Garrett Motion Inc.
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Item 1. Business
Our Company
Garrett is a cutting-edge technology leader delivering differentiated solutions for emission reduction and energy efficiency. We design, manufacture and sell highly engineered turbocharging, air and fluid compression, and high-speed electric motor technologies for original equipment manufacturers ("OEMs") and independent aftermarket distributors in the mobility and industrial fields.
We have significant expertise in delivering highly engineered products at scale for internal combustion engines ("ICE") using gasoline, diesel, natural gas and hydrogen, as well as zero-emission vehicles ("ZEV"). Our products are key enablers for fuel economy, energy efficiency, thermal management, and compliance with greenhouse gas and other emission-reduction targets.
Our growth strategy is two-fold: (i) expand our turbocharger leadership across passenger and commercial vehicles, maritime and industrial applications, as well as the aftermarket, and (ii) apply our differentiated technologies to develop new solutions for traction (E-Powertrain) and thermal management (E-Cooling compressor). The underlying technology pillars, such as high-speed motors, controls software, oil-free foil bearings, power electronics and system integration expertise, are hard to replicate by competitors. These technologies have been developed by Garrett over time and require significant and sustained research, development and engineering ("RD&E") investments. They bring significant benefits in terms of energy efficiency (thereby reducing total cost of ownership), lower weight and compact packaging that are highly valued by our customers.
Our Industry
Overview
We provide cutting-edge technology for the mobility and industrial fields, including light vehicles, commercial vehicles (which includes both on-highway and off-highway applications) and industrial applications. Our solutions include mechanical and electrical products for turbocharging and boosting internal combustion engines, as well as for compressing air and refrigerants for industrial and mobility use (including, but not limited to, use in commercial heating, ventilation and air conditioning ("HVAC") systems, data center cooling and fuel cell systems).
As of 2025, our primary source of sales comes from the global turbocharger industry for gasoline, diesel and natural gas engines across light vehicle, on- and off-highway commercial vehicles and industrial applications as well as the aftermarket for these products. Sales also come from E-Boosting and hydrogen fuel cell air compression solutions, already manufactured at scale.
At the same time, we have developed unique technological competencies, which we are leveraging to solve our customers’ challenges in the evolution towards hybrids and electric powertrains. We are developing solutions and allocating our RD&E spend accordingly, focusing approximately 50% of total RD&E expenditure in 2025 on Electric Compression and E-Powertrain technologies for both mobile and industrial applications. On the turbocharger side, we continue investing to support our customers, especially for hybrids, while also expanding our portfolio with the development of larger turbochargers, including the new Garrett MEG product line, aimed at marine and industrial applications, including backup power generation for data centers.
Key trends affecting our industry
Ongoing geopolitical and trade tensions, persistent elevated inflation across Europe, and a slowdown in the growth of China's domestic economy, partially offset by an increase in exports, have continued to exert pressure on global industry and have adversely affected sectors such as automotive throughout 2025.
Changes in overall vehicle and machinery production
Light vehicle production increased by approximately 4% in 2025, compared to the prior year. Commercial vehicle production experienced an increase of 3% in 2025, with both the on-highway and off-highway segments increasing by roughly 4% and 2%, respectively. For 2026, Standard & Poor Global Mobility ("S&P") expects production volumes to
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decrease slightly from 2025 in the automotive (light vehicle) industry whereas Knibb Gormezano & Partners Automotive Intelligence ("KGP") expects a slight increase in the commercial vehicle (on-highway and off-highway) industry.
Moreover, there continues to be significant uncertainty around global economic growth, as the macroeconomic landscape continues to experience supply chain disruptions, geopolitical tensions and economic uncertainties. The shift from pure gasoline and diesel ICE to hybridized powertrains is expected to continue in response to increasingly strict fuel efficiency and regulatory standards in many of the regions in which we operate. In parallel, the share of full battery electric vehicles ("BEVs") is expected to continue to increase, with short-term dynamics, such as significant vehicle price gaps between BEVs and ICE-powered vehicles, and slower than anticipated charging infrastructure proliferation, limiting the pace of adoption.
Commercial vehicles trends in On-Highway and Off-Highway machinery
The global commercial vehicle industry continues to navigate a challenging macroeconomic and regulatory environment, with trends diverging across on- and off-highway segments. On-highway, freight demand remains subdued in North America and Europe amid economic uncertainty, high interest rates, and geopolitical tensions, leading to delayed fleet purchases and minimal pre-buy activity ahead of upcoming emissions standards. Electrification progress is slower than anticipated outside China, where battery-electric heavy-duty truck adoption is accelerating due to falling battery costs and supportive trade-in policies. In contrast, hydrogen-powered trucks face delays into the next decade, and OEMs are prioritizing cost control over rapid zero-emission deployment. Off-highway — spanning agriculture, construction, materials handling, power generation, marine, and backup power generation for data centers — is similarly constrained by high input costs and uneven demand recovery. Agricultural equipment faces margin pressure despite easing fertilizer and fuel costs, while construction activity is dampened by fiscal tightening and weak residential investment. Materials handling demand is transitioning to a replacement cycle, with electrification advancing in compact segments. Power generation and data center applications remain resilient, supported by critical infrastructure needs and hybrid solutions, while marine applications focus on compliance and efficiency. Overall, growth expectations have shifted toward 2026-2027, with near-term conditions characterized by caution and selective investment.
Global vehicle fuel efficiency and emissions standards
OEMs are facing increasingly strict constraints for vehicle fuel efficiency and emissions standards in many of the regions in which we operate. Despite recent revisions, mostly still ongoing, regulatory authorities in key regions such as the United States, the European Union, China, Japan, and Korea have instituted regulations that require sustained and significant reductions in greenhouse gas (including CO2 and NOx) and particulate matter vehicle emissions. OEMs are required to evaluate and adopt various solutions to address these stricter standards. Turbochargers allow OEMs to reduce engine size without sacrificing vehicle performance, thereby increasing fuel efficiency and decreasing harmful emissions. Furthermore, turbochargers allow more precise “air control” over both engine intake and exhaust conditions, such as gas pressures, flows and temperatures, enabling optimization of the combustion process. This combustion optimization is critical to engine efficiency, exhaust emissions, power and transient response (i.e., how the engine reacts to changes in operating conditions, such as acceleration or load changes). It also allows exhaust gas recirculation for diesel engines and Miller-cycle operation for gasoline engines. Consequently, we believe turbocharging will continue to be a key technology for automakers to meet increasingly stringent fuel economy and emissions standards without sacrificing performance.
Turbocharger penetration
Use of turbochargers and electric-boosting technologies on vehicle powertrain systems is one of the most cost-effective solutions to address stricter fuel economy and emissions standards, and OEMs are increasing their adoption of these technologies. Total turbocharger production increased globally from approximately 49 million units in 2024 to close to nearly 50 million units in 2025, increasing by more than half a million units year-over-year, and is expected to decrease in 2026 and onward (based on current expectations for BEV penetration), gradually declining to 2022 volume levels by 2030. S&P forecasts turbocharger penetration on ICE-based powertrains to grow in light vehicles from 54% in 2022 to approximately 57% in 2026, stabilizing around 56% up to 2033.
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Medium-Term Powertrain Trends
Note: Years 2023 - 2025 represent actual data and years 2026 - 2030 represent forecasted data.
Source: S&P, KGP
Electrification and hybrids
In order to address stricter fuel economy standards, OEMs also have been increasing the electrification of their vehicle offerings, primarily with the addition of hybrid powertrains equipped with a gasoline or diesel internal combustion engine in combination with an electric motor. This includes growing interest for hybridized powertrains that blur the boundaries between ICE and BEVs, such as REEVs (Range Extended EVs, which have a small ICE-powered generator that recharges the battery pack). S&P estimates that hybrid vehicles (excluding mild hybrids, but including REEVs) produced globally will grow from a total of approximately 16 million vehicles in 2025 to 26 million vehicles in 2029, representing a CAGR of 11%. Many of these vehicles utilize turbos; additionally, the hybrid setup enables the use of electric turbos and compressors as well as E-Powertrain technology.
Battery electric and fuel cell technologies
OEMs are investing in BEVs in part to comply with regulatory targets across regions. S&P expects that BEVs will comprise 28% of total light vehicle production globally by 2030. Consumer adoption hinges not only on future "cost of range," which is tightly linked to the energy capacity of the battery, but also on how well that energy is used. Critical issues include energy efficiency increases (including how to best address thermal management challenges), battery price (and consequently vehicle price), weight reduction through increases in power density, and shorter recharging times. As OEMs strive to solve these issues, they are also investing in hydrogen fuel cell-powered electric vehicles for demanding applications requiring longer ranges, especially for commercial vehicles. These vehicles, like BEVs, have fully electric motor powertrains, but they rely on the hydrogen fuel cell to generate the required electricity. The hydrogen fuel cell also requires advanced electric-boosting technology to run efficiently and optimize range and cost of ownership. We are investing to address selected opportunities, sparked by the electrification trend, where our differentiated technology can bring benefits related to lighter, more compact and more energy efficient components for electric vehicles.
Our Products
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We are a global leader in the $10 billion OEM turbocharger industry. We believe we will continue to benefit from global technology leadership in the turbocharger industry through our deep relationships with global OEMs. Continuous product innovation to bring innovative and differentiated technologies for electric vehicles (E-Powertrain and E-Cooling compressors), fuel cell compressors and solutions beyond automotive are the new challenges we are embracing and pursuing.
Products for light vehicle ICE
•Gasoline: The global adoption of turbochargers by OEMs on gasoline engines has increased rapidly from approximately 14% in 2013 to approximately 51% in 2025 and is forecasted by S&P to increase to 53% in 2026. In addition to the volume growth, tightening of CO2 regulations is driving a technology shift, moving away from standard waste gate technology to variable geometry turbo ("VNT"), which is a premium technology where we hold technological competitive advantages. In 2016, we launched our first high-volume VNT gasoline application, and this technology is expected to experience increased adoption in the years to come. According to a forecast by S&P, VNT represented 21% of global turbo gasoline production in 2025 and is expected to reach 29% by 2030. A key to our strategy for gasoline growth is thus to leverage our technological leadership in high-temperature materials and variable geometry, as well as our scale and global footprint to meet the demands of global OEMs.
•Diesel: We have a long history of technology leadership in diesel engine turbochargers. Although diesel is weak in certain vehicle segments, we derive most of our diesel turbocharger revenues from segments with continued strong performance: heavier and bigger vehicles like SUVs, pickup trucks and light commercial vehicles (such as delivery vans). Diesel maintains a unique advantage in terms of fuel consumption, cost of ownership, and towing capacity, which makes it the powertrain of choice for heavier vehicle applications. Diesel also remains essential for OEMs to meet their CO2 fleet average regulatory targets going forward, as diesel vehicles produce less CO2 on average than gasoline vehicles.
•Hybrid vehicles: We offer a comprehensive portfolio of turbocharger and electric-boosting technologies (including E-Turbo and E-Compressor solutions) to manufacturers of hybrid-electric powertrains. OEMs are increasingly adopting hybrid technologies to meet stricter regulatory standards. Like turbochargers for gasoline and diesel engines, turbochargers for hybrid vehicles are an essential component of maximizing fuel efficiency and overall engine performance.
Internal combustion commercial vehicles & industrial products
Our Company traces its roots to the 1950s when we helped develop a turbocharged commercial vehicle for Caterpillar. We have maintained our strategic relationship with key commercial vehicle OEMs for over 70 years as well as industry-leading positions for both on- and off-highway use. Our products improve engine performance and enable lower emissions on trucks, buses, agriculture equipment, construction equipment and mining equipment with engine sizes ranging 1.8L to more than 100L. We continue to develop our product range - including the introduction of our largest turbocharger, Garrett MEG - reinforcing our presence in marine and industrial applications, such as backup power generation for data centers.
Electric (battery electric and hydrogen fuel cell electric) vehicles & industrial products
We provide a comprehensive range of electric air compressors to manufacturers of fuel cell systems. Our system consists of efficient, powerful, and lightweight air compressors using leading automotive technologies to boost fuel cell vehicles. Air supply is critical for performance, durability and hydrogen fuel consumption and range for applications equipped with hydrogen fuel cells. We launched the auto industry's first fuel cell production car application in 2016. We now provide a comprehensive portfolio of fuel cell air compressors covering a broad range of fuel cell stack power from 30kW to 250+kW and we launched our third generation of fuel cell products in 2024.
Leveraging a set of unique technological building blocks, we now offer disruptive solutions for electric traction (E-Powertrain) and electric thermal management (E-Cooling compressor) that can enhance an application’s energy efficiency in a reduced packaging space and with significant weight savings. We are engaged in several pre-development programs with OEMs in various regions, both within mobility and industrial applications.
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Aftermarket and performance products
Our Garrett aftermarket brand has strong recognition across distributors and garages globally, and is known for quality, reliability and boosting engine performance. We operate through a network of more than 370 distributors covering 165 countries. Our aftermarket business has historically provided a stable stream of revenue supported by our large installed base, currently estimated at nearly 150 million vehicles. As turbocharger penetration rates continue to increase, we expect that our installed base and aftermarket opportunities will continue to grow. We are also working to broaden our portfolio with our Remanufactured ("REMAN") offering in Europe, the Middle East and Africa and North America which so far has increased our portfolio by over 400 additional applications, and at the same time provides the additional benefit of utilizing recovered parts while maintaining our required quality standards (by using original components and original assembly processes in our REMAN workshops).
Our Competitive Strengths
We believe that we differentiate ourselves through the following competitive strengths:
•Differentiated and innovative technology in, and beyond, mobility
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Interim Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the audited annual Consolidated Financial Statements for the year ended December 31, 2025, included in our 2025 Form 10-K. Some of the information contained in this MD&A or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve various risks and uncertainties. Please refer to the "Special Note Regarding Forward-Looking Statements" below.
The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc. for the three and nine months ended September 30, 2026.
Executive Summary
During the third quarter of 2026, we outperformed the light vehicle industry and saw growth especially in commercial vehicles and industrial sales. This was primarily driven by demand growth in light commercial diesel applications in Europe, as well as continued expansion in commercial vehicle and industrial. Demand for aftermarket off-highway and industrial replacement parts further contributed to a favorable product mix. We delivered strong operating performance year-over-year, resulting in Net income for the quarter of $97 million and Adjusted EBIT(1) of $152 million. As the broader macroeconomic and geopolitical conditions evolve, we continue to actively monitor developments and their potential impacts on the industry and our operations.
We continue to have success across our differentiated technologies by winning business in both turbo and zero emission offerings. We secured light vehicle turbo, commercial vehicle and industrial awards across multiple regions, including turbo technology for data centers. Development and testing is on track for start of production for both our high-speed Powertrain and our E-Cooling oil free compressor. During the quarter we secured an additional award for our Industrial E-Cooling oil-free compressor technology and continue to broaden and advance our engagement with multiple HVAC customers. We completed multiple proof of concept tests for our high-speed E-Powertrain, advancing our discussions with customers.
For the three months ended September 30, 2026, we repurchased $57 million of Common Stock under our share repurchase program. As of September 30, 2026, we had $78 million of the authorized amount remaining under our share repurchase program. The repurchased shares are held as treasury stock.
(1) Adjusted EBIT is a non-GAAP measure. Refer to "Non-GAAP Measures" below for a definition of Adjusted EBIT and a reconciliation of Adjusted EBIT to Net income, the most directly comparable GAAP financial measure.
Disaggregated Revenue
The following tables show our revenues by geographic region and product line for the three and nine months ended September 30, 2026 and 2025, respectively.
By Region
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 175 | 19% | $ | 170 | 19% | $ | 528 | 18% | $ | 524 | 19% | |||||||||||||||||||||||||||||||||||
Europe | 456 | 49% | 434 | 48% | 1,468 | 51% | 1,320 | 49% | |||||||||||||||||||||||||||||||||||||||
Asia | 260 | 28% | 264 | 29% | 798 | 28% | 771 | 29% | |||||||||||||||||||||||||||||||||||||||
Other | 39 | 4% | 34 | 4% | 97 | 3% | 78 | 3% | |||||||||||||||||||||||||||||||||||||||
Total | $ | 930 | $ | 902 | $ | 2,891 | $ | 2,693 | |||||||||||||||||||||||||||||||||||||||
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By Product Line
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Diesel | $ | 212 | 23% | $ | 201 | 22% | $ | 679 | 24% | $ | 626 | 23% | |||||||||||||||||||||||||||||||||||
| Gas | 385 | 41% | 405 | 45% | 1,244 | 43% | 1,206 | 45% | |||||||||||||||||||||||||||||||||||||||
| Commercial Vehicles / Industrial | 202 | 22% | 164 | 18% | 571 | 20% | 489 | 18% | |||||||||||||||||||||||||||||||||||||||
| Aftermarket | 122 | 13% | 116 | 13% | 355 | 12% | 325 | 12% | |||||||||||||||||||||||||||||||||||||||
| Other | 9 | 1% | 16 | 2% | 42 | 1% | 47 | 2% | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 930 | $ | 902 | $ | 2,891 | $ | 2,693 | |||||||||||||||||||||||||||||||||||||||
Results of Operations for the Three and Nine Months Ended September 30, 2026
Net Sales
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net sales | $ | 930 | $ | 902 | $ | 2,891 | $ | 2,693 | |||||||||||||||
| % change compared with prior period | 3.1 | % | 7.4 | % | |||||||||||||||||||
Net Sales for the Three Months Ended September 30, 2026
For the three months ended September 30, 2026, net sales compared to the prior period increased by $28 million or 3% (including an unfavorable impact of $3 million or 0.3% due to foreign currency fluctuation). The increase was primarily related to strong demand in commercial vehicles, industrial and aftermarket, favorable price net of inflation pass-through, partially offset by lower import tariffs and post summary corrections.
Gasoline product sales decreased by $20 million or 5% (including an unfavorable impact of $1 million due to foreign currency translation), primarily driven by demand softness in China, partially offset by program ramp-ups in Europe, Japan, Korea, and India.
Diesel product sales increased by $11 million or 5% (including an unfavorable impact of $2 million or 1% due to foreign currency translation), primarily driven by strong demand for light commercial vehicles and pickup trucks in Europe, North and South America, and India.
Commercial vehicle and Industrials sales increased by $38 million or 23% (with no significant impact due to foreign currency translation), primarily driven by strong demand in North America and China for industrial and off-highway applications combined with higher on-highway demand in Japan, Korea and India.
Aftermarket sales increased by $6 million or 5% (with no significant impact due to foreign currency translation), primarily driven by higher demand for replacement parts in North America off-highway and industrial and stronger demand for passenger vehicles replacement parts in Europe.
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Net Sales for the Nine Months Ended September 30, 2026
For the nine months ended September 30, 2026, net sales compared to the prior period increased by $198 million or 7% (including a favorable impact of $70 million or 2% due to foreign currency translation). The increase was primarily related to higher demand across all verticals, favorable foreign currency impacts and price net of inflation pass-through, partially offset by lower import tariffs and post summary corrections.
Gasoline product sales increased by $38 million or 3% (including a favorable impact of $34 million or 3% due to foreign currency translation), primarily driven by new application launches and program ramp-ups in Europe, India and South America, partially offset by demand softness in China.
Diesel product sales increased by $53 million or 8% (including a favorable impact of $22 million or 3% due to foreign currency translation), primarily driven by strong demand for light commercial vehicles and pickup trucks in Europe, North and South America and India.
Commercial vehicle and Industrials sales increased by $82 million or 17% (including a favorable impact of $6 million or 1% due to foreign currency translation), primarily driven by strong demand in North America and China for industrial and off-highway applications combined with higher on-highway demand in Japan and Korea.
Aftermarket sales increased by $30 million or 9% (including a favorable impact of $7 million or 2% due to foreign currency translation), primarily driven by stronger demand for passenger vehicle replacement parts in Europe and stronger demand for off-highway and industrial applications in North America, China, Japan and Korea.
Cost of Goods Sold and Gross Profit
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Cost of goods sold | $ | 724 | $ | 716 | $ | 2,277 | $ | 2,147 | |||||||||||||||
| % change compared with prior period | 1.1 | % | 6.1 | % | |||||||||||||||||||
| Gross profit as a percentage of sales | 22.2 | % | 20.6 | % | 21.2 | % | 20.3 | % | |||||||||||||||
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Cost of Goods Sold and Gross Profit for the Three Months Ended September 30, 2026
| Cost of Goods Sold | Gross Profit | ||||||||||
| (Dollars in millions) | |||||||||||
Cost of Goods Sold / Gross Profit for the three months ended September 30, 2025 | $ | 716 | $ | 186 | |||||||
| Increase/(decrease) due to: | |||||||||||
| Volume | (17) | (8) | |||||||||
| Product mix | 39 | 21 | |||||||||
| Price, net of inflation pass-through | — | 18 | |||||||||
| Commodity, transportation & energy inflation | 18 | (18) | |||||||||
| Productivity, net | (24) | 20 | |||||||||
| Import tariffs | (19) | 1 | |||||||||
| Research, development & engineering | 6 | (6) | |||||||||
| Foreign exchange rate impacts | 5 | (8) | |||||||||
Cost of Goods Sold / Gross Profit for the three months ended September 30, 2026 | $ | 724 | $ | 206 | |||||||
For the three months ended September 30, 2026, cost of goods sold increased by $8 million, primarily driven by $39 million related to product mix, $18 million of commodity, transportation, and energy inflation, $6 million of higher RD&E costs and $5 million from foreign currency impacts. These increases were partially offset by $24 million of higher productivity net of labor inflation and repositioning costs, $19 million of lower import tariffs primarily driven by tariff recoveries that we expect to be subsequently reimbursed to our customers, and $17 million from lower sales volumes.
For the three months ended September 30, 2026, gross profit increased by $20 million, primarily driven by $21 million of favorable product mix, $20 million of higher productivity net of labor inflation and repositioning costs, $18 million of price net of inflation pass-through, and $1 million of import tariffs. These increases were partially offset by $18 million of commodity, transportation, and energy inflation, $8 million from lower sales volumes, $8 million from foreign currency impacts, and $6 million of higher RD&E costs.
Cost of Goods Sold and Gross Profit for the Nine Months Ended September 30, 2026
| Cost of Goods Sold | Gross Profit | ||||||||||
| (Dollars in millions) | |||||||||||
Cost of Goods Sold / Gross Profit for the nine months ended September 30, 2025 | $ | 2,147 | $ | 546 | |||||||
| Increase/(decrease) due to: | |||||||||||
| Volume | 60 | 27 | |||||||||
| Product mix | 61 | 28 | |||||||||
| Price, net of inflation pass-through | — | 15 | |||||||||
| Commodity, transportation & energy inflation | 24 | (24) | |||||||||
| Productivity, net | (41) | 7 | |||||||||
| Import tariffs | (29) | — | |||||||||
| Research, development & engineering | (5) | 5 | |||||||||
| Foreign exchange rate impacts | 60 | 10 | |||||||||
Cost of Goods Sold / Gross Profit for the nine months ended September 30, 2026 | $ | 2,277 | $ | 614 | |||||||
For the nine months ended September 30, 2026, cost of goods sold increased by $130 million, primarily driven by $61 million related to product mix, $60 million from higher sales volumes, $60 million of foreign currency impacts, and $24 million of commodity, transportation, and energy inflation. These increases were partially offset by $41 million of productivity net of labor inflation and repositioning costs, $29 million of lower import tariffs, and $5 million of lower RD&E costs.
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For the nine months ended September 30, 2026, gross profit increased by $68 million, primarily driven by $28 million of favorable product mix, $27 million from higher sales volumes, $15 million of price net of inflation pass-through, $10 million from favorable foreign currency impacts, $7 million of productivity net of labor inflation and repositioning costs, and $5 million of lower RD&E costs. These increases were partially offset by $24 million of commodity, transportation, and energy inflation.
Selling, General and Administrative Expenses
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Selling, general and administrative expense | $ | 58 | $ | 57 | $ | 179 | $ | 175 | |||||||||||||||
| % of sales | 6.2 | % | 6.3 | % | 6.2 | % | 6.5 | % | |||||||||||||||
Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2026 increased by $1 million compared with the prior period, primarily driven by $3 million of higher personnel cost, partially offset by $2 million of lower professional services and patent costs.
SG&A expenses for the nine months ended September 30, 2026 increased by $4 million compared with the prior period, primarily driven by $6 million of unfavorable foreign currency impacts and $6 million of higher personnel costs, partially offset by $3 million of lower bad debt expense and $6 million of acquisition and divestiture expenses incurred in the previous year.
Other Expense, Net
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||
| Other expense, net | $ | 1 | $ | 1 | $ | 3 | $ | 9 | ||||||||||||||
Other expense, net for the three months ended September 30, 2026 was consistent with the prior period.
Other expense, net for the nine months ended September 30, 2026 decreased by $6 million compared to the prior period, primarily driven by professional fees incurred in the prior year related to our Restatement Agreement.
Interest Expense
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Interest expense | $ | 27 | $ | 29 | $ | 78 | $ | 83 | |||||||||||||||
For the three months ended September 30, 2026, interest expense decreased by $2 million compared to the prior period. This decrease was primarily from lower interest expense due to a lower notional amount of debt outstanding during the period.
For the nine months ended September 30, 2026, interest expense decreased by $5 million compared to the prior period. This decrease was primarily due to a lower notional amount of debt outstanding during the period and the repricing of our Credit Agreement at a lower interest rate.
Non-Operating Expense (Income)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Non-operating expense (income) | $ | 1 | $ | (3) | $ | (9) | $ | (10) | |||||||||||||||
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For the three months ended September 30, 2026, we had non-operating expense of $1 million compared to non-operating income of $3 million in the prior period. The change in non-operating expense from the prior period was primarily driven by the finalization of a tax indemnification obligation.
For the nine months ended September 30, 2026, we had non-operating income of $9 million versus $10 million in the prior period. The decrease in non-operating income was primarily driven by a decrease in interest income and foreign exchange transactional gains, and the finalization of a tax indemnification obligation, partially offset by the resolution of certain environmental liabilities and an increase in the non-service cost components of net periodic pension benefits.
Tax Expense
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Tax expense | $ | 22 | $ | 25 | $ | 70 | $ | 63 | |||||||||||||||
| Effective tax rate | 18.5 | % | 24.5 | % | 19.3 | % | 21.8 | % | |||||||||||||||
The effective tax rates for the three months ended September 30, 2026 and 2025 were 18.5% and 24.5%, respectively. The effective tax rates for the nine months ended September 30, 2026 and 2025 were 19.3% and 21.8%, respectively.
The change in the effective tax rate for the three and nine months ended September 30, 2026 compared to the prior period is primarily related to a decrease in U.S. taxes on international operations during 2026, the global mix of earnings from year-to-year, a one-time benefit related to the revaluation of deferred tax assets in China during 2025, and deductions related to employee share-based compensation during 2026.
The effective tax rate can vary from quarter to quarter due to changes in the Company’s global mix of earnings, the resolution of income tax audits, changes in tax laws (including updated guidance on U.S. tax reform), deductions related to employee share-based compensation, internal restructurings, and pension mark-to-market adjustments.
Net Income
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net income | $ | 97 | $ | 77 | $ | 293 | $ | 226 | |||||||||||||||
| Net income margin | 10.4 | % | 8.5 | % | 10.1 | % | 8.4 | % | |||||||||||||||
Net income for the three months ended September 30, 2026 increased by $20 million compared with the prior period, due to $20 million of higher gross profit, $3 million of lower tax expense and $2 million of lower interest expense, partially offset by $4 million of increased non-operating expense and $1 million of higher SG&A expense.
Net income for the nine months ended September 30, 2026 increased by $67 million compared with the prior period, due to $68 million of higher gross profit, $6 million of lower other expense, net and $5 million of lower interest expense, partially offset by $7 million of higher tax expense, $4 million of higher SG&A expense and $1 million of lower non-operating income.
Non-GAAP Measures
It is management’s intent to provide non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be comparable to other similarly titled measures used by other companies. Additionally, the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, an analysis of the Company’s operating results as reported under GAAP.
31
EBIT and Adjusted EBIT
We define “EBIT” as our Net income calculated in accordance with GAAP, plus the sum of (i) interest expense net of interest income and (ii) tax expense. We define “Adjusted EBIT” as EBIT, plus the sum of (i) repositioning costs, (ii) foreign exchange (gain) loss on debt net of related hedging (gains) losses, (iii) discounting costs on factoring, (iv) gain on sale of equity investment, (v) acquisition and divestiture expenses, (vi) other non-operating income, and (vii) debt refinancing and redemption costs, if any.
We believe that EBIT and Adjusted EBIT are important indicators of operating performance and provide useful information for investors and management because EBIT and Adjusted EBIT exclude the effects of income taxes, as well as the effects of financing activities by eliminating the effects of interest. Certain adjustment items, while periodically affecting our results, may also vary significantly from period to period and have disproportionate effect in a given period, which affects the comparability of our results.
The following table reconciles Net income under GAAP to EBIT and Adjusted EBIT:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Net income | $ | 97 | $ | 77 | $ | 293 | $ | 226 | |||||||||||||||
Interest expense, net of interest income (1) | 26 | 28 | 77 | 80 | |||||||||||||||||||
| Tax expense | 22 | 25 | 70 | 63 | |||||||||||||||||||
| EBIT | 145 | 130 | 440 | 369 | |||||||||||||||||||
Repositioning costs (2) | 4 | 3 | 17 | 8 | |||||||||||||||||||
Factoring and notes receivables discount fees | 1 | — | 3 | 2 | |||||||||||||||||||
Other non-operating expense (income) (3) | 2 | (1) | (6) | (4) | |||||||||||||||||||
Debt refinancing and redemption costs (4) | — | 1 | 1 | 7 | |||||||||||||||||||
| Acquisition and divestiture expenses | — | — | — | 6 | |||||||||||||||||||
| Adjusted EBIT | $ | 152 | $ | 133 | $ | 455 | $ | 388 | |||||||||||||||
(1)Reflects interest income of $1 million for each of the three months ended September 30, 2026 and 2025, and $1 million and $3 million for the nine months ended September 30, 2026 and 2025, respectively.
(2)Repositioning costs includes severance costs related to restructuring projects.
(3)Reflects the non-service component of net periodic pension income and, for the three and nine months ended September 30, 2026, includes $4 million payable to the Company's former parent pursuant to an indemnity agreement established in connection with the Company's spin-off. For the nine months ended September 30, 2026, the amount also includes a $5 million gain related to the resolution of certain environmental liabilities not directly related to the Company's operations.
(4)Reflects third-party costs directly attributable to the refinancing of our credit facilities and any amendments thereto.
32
Adjusted EBIT for the Three Months Ended September 30, 2026
For the three months ended September 30, 2026, net income increased by $20 million versus the prior period as discussed above within Results of Operations for Three and Nine Months Ended September 30, 2026.
For the three months ended September 30, 2026, Adjusted EBIT increased by $19 million compared to the prior period, driven by $21 million of favorable product mix impact, $19 million of pricing net of inflation pass-through and $18 million of favorable productivity, SG&A net. This increase was partially offset by $18 million of commodity, transportation and energy inflation, $8 million of lower volume, $7 million of unfavorable foreign currency impact and $6 million of higher RD&E costs.
During the three months ended September 30, 2026, we saw strong demand in commercial vehicle, industrial, aftermarket, and diesel, partially offset by lower demand in gasoline. The decrease in gasoline was primarily driven by demand softness in China, partially offset by program ramp-ups in Europe and Asia. The increase in Diesel was primarily driven by strong demand for light commercial vehicles and pickup trucks in Europe, North and South America and India. The growth in commercial vehicle and industrials were primarily driven by strong demand in North America and China for industrial and off-highway applications combined with higher on-highway demand in Japan, Korea and India. The increase in aftermarket was primarily driven by higher demand for replacement parts in North America off-highway and industrial and stronger demand for passenger vehicles replacement parts in Europe.
The strong operational productivity from our ability to flex our variable cost structure while driving sustained fixed cost productivity was partially offset by year-over-year labor inflation.
Losses in foreign currency for the three months ended September 30, 2026 were primarily driven by a strong Chinese Yuan and Japanese Yen.
Adjusted EBIT for the Nine Months Ended September 30, 2026
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-09-11 | Steyn Julia | Director | Sell | -178 | $28.00 | -$4,984 |
| 2026-09-02 | Deiro Daniel | SVP, GCM & GM Japan/Korea | Sell | -20,000 | $26.89 | -$537,818 |
| 2026-09-01 | Deiro Daniel | SVP, GCM & GM Japan/Korea | Sell | -30,000 | $26.70 | -$800,943 |
Source: SEC Form 4 filings.
Next expected filings
- ~2027-02-18 10-K expected by 2027-03-02 (in 112 days)
- ~2027-05-01 10-Q expected by 2027-05-16 (in 184 days)
- ~2027-07-30 10-Q expected by 2027-08-14 (in 274 days)
- ~2027-10-30 10-Q expected by 2027-11-14 (in 366 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-10-29 8-K Earnings Release; Financial Statements and Exhibits
- 2026-10-29 10-Q Quarterly Report
- 2026-10-28 8-K Officer/Director Change; Financial Statements and Exhibits
- 2026-07-29 8-K Earnings Release; Financial Statements and Exhibits
- 2026-07-29 10-Q Quarterly Report
- 2026-07-27 8-K Officer/Director Change; Bylaws/Articles Amended; Financial Statements and Exhibits
- 2026-05-20 8-K Material Agreement Entered; Material Financial Obligation; Regulation FD Disclosure; Financial Statements and Exhibits
- 2026-04-30 8-K Earnings Release; Financial Statements and Exhibits
- 2026-04-30 10-Q Quarterly Report
- 2026-04-10 DEF 14A Proxy Statement
- 2026-02-19 10-K Annual Report
- 2026-02-19 8-K Earnings Release; Financial Statements and Exhibits
- 2025-10-23 10-Q Quarterly Report
- 2025-10-23 8-K Earnings Release; Financial Statements and Exhibits
- 2025-09-26 8-K Officer/Director Change