afternoon everyone and welcome to our second quarter conference call. Joining me this afternoon are members of my executive team, Jim Jarrell, Dale Schneider, Roger Fulton and some members of our corporate IR, marketing, finance and legal team.
Before I begin, I will draw your attention to the disclaimer that is currently being broadcast. I’ll start off with a review of sales, earnings and content. Sales for the quarter were $1.98 billion, up 25.8% from last year on recovery market as market share grows. Normalized net earnings were $109.3 million. Earnings are up over last year on stronger sales despite massively higher costs and lack of subsidies when compared to the prior year and a drag from foreign exchange.
Our Industrial segment had a good quarter on the top line, with sales up at both MacDon and Skyjack on stronger market, market share growth and better pricing that was imposed both in January and again in May. We also had the benefit of the month of our new agricultural business, Salford. That said, higher costs related to materials, labor, freight and utilities had a major negative impact to the bottom line in both industrial businesses in comparison to prior year. In addition, we had a bad debt reversal that benefited Q2 of last year that is negatively impacting the year-over-year comparison.
The mobility business had a strong quarter, thanks to strong North American market launches and increased pricing related to cost recovery, partially offsetting associated material, utility and freight costs. We continue to work with our customers globally to try to recover some of these massive cost increases. We also felt the impact of our Mills River Foundry acquisition from our JV partner, moving this loss-making facility into operations instead of below the line in prior quarters. We have a plan in place we are steadily executing on to bring the facilities to profitability, which we expect will happen within the next year.
We saw strong growth in content per vehicle in our core North American and European regions, reaching the highest content to date in both regions, which is great to see. Launches are a big part of that, as our vehicles that we have high content on being selectively prioritized were built by our customers. North American sales growth was particularly notable, up 47% over prior year and the market up just 12%. Commercial and Industrial sales were up 22.9%, with growth at both Skyjack and MacDon on market growth and market share growth. Skyjack say market share gains in scissors globally and in booms in North America, which coupled with a market up in high single-digit translated to some solid sales growth.
MacDon is seeing supply chain issues easing somewhat, allowing them to start fulfilling a deep backlog. Market share is growing in all core products globally, which is fantastic to see. We also had one month of results for Salford, helping to grow our ag sales. CapEx continues to climb back to higher levels to support launching business. 2022 will be up significantly from 2021 and in a normal range as a percent of sales, as will 2023.
Free cash flow was slightly negative in the quarter, thanks to a draw on non-cash working capital, driving out of that big sales increase. Despite such, we do expect to see solidly positive free cash flow for the full year, this year, driving out of the back half. 2023 should see strongly positive free cash flow. We have $1.4 billion of liquidity available to us, which is also excellent. With free cash flow relatively flat and active NCIB program and two acquisitions in the quarter, we are back into a modest net debt position of $337 million compared about $200 million at the same time last year.
Leverage remains very strong at just 0.35 times net debt to EBITDA. We purchased more than 1.3 million shares back under the NCIB in the second quarter for a year-to-date total of 1.9 million before we entered Q2 blackout in early July. Our strong balance sheet and liquidity means we have the ability to continue to pursue acquisition opportunities as they arise in a dynamic market and drive even more growth.
Let’s turn to a quick update on some of the headwinds we’re facing at the moment around supply chain issues, energy costs, logistics costs and labor shortages. This slide gives a good high-level summary of the issues and their current status. We are seeing improvements in several areas, for instance, chip shortage shutdowns are becoming less frequent, shipping costs are leveling and declining, commodity prices are generally declining as supply chain availability is improving in some areas, but still a challenge in others. Labor availability continues to be a challenge, primarily in North America and Europe and most acutely in the U.S. and of course, energy crises are remaining very high.
Looking more closely at a few of these areas. You can see on the chip impact, the predictability of volume loss has really improved. If you look at the top left chart, you can see that 720,000 less vehicles were built in Q2, regarding chip shortages that were planned at the beginning of the quarter compared to a much higher figures in earlier quarters. That doesn’t mean everyone has the chips they want, it just means they’re planning less builds and getting priced less, which is a good thing for volatility, which is very disruptive. Chip availability is improving somewhat with additional capacity coming online at the moment. More meaningful capacity will come online next year to further augment vehicle build levels and satisfy that the deep backlog and need to refill the pipeline of inventory or dealer lots.
We’re seeing good improvements in several commodity areas such as steel and aluminum, which is a positive. Although metal market adjustments in the mobility business helped to offset these changes, they do not offset 100% and with this magnitude of change we are feeling the impact most deeply in our casting business. The Industrial businesses are [indiscernible] full breath of these costs until price increases flow to offset, which of course has already started to happen. We are also seeing a big issue in the ability of suppliers to meet demand, notably on the Industrial side, which impacts not just cost, but our ability to the meet production needs for a rebounding market.
It’s also very disruptive on the productivity side, which is practically driving labor cost up. The issues are starting to improve on the MacDon side of the business, as illustrated by this chart, with assembly line shortages down and header production up. But unfortunately, there is still a big issue for Skyjack. You can see here the issues are improving at Skyjack as well, but more slowly.
Ocean freight cost is still well above normal level. So we have seen cost level off in Europe and they are trending down in Asia. Energy cost is still a major issue for us, notably in Europe and have become more of an issue globally as well. Natural gas prices in Europe are up massively over the last year, and for that matter, what we’ve seen for the last decade. We’re certainly feeling the impact of that in our European plants. Natural gas in the US has spiked up over the past few months as well, as you can see and is starting to be an issue.
On the positive side, energy cost for us are typically 1% to 2% of sales in most of our facilities, but much higher cost in our foundries. So not a massive weighting over all of our cost structure, but even something small can have a really big impact if the change is substantial, that is exactly what we’re seeing. We’re at the same time actively engaging our plants and energy conservation and off-grid energy project to reduce our dependence and costs. Unfortunately, I don’t see these costs regulating anytime soon.
Finally, we’re seeing of a real shortage in availability of labor at the moment, acceleration of retirements, insufficient immigration, notably in the U.S. and lingering effects of COVID on the number of workers is the issue, that puts pressure on costs, of course, both in term of wage inflation, but also in terms of higher recruiting and retraining costs. Unfortunately, wage inflation is not something that would be considered transitory.
So, to summarize on the challenges side, higher labor and energy cost are likely here to stay, should the cost of commodities tapering back, but supply of chips in the back half of the year and next year are going to enable higher and more consistent levels of vehicle build. Obviously the fact that some of these higher costs are not transitory means we must seek cost recovery from our customers and are diligently pursuing such. We’ve had some success in recent months to offset at least a portion of the cost, and we continue to pursue added release with additional customers.
I’ll now turn to the market outlook. Market demand is strong, pretty much across the board at the moment, which is great news, and expected to be strong next year as well. Unfortunately, supply chain issues are constraining industry’s ability to deliver that demand and notably on the Industrial side. With strong underlying demand, we’ll be looking at a sustained period of strong performance for some time after these issues get resolved.
Turning to the specific figures, industry experts are predicting growing light vehicle volumes globally this year to 14.7 million, 16.3 million, 44.8 million vehicles in North America, Europe and Asia, respectively. This represents double-digit growth in North America, but single-digit growth in Europe and Asia. 2023 should see high single digit or double-digit growth in all three regions. Semiconductor chip supply, war-related supply chain issues, mainly in Europe, and China lockdown continue to create volatility in customer schedules and in predicted volume at risk.
Industry experts are predicting on-highway medium-to-heavy truck volumes to be up in North America this year, but down in EU and Asia. Next year, we will see contraction in North America and Asia but growth in Europe. Industry experts predict double-digit growth in the access market globally this year in all three regions of North America, Europe and Asia and double-digit growth for the overall market in 2023.
Our backlog at Skyjack is up meaningfully from prior year at nearly 2.5 times. Thanks to robust market demand. Delivery of orders is being impacted by those supply chain challenges, however, as we work through these issues, we feel confident we can grow Skyjack in double-digits this year and next year based on this exceptionally strong backlog and strong market conditions.
Lastly, the ag industry is predicting solid growth in the combined draper headers markets this year in double-digits in North America. Europe and the rest of world will also grow but at a more moderate 5%. We’re also seeing solid pick up in the windrower markets this year again, with 7% growth in North America, but 20% to 25% growth in Europe and Australia. The order book is up over last year, with partners feeling more confident with persistently strong commodity prices, meeting demand is a big challenge for MacDon regarding supply chain and logistics issues and is the limiting factor to growth as opposed to demand. That said, our current forecast is for double-digit growth this year and continued growth next year for MacDon on the back of solid market growth, continued market share growth and a strong backlog.
Looking at a little more detail on the auto side, you can see inventory levels in North America have continued to languish well below historic levels, sitting at only 26 days at the end of July. What this means is, regardless of consumer demand for [indiscernible] sustained period of strong production levels, just to replenish inventory when supply chain issues are resolved. The industry is projecting at least two years just to refill the pipeline regardless of demand.
And looking at the production levels compared to what was forecasted at our last conference call, you can see a slightly weaker Q2, basically all driving out of Asia, thanks to the lockdowns in China. That said, Q3 is actually looking much stronger, up from Q2 prior forecasts and prior year. Q3 compared to Q3 last year is now forecast to be up 21%. For the full-year 2022 is expected to be slightly better than prior forecast and up 4.7% from 2021.
Looking at the access market in more detail, you can see first, that both the North American and European markets shows double digit growth over prior year in Q2. And as noted, expect double-digit growth this year and a similar picture in 2023. Utilization in North America slowed a little during Q2, but was trending back up to 2019 levels as of the end of the quarter. Utilization levels in Europe are trending well above 2019 levels. Asia was down in Q2, likely related to shutdowns in China, but still expecting double-digit growth for this year.
In the agricultural business, Q2 combined retail in North America are down slightly over prior year, up in Canada, but down in the US. Thanks to supply chain issues across the board. Despite the slow start, as noted, we expect the market to grow both this year and next year for both draper headers and windrowers.
Turning to an update on growth and outlook, you will be pleased to know that we had another outstanding quarter in new businesses wins and more notable wins in the electrified space. I’ll highlight a couple of our more strategic wins in a moment. Electrified vehicles continue to provide great opportunities for us. We had a huge quarter in terms of new business wins for both battery electric and hybrid electric vehicles, in fact, in just two quarters our new business wins for electrified vehicles are nearly two and half times what they were for all of 2021, as you can see on this chart. Momentum is clearly building in our portfolio as it is important vehicles of the future. At this point, close to half of booked sales in 2026 in our mobility business is for non-ice vehicle powertrain product, a huge shift from less than 25% in that category in 2021.
With respect to launches, we are seeing ramping volumes on launching programs, which are expected to reach 35% to 45% of mature levels this year, generating incremental sales of $500 million to $600 million. Next year, we’ll see incremental sales growth of $800 million to $900 million. These programs will peak at nearly $4.9 billion in sales, we saw a shift of nearly $65 million of programs moving from last — production last quarter, which was more than offset by a very strong business wins in the quarter.
As usual, we are summarizing all of these expectations on our outlook slide, which is now being displayed. Despite the challenges we are facing, we are still expecting to see double-digit growth on the topline and high single-digit growth in earnings per share in 2022. We expect to see double-digit top and bottom line growth next year as well. This drives some double-digit growth as both Skyjack and MacDon this year, coupled with solid launches in a growing market on the mobility side. Next year, we will see continued growth in both segments as well.
Net margins will contract somewhat compared to last year on the back of those higher material, energy, freight and labor costs. Next year, we do expect net margins to expand back into our normal range. We also see continued positive free cash flow this year and next, leaving us in an excellent position from which to drive further growth.
Looking specifically at Q3, you should expect sales modestly up from Q2, 2022 and more meaningfully up from prior year, both segments will show a similar pattern. Industrial segment margins will be modestly better than Q2, but not nearly as good as Q3, 2021, due to the much higher cost levels that they are experiencing. Improvement sequentially, thanks to a full quarter of Salford and modest improvement on the supply chain side, which of course, is not fully determinable at this time.
On the mobility side, margins should modestly improve in comparison to both Q2 of this year and Q3 of last year. All of that boils down to net earnings in Q3, 2022, up from both Q2 of this year and Q3 of last year. Roger would like me to again remind you that the situation is very dynamic and the impact is not fully determinable in terms of the impact at this time. Notable risk areas are supply chain, lockdowns in China and geopolitical risks. Last quarter, we announced two exciting strategic acquisitions, which I am pleased to announce, both closed in the timeframe and manner expected. We are actively working on integrating both teams into the Linamar family, which is going very well.
This quarter, I’d like to highlight Skyjack’s global expansion plans. We are increasing our global footprint at Skyjack to meet a strongly growing market and growing market share both here in North America and internationally. As noted last quarter, we are adding capacity in China. We are also adding capacity here in Canada, we’re adding in Mexico and continuing to add product capacity to our facility in Hungary. We’ll also be further investing in innovation in the Canadian hub, where the team is headquartered to continue to develop the products and processes gaining such excellent international recognition for Skyjack.
Moving on to new business wins, on the mobility side, I’ll highlight a few of our more interesting wins this quarter. First up, we won a few programs for cylinder heads for hybrid electric vehicles. They are worth in aggregate — aggregate more than $40 million a year in revenue. Secondly, we had a very exciting win in the quarter for a commercial vehicle, eAxle. This is for a medium-duty vehicle. This system will be used in electrically driven delivery trucks and it is our first full e-axled for the commercial vehicle sector. Linamar will be the system integrator, responsible for all elements of the eAxle, including motor and the controller. We are very excited about this plan.
Finally, we saw several different program wins for a variety of body, chassis and eAxle components for battery electric vehicles in both North America and Europe. In aggregate, these programs represent more than $90 million a year in revenue, adding steadily to our backlog for battery electric vehicles.
Turning to an innovation update. I’m excited to share the newest product from our recently acquired Salford division, the HALO VRT is an industry-leading advanced soil tillage design. VRT stands for Variable Rate Tillage. Traditional tillage is typically performed the same way throughout an entire field. Modern precision agriculture has proven that tillage requirements vary within the same field. The HALO VRT allows for the tillage settings to change on-the-go to adjust tillage depth, improve tillage leveling or avoid unnecessary soil disruption altogether in isolated areas. Just another example of the focus Linamar’s agricultural portfolio was putting into leading innovation in crop production.
From Skyjack, we’re excited about the new articulating boom model that was launched in Europe. The SJ45AJ has been adapted for the European market and is specified to CE certification. A 45 foot boom comes equipped with Skyjack’s trademark SMARTORQUE technology. SMARTORQUE is the four-wheel drive system that delivers an optimized balance and engine horsepower, torque and hydraulic performance resulting in a cost effective solution for both emissions regulations and control.
This latest boom model developed with still data inputs that were gathered over several years from our advanced [LD] (ph) telematics package. This data enabled Skyjack to design the SmartCore system to a size and power requirement that offers customers the most efficient package for their investment. That means they are not purchasing a piece of equipment that’s too big for the job. This is another reason why Skyjack booms have been gaining popularity and market share in the European market over the past number of years.
Finally, we continue to execute on our global digitization journey with more and more connected machines, data connections and robots being commissioned in our global plants every day.
With that, I will turn it over to our CFO Dale Schneider to lead us through a more in-depth financial review in detail.
Dale Schneider
Thank you, Linda. Good afternoon, everyone. As Linda noted, Q2 was a great quarter for sales and earnings despite the continuation of the supply chain issues impacting sales and the other costs issues that are further impacting our earnings, net of the customers’ recoveries we are able to achieve. 2Q was another solid quarter for cash flows after considering the purchase and close of two acquisitions in the quarter. As a result, we are able to maintain a strong level of liquidity at $1.4 billion.
For the quarter, sales increased 25.8% to almost $2 billion, earnings are normalized for any FX gains or losses related to the revaluation of the balance sheet and potentially other items that may have occurred. In the quarter, earnings were normalized for FX losses related to revaluation of the balance sheet, which impacted EPS by $0.07 per share.
Normalized operating earnings for the quarter were $149.2 million. This compares to $152.2 million in Q2 last year, a decrease of $3 million or 2%. Normalized net earnings increased $2.4 million or 2.2% in the quarter to reach $109.3 million. Fully normalized — fully diluted normalized EPS increased by $0.05 per share or 3.1% to $1.68. Included in net earnings for the quarter was a foreign exchange loss of $6.3 million, which resulted from a $5.4 million loss related to the revaluation of operating balances and a $900,000 loss related to the revaluation of financing balances.
As I mentioned, the FX loss impacted the quarter’s EPS by $0.07. From a business segment perspective, the Q2 FX loss of $5.4 million related to the reevaluation of operating balances was a result of a $9.7 million loss in Industrial and a $4.3 million gain in mobility.
Further looking at the segments, industrial sales increased by 28.3% or $111.1 million to $504.6 million in the quarter. The sales increase for the quarter was due to the higher agricultural sales driven by growth in both the global market and in our global market shares for our products, higher access equipment sales driven from stronger volumes in North America and by market share gains in both scissors and booms.
Additionally, higher sales prices that we’ve achieved to help release some of the supply cost issues and pressures, and finally, as Linda noted, the acquisition of Salford did add one month of sales for the quarter. Normalized Industrial operating earnings for Q2 decreased by $16.9 million or 25.5% over last year to $49.4 million. The primary drivers impacting industrial earnings were the Q2, ’21 reversal of provisions for receivables that we were able to collect last year. The ongoing supply chain issues impacting raw material, labor, freight and utility costs, the fact that there was no government support for COVID-19 this year compared to last year, the negative impact of the FX rate changes since last year and these are obviously partially offset by the increased contribution from the strong agricultural equipment volumes and the increased contribution from the access equipment volumes.
Turning to mobility, sales increased by $295.2 million or 25% over Q2 last year to $1.5 billion. The sales increase in the second quarter was primarily driven by the stronger volumes on the improving customer supply chain situation, cost recoveries achieved in the quarter from our customers. The sales impact of fully consolidating GFL is now 100% owned, and the increased volumes on launching programs and certain other high demand programs, these are partially offset by the negative impact of changes in FX rates since last year.
Q2 normalized operating earnings for mobility were higher by $13.9 million or 16.2% over last year. In the quarter, mobility earnings were impacted by the increased contribution from the improving supply chain issues at our customers, the increased contribution on the higher launch volumes and higher — certain high demand price as well. These are partially offset by operating earnings impact from fully consolidating GFL, once again, from having no government support this year compared to last year for COVID and the increased raw material, freight and utility cost net of the customer recoveries.
Turning to the overall Linamar results, the company’s gross margin was $249.9 million, an increase of $21.4 million compared to last year and this is due to the same factors that drove the segments. COGS amortization as a percent of sales reduced to 5.6% but remained relatively flat at $110 million. SG&A costs increased in the quarter by $100.7 million from $77 million last year. The increase is primarily due to the Q2 ’21 reversal of provisions that occurred last year, increased travel costs as COVID travel restrictions continue to be relaxed. The acquisition cost related to GFL and Salford, and once again, the fact that we have no government support related to COVID this year.
Finance expenses increased $4.2 million since last year, due to the lower interest earned and declining long term receivable balances, the additional interest expense due to the Bank of Canada rate increases, the increased debt due to the acquisition and share buyback programs that we completed in the quarter and the negative impact of changes of FX rates on our debt since Q2 last year. As a result, the consolidated effective interest rate for the quarter was 2.1%.
Effective tax rate for the second quarter decreased 24.8% — decreased to 24.8% compared to last year, mainly due to the decrease in nondeductible expenses compared to last year, decrease in tax expense, now that GFL is fully owned and this was partially offset by an unfavorable mix of foreign tax rates. We are still expecting the 2022 full year effective tax rate to be in the range of 24% to 26% and consistent with the 2021 full year tax rate.
Linamar’s cash position was $877.5 million on June 30, an increase of $145.9 million compared to June 2021. The second quarter generated $66.4 million in cash from operating activities, which is used partially to fund CapEx with the proceeds from debt being used to fund acquisitions and share buybacks. As a result, net debt to EBITDA increased to 0.35 times in the quarter from 0.17 times a year ago, mainly due to the acquisitions completed and the share buyback program. Based on our current estimates, we are expecting 2022 to maintain our strong balance sheet and the leverage is expected to remain low.
The amount of available credit on our credit facilities was $527 million at the end of the quarter. Our available liquidity at the end of Q2 remained strong at $1.4 billion, as a result, we currently believe we still have sufficient liquidity to satisfy our financial obligations during 2022.
To recap, sales and earnings for the quarter was a story of improving markets and increasing market shares in both segments. The supply chain shortages have — that have been hampering OEM production requirements have started to see some improvements, and additionally, helping mobility sales and earnings. Supply related cost increases continue to impact both segments earnings flow. The good news is that, cost increases have tempered with the sales price increases the industrial — within industrial and cost recoveries in mobility. Despite these challenges and with the two acquisitions in the quarter, we were still able to maintain a strong liquidity of $1.4 billion.
So that concludes my commentary and I’d now like to open up for questions.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Mark Neville of Scotia Capital. Please go ahead.
Mark Neville
Excuse me. Hey, good afternoon. Thanks for the time. Maybe just first on the recoveries in automotives and mobility. I think on a sequential basis, sales were up about $70 million and production was roughly flat, I think, so I guess, how much of that would be mix of business versus recoveries? And again, ultimately, what I’m trying to get at here is, trying to understand the cost inflation for the year and sort of how far along away in recovering some of this costs you are?
Linda Hasenfratz
Yeah. So, I mean we’re not releasing specific details around what the cost recoveries for it, this is an on ongoing — these are related to ongoing discussions we’re having with customers, and we don’t feel comfortable disclosing it. I mean, obviously, it was a material [indiscernible] had a notable impact on this quarter. I can tell you that if I considered where we’re going to be in coming quarters in the guidance that I gave you, so I suggest you circle back to that and I think you’ll be able to figure out — figure it out yourself.
Mark Neville
Sure. Okay. Just on the — maybe on the Industrial margin, presumably or I would assume lower commodity price relief would help, but the big improvement in margin. I mean, will that have to wait until sort of next year when prices are reset?
Linda Hasenfratz
Yeah, I mean absolutely on both segments, but certainly the mobility segment is performing well below levels that we would expect it to from a margin perspective, and it is all related to these higher costs. We do expect to see improvements as we get into next year, there will be some improvement in the back half of the year. But — so more meaningful, I would say next year.
Jim Jarrell
On the Industrial side, Mark, the prices in the Ag side are pretty well locked for the year, right, in 2022, and then on the industrial Skyjack side, there was some relief that we were able to play through during the year. So we’re getting, as Linda said, some of that, and so now we’re really setting into 2023, Ag and sort of Skyjack industrial prices and the way we’re playing that out is to set them pretty straightforward, right now, but with the caveat still expecting [indiscernible] are changing in those industries, we may have to come back during the year because we can’t control what we can’t control. So a little bit probably different next year in our approach.
Mark Neville
Okay, that’s helpful. Maybe just on the guidance for the year, the high single-digit growth in earnings, and if my math is correct, I think that would require roughly $5 in earnings in the back half per share. I know you’re not giving specific guidance, but — so is that in the ballpark of what you’re thinking?
Linda Hasenfratz
I mean, we’re not going to give — I’m not going to give you numbers for the back half, but I’m telling you, earnings per share we think can be in the high single digits.
Mark Neville
Okay, I’ll do my own math. Understood. I appreciate it. Thanks for the time.
Operator
Your next question comes from Krista Friesen of CIBC. Please go ahead.
Krista Friesen
Hi, thanks for taking my question and congrats on a great quarter. I was just wondering if you could give some color around what you’re hearing from your customers in Europe and specifically around energy prices and what level of concern they have or if there are any precautions that are being taken at this time?
Linda Hasenfratz
Yeah, I mean it’s obviously a key area of concern. Prices are way up, potentially going higher and everybody’s pretty sensitive to it.
Jim Jarrell
Yeah, I mean, so again part of the recoveries that we have been doing this year specifically in Europe has been around energy not getting full recovery with any of our customers, but getting an adequate recovery for sure. But going into next year, we think that the OEMs in Europe may be trying to come up with a scenario to come out to the supply base with, but our focus is really to work with each customer and say, hey, do you want to lock in? Do you want to float? And really try and lock down those agreements with them, because next year looks pretty, pretty unpredictable, but definitely going up further.
Krista Friesen
Right. And then, I was just wondering on the Industrial side of the business, I know you’re not really hedge there on commodity prices that you are on the mobility side, but are there discussions now after going through the last several quarters of so much volatility to have some pricing mechanisms put in place or is that just not as accepted in that industry?
Jim Jarrell
With the supplier or you’re talking the customer side?
Dale Schneider
Yeah, with the customer.
Linda Hasenfratz
She means the commodity. You’re talking about the commodity cost?
Krista Friesen
Yeah, the commodity cost. Yes.
Linda Hasenfratz
Yeah, I mean we do, like — both businesses are treated a little bit differently. So MacDon’s does do some forward purchases, it depends on the product and it depends on the market. So we’re really trying to gauge where we think things are going in lock in where we think it’s appropriate. And then, and not locking in other areas. So it’s bit of a dynamic approach.
Jim Jarrell
And then on the customer side, I mean they really don’t treat indices like they would in the auto sector. So you’ve got to try to come up with your pricing plan ahead of time.
Krista Friesen
Great, thanks. I’ll jump back in the queue.
Operator
Your next question comes from Peter Sklar of BMO Capital Markets. Please go ahead.
Peter Sklar
Hi. On the industrial side, the — like you indicated that supply chain disruptions are easing, so is that true for both the ag business and Skyjack? And which one is it more severe right now? It sounded like supply chain is more of an issue for Skyjack now. I think I picked that up from your comments. So if you could just kind of run through that?
Linda Hasenfratz
Yes. Sure. So there was a slide we can pull it back up. Looking at the supply chain issues for the two businesses. So MacDon, the situation has improved, you can see on the slide —
Peter Sklar
What slide number is that?
Linda Hasenfratz
The assembly line shortages declining and completed head of production, meaning, like fully built on the line without having to be pulled off to wait for something that was missing is increasing. So things have definitely improved at MacDon, it’s not perfect by any stretch, there still are issues that they’re dealing with. But it has definitely improved from where it was earlier in the year, which is why they had a strong quarter than you might expect with the Ag market down in North America overall, although notably up a little bit in Canada.
But if we go to the next slide, you can see Skyjack, slight improvement, like definitely a little better than it was earlier in the year, but not a huge amount of improvement. So I would say Skyjack, at the moment, is struggling a little bit more than MacDon did. I would probably say six months ago, I would have said the opposite, MacDon was having more issues, but at the moment it’s Skyjack that is struggling a little bit more. Seeing some improvement, but still — but not nearly as quickly as MacDon and definitely feeling the disruption.
Peter Sklar
And do both businesses have strong backlogs?
Jim Jarrell
Yes.
Linda Hasenfratz
Correct.
Jim Jarrell
Absolutely. So as well as Salford.
Peter Sklar
So the issue there then, it’s all supply chain?
Linda Hasenfratz
Yes.
Jim Jarrell
Yes, I would say labor, supply chain, which are sort of one and the same, if you break it down to the root cause.
Peter Sklar
Yeah, okay. And while we’re on Industrial, like there’s just so much activity there, acquisitions and some of these dynamics that we talked about, can you just give us some guidance on seasonality now through the quarters of the year, with all these acquisitions and everything there? I’m not too sure how the seasonality looks for this business?
Jim Jarrell
I think we’re getting sort of used to Salford right now, but —
Linda Hasenfratz
Yeah, I mean, it’s a little more difficult to call right now, Peter, just because the seasonality has been a little bit eclipsed by the supply chain issues. So Q4 is normally a slowest quarter. It may not be quite as slow as we can recover from a supply chain side, right? So yeah, certainly Q4 is slower, Q2 and Q3 are the strongest, Q4, Q1 are the slowest, but the supply chain stuff is kind of playing with patterns a little bit at the moment.
Jim Jarrell
Yeah. And I’d say we’re learning like that would be traditional MacDon, Skyjack and we’re learning a little bit with Salford right now that the summer months are probably a little bit slower. If you get the fall, that’s a little bit better. And then you got February through May that are strong. That’s what we’re seeing. But as Linda said, I mean if you have a strong order book, if you can get the parts you can ship any time.
Linda Hasenfratz
Yeah, exactly. But I mean, the nice thing with Salford coming into the fold is, as Jim said, described the seasonality is slightly different, so because they’re tillage, they’re more in the spring, MacDon is harvesting, that’s in the fall. So they do help to complement each other a little bit.
Dale Schneider
Yeah, [indiscernible] that if you look at it from a sales perspective, Salford is not as the material as either Skyjack or MacDon. So it may, as Linda commented on, it may adjust seasonality, but I wouldn’t expect it to materially change.
Linda Hasenfratz
Good point.
Peter Sklar
Okay. And like why did the — like if you look at the industrial segment as an overall, then why did the operating earnings improve so much in Q2 versus Q1? Like I’m just looking here. So you did $49 million of operating earnings in Q2, but only $13 million in Q1, is that the improvement in the supply chain and the impact it’s having on your results?
Dale Schneider
I mean there is supply chain, but also as we talked about there was some pass-through of customer pricing.
Linda Hasenfratz
Yes. So Skyjack has second price increase that went through at the beginning of May, that was helpful. The mix was different, Q1 had a poor showing at MacDon because they had all those supply chain issues, and they have a much higher level of contribution than Skyjack, so MacDon had a much stronger quarter in Q2. So that had a big impact on — for the sequential comparison as well.
Peter Sklar
Okay. And sorry, just one last question. Like when you were going through your commentary, you said the consolidation of GFL had a negative impact on results. So is that — is it operating at a loss because you’re still ramping the die-cast operation, is that what’s going on there?
Linda Hasenfratz
Yeah, exactly. So it’s not unusual for Foundry to take a little longer to get up into profitability than a machining operation, but of course, they’re also highly challenged by all the challenges that the industry is facing, particularly around energy and material, and just fixed cost. So they are still in a loss position, because they are still ramping and bringing the facility to a profit is absolutely a key priority for the team. So it’s something we expect to see happen at some point during next year.
Peter Sklar
Okay. And it’s a high pressure die-cast operation, correct?
Jim Jarrell
Yes. It’s high pressure die-cast, larger machine, feeder for structural parts and it’s magnesium and aluminum.
Peter Sklar
Okay. Okay, that’s all I have. Thank you.
Operator
Your next question comes from Brian Morrison of TD Securities. Please go ahead.
Brian Morrison
Thank you. Good afternoon. I just have a couple of clarification questions, because the quarter seems pretty good here. Linda, in Q1 your comment on the mobility side was that, sales would be at best equal to Q1, but you beat by 5% relative to the high end of Q — relative to the Q1 numbers. So I guess — I respect you don’t want to get into the cost recovery, but your volumes are the same, you’re George Fischer was known, launches really didn’t change. Is it fair to say that the difference between your performance in Q2 and Q1, that’s the biggest contributor to the cost recovery?
Linda Hasenfratz
I wouldn’t put it all on that. No, I mean there is a pretty big increase in sale compared to Q1, I would say, it’s obviously more than we had been expecting, but I do think we saw production levels with our customers a little higher than what we — what we’ve been expecting, so that was part of it, and then part of it would be the recovery.
Brian Morrison
Okay. So, industry volumes were as expected but your customer specifics were higher than what you thought.
Linda Hasenfratz
Yes.
Brian Morrison
Okay, fair enough. And then just a clarification. In your guidance for the operating margin for mobility in 2022, it says modest contraction, then ’23 expand back in the normal range. I just want to be clear, you’re saying that the normal margin — you should be below the normal margin range for 2022, that’s correct?
Linda Hasenfratz
Modest contracting with respect to the 2021 level. So 2021 was 8.4%, so I’m saying it’s going to be a modest contraction to that. I’m not saying where it’s going to land in comparison to the range.
Brian Morrison
Okay. Modest contraction in my books is like 25 basis points, but you’re saying that Q3 is going to be similar to Q2, and so you’re kind of tracking in that six and three quarter range as we get through Q3 based on your guidance. So it’s certainly not a modest contraction, it’s very good performance, but it’s well below 8.4%, that’s fair to say?
Linda Hasenfratz
Yeah, I mean, I guess it depends on your definition of modest. Your definition and my definition appear to be slightly different.
Brian Morrison
Okay. And then the base level of earnings for last year normalized to $6.50 basically, as well, correct?
Linda Hasenfratz
For normalized earnings for last year?
Brian Morrison
Yeah. That’s what you’re basing the number —
Linda Hasenfratz
It was $6.53 is normalized earnings from last year.
Brian Morrison
All right, well done. Thank you kindly.
Linda Hasenfratz
Thank you.
Operator
There are no further questions from the phone lines. I would like to turn the conference back to Linda Hasenfratz for closing remarks.
Linda Hasenfratz
Okay, thank you so much. To conclude this evening, I would like to, as always, leave you with three key messages. First, we’re very pleased to see market dynamic starting to improve, markets are improving in all of our businesses, market share is growing, there is some release that’s starting to flow on customer pricing related to higher costs. Secondly, we continue to strongly execute on electrified new business wins in our mobility business, 74% of wins year-to-date are electrified, well over double the dollar value all our 2021 in just two quarters, and an important strategic win in the commercial eAxle space. And finally, we are actively returning cash to shareholders through our NCIB, with nearly $1.9 million shares repurchased, more than $1.3 million in Q2 alone and continue to execute on such.
Thanks very much, everybody and have a great evening.
Operator
Ladies and gentlemen, this does conclude your conference call for this afternoon. We would like to thank you all for your participation, and ask you to please disconnect your lines.
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