Executive Summary / Key Takeaways

• Core Molding Technologies has successfully transformed from a distressed state in 2019 to an operationally strong, cash-generative company, now focused on leveraging its enhanced capabilities for profitable growth.
• Despite facing near-term macroeconomic headwinds and cyclical downturns in key markets like heavy-duty trucks and power sports, the company maintained strong gross margins in Q1 2025, demonstrating operational efficiency and cost management discipline.
• CMT's core investment thesis is underpinned by its differentiated molding technology, including proprietary SMC formulations and large press capabilities, which provide a competitive edge in niche, high-value applications and support diversification into new markets like building products, EV batteries, and medical.
• The "Invest for Growth" strategy, focused on wallet share expansion, market diversification, and strategic M&A, is already yielding results with significant new business wins secured in 2024 and Q1 2025, signaling future revenue potential despite near-term sales pressure from market cycles and customer transitions (like Volvo (VOLVY)).
• Strong liquidity, robust cash flow generation, and a disciplined capital allocation approach (including strategic investments, M&A pursuit, and share repurchases) position CMT to execute its growth strategy and capitalize on anticipated market rebounds, particularly in the truck market in the second half of 2025 and 2026.

A Foundation For Growth: Transformation, Technology, and Competitive Edge

Core Molding Technologies, Inc. (NYSE American: CMT) operates within the engineered materials market, specializing in the molding of thermoplastic and thermoset structural products. Serving diverse end markets including medium and heavy-duty trucks, power sports, building products, and industrial and utilities, CMT's business model centers on providing complex, large, and ultra-large composite parts and manufactured solutions. The company's journey over the past five years has been one of significant transformation, moving from a position of financial distress in 2019, where it reported an $11.5 million EBIT loss on $284 million in revenue, to a state of operational strength and robust cash generation.

This multiyear transformation, guided by successive "must-win battles," initially focused internally on building a winning culture, implementing transparent business systems, and executing a comprehensive operational turnaround. These efforts involved substantial investment in organizational capabilities, operational infrastructure, and financial discipline. By the third quarter of 2024, this foundational work had yielded impressive results, with the company generating $15.8 million in EBIT on $240 million in revenue, a $27 million improvement in performance on $40 million less revenue compared to 2019. This turnaround phase also included a critical product line portfolio rationalization to exit non-profitable business, further solidifying the company's financial footing.

With a strong operational and financial base established, CMT's current "must-win battle" is squarely focused on "Invest for Growth." This strategy aims to leverage the company's enhanced execution capabilities, assets, and cash to drive profitable revenue expansion, both organically and through strategic acquisitions.

A key component of CMT's competitive positioning and its ability to pursue this growth strategy lies in its technological differentiation and operational expertise. The company possesses proprietary sheet molding compound (SMC) formulations and capabilities, which management highlights as enabling shorter quote-to-cash cycles compared to traditional engineered solutions. Continued investment and operational improvements in SMC have not only enhanced internal processes but also opened opportunities for selling these formulated solutions to external customers, creating a new potential revenue stream.

Furthermore, CMT's large and ultra-large press capabilities provide a distinct advantage, particularly in markets requiring sizable structural components. The company cited winning business for ultra-large turf protection mats for the construction industry, noting that few competitors can mold such large structural parts in one piece on the size of presses CMT operates. This capability allows CMT to work with customers on developing even larger parts, showcasing a technical edge in a specific niche. Recent investments in upgrading some of these presses, focusing on valving, hydraulics, and closed-loop controls, aim to significantly increase operating speed and efficiency, further enhancing this advantage.

The company has also strategically invested in value-added capabilities, such as top coat paint at its Matamoros facility. This allows CMT to offer a fully integrated solution – from proprietary SMC formulation and molding to assembly and painting – all within a single facility. This enhances the value proposition for customers in markets like mobile machinery (construction, industrial, heavy equipment) and positions CMT as a comprehensive solution provider.

In the broader competitive landscape, CMT operates alongside larger, more diversified players like PPG Industries (PPG) (paints, coatings, specialty materials), Nova Chemicals (plastics, chemicals), and Celanese Corporation (CE) (chemicals, materials). While these competitors often benefit from greater scale, higher R&D budgets, and potentially lower operating costs per unit in high-volume production, CMT carves out its niche through specialized molding expertise, the ability to handle complex, large parts, and a multi-process offering (thermoplastics and thermosets). CMT's proprietary SMC and efficient molding processes offer tangible benefits like potentially better performance in structural integrity (e.g., higher impact resistance) and faster processing times for large-scale parts, though sometimes at a higher upfront cost due to customization. The company believes its operational excellence, evidenced by quality awards like the PACCAR (PCAR) 10 PPM and BRP (DOOO) Gold Supplier awards, positions it favorably against many in the industry, including some large competitors facing challenges, which management sees as expanding CMT's opportunity pipeline. Indirect competition comes from alternative technologies like 3D printing or metal casting, which may offer cost advantages for certain parts but often lack the precision or structural performance required for CMT's core applications.

CMT's strategic positioning leverages its North American footprint (US, Canada, Mexico), which can be an advantage in navigating potential trade dynamics and offering customers manufacturing options based on location preferences. The company's focus on being a trusted, sole-source supplier for critical components in its customers' long-term growth plans creates a business model characterized by long-term programs and complex solutions.

Performance Amidst Headwinds: Resilience and Margin Strength

Core Molding Technologies' recent financial performance reflects the dual reality of navigating challenging end markets while benefiting from the operational improvements implemented over the past few years. For the three months ended March 31, 2025, the company reported net sales of $61.45 million, a decrease from $78.14 million in the same period of 2024. This decline was primarily attributed to lower demand in the medium and heavy-duty truck and power sports markets, compounded by the ongoing transition of business with a major customer, Volvo. Product sales, excluding tooling, were $61.01 million in Q1 2025, down from $75.83 million in Q1 2024. Tooling sales, which are sporadic, also saw a significant decrease to $0.435 million from $2.314 million year-over-year.

Despite the top-line pressure, CMT demonstrated notable resilience in its profitability. Gross margin expanded to 19.2% of sales in Q1 2025, a significant improvement from 17.0% in Q1 2024 and 15.8% in Q4 2024. This margin expansion, even with lower sales volume, was favorably impacted by a favorable product mix, operational efficiencies, and better raw material costs, partially offset by lower fixed cost leverage. Management highlighted that their ability to maintain gross margins within their targeted range is a direct result of effectively managing variable expenses in response to changing demand, a capability honed during the operational turnaround phase.

Selling, general, and administrative (SGA) expenses were $8.94 million in Q1 2025, which included $0.5 million in severance costs related to earlier restructuring efforts. Excluding severance, SGA costs decreased year-over-year, primarily due to lower labor and benefits, including bonus accruals, though partially offset by unfavorable foreign currency translation. These restructuring efforts are expected to yield further gross margin and SGA savings throughout 2025.

Operating income for the quarter was $2.84 million, or 4.6% of sales, compared to $4.73 million, or 6.1% of sales, in the prior year period. Net interest expense decreased significantly to $16 thousand from $82 thousand, primarily due to higher interest income earned on the company's growing cash balance. Income tax expense was $0.75 million, resulting in a net income of $2.18 million, or $0.25 per basic and diluted share, compared to net income of $3.76 million, or $0.43 per share, in Q1 2024. Excluding the impact of severance, Q1 2025 diluted EPS would have been $0.29. Adjusted EBITDA for Q1 2025 was $7.2 million, or 11.7% of sales, an improvement from the 11.2% EBITDA margin in the year-ago quarter.

CMT's liquidity and capital resources remain strong. The company ended Q1 2025 with $44.47 million in cash and cash equivalents and total liquidity of $94.5 million, including $50 million available under its revolving and capital credit lines.

Cash provided by operating activities totaled $6.10 million in Q1 2025, up from $5.07 million in Q1 2024, driven by net income and non-cash adjustments, despite an increase in working capital. Capital expenditures were $1.77 million in the quarter. The company anticipates spending approximately $10 million to $12 million on capital expenditures in 2025, including investments in large press upgrades, funded by operating cash flow and available credit. CMT remains in compliance with the financial covenants of its Huntington (HBAN) Credit Agreement.

Outlook and Growth Trajectory: Investing for the Upturn

Core Molding Technologies is not providing formal full-year 2025 revenue guidance due to ongoing macroeconomic uncertainty. However, management expects revenues for the first half of 2025 to decrease by approximately 10% to 15% compared to the first half of 2024. This revised expectation (from previous guidance of down 5-10%) is primarily attributed to tooling sales shifting to the second half of the year and lower than anticipated product sales in the heavy and medium-duty truck market due to macroeconomic and regulatory uncertainties.

Despite the near-term revenue pressure, CMT anticipates maintaining gross margins in the 17% to 19% range for the full year 2025. This confidence stems from the company's ability to adjust variable costs in line with demand fluctuations and the ongoing benefits from past operational efficiency improvements. Raw material pricing is expected to remain relatively flat or see a slight increase in 2025.

A key element of the 2025 outlook is the expected ramp-up in tooling sales throughout the year, particularly in the second half. Management anticipates full-year tooling revenue could be in the $30 million to $40 million range. While tooling revenue is sporadic, a strong second half for tooling is seen as a positive indicator for future product sales and a strong 2026, as these sales are tied to new program launches.

The truck market, a significant end market for CMT, is expected to transition from a cyclical downturn to an upturn in the second half of 2025 and continue into 2026. This anticipated rebound is linked to upcoming 2027 environmental regulation changes, which are expected to drive demand. Industry forecasts suggest 2026 could be a peak year for truck production, providing a tailwind for CMT's product sales.

The "Invest for Growth" strategy is actively contributing to the future revenue pipeline. In Q1 2025 alone, CMT secured over $15 million in annual new business, including a significant $10 million win in the building products sector leveraging proprietary SMC and a $5 million win in the electric vehicle battery sector, expanding within an existing customer relationship. These new wins, along with $45 million secured in 2024, are expected to begin contributing to revenue in 2025 (approximately $5 million from Q1 wins starting in Q2) and ramp up to full production levels in 2026, given the typical 12-18 month quote-to-cash cycle for their complex solutions. The company is also actively pursuing opportunities in new and emerging markets like medical (hospital bed frames), construction (turf mats, SMC sales), and retail (fake rocks), viewing these as "new beachheads" for diversification.

Strategic acquisitions remain a key part of the long-term growth plan, aimed at expanding sales channels, acquiring complementary technology, and increasing geographic footprint. CMT maintains a robust pipeline and is actively pursuing opportunities, though management emphasizes a disciplined and selective approach, noting that the market for sellers is currently slow. Share repurchases are also part of the capital allocation strategy, viewed as a high-return investment in the company's transformation and future, particularly given the stock's valuation relative to its financial position.

Key risks to the outlook include the ongoing macroeconomic uncertainty, which could further impact customer demand and delay decisions on large programs in the sales pipeline. Potential regulatory changes, including the EPA's 2027 rule, and global trade dynamics, such as rapidly changing tariff rates, could also influence customer demand and costs. While CMT has processes to pass through tariff surcharges where it is the importer of record and believes its domestic sourcing and USMCA compliance mitigate some raw material tariff risk, broader impacts on customer sales could still affect demand for CMT's products. The successful ramp-up of new programs and the execution of the "Invest for Growth" initiatives are critical to offsetting current market headwinds and realizing the company's growth potential.

Conclusion

Core Molding Technologies has successfully navigated a profound transformation over the past five years, emerging as a financially sound and operationally adept company. By focusing on core execution, enhancing its technological capabilities in molding and materials like proprietary SMC, and strategically investing in value-added processes such as top coat painting, CMT has built a durable foundation. This strength is evident in its ability to maintain solid gross margins and generate robust cash flow even in the face of challenging market conditions and cyclical downturns in key end markets.

The current "Invest for Growth" strategy is the logical next step, aiming to leverage these capabilities and the company's strong liquidity position to drive profitable revenue expansion. While near-term sales may be pressured by macroeconomic uncertainty, customer transitions, and delayed program decisions, the significant new business wins secured across diverse and emerging markets, coupled with the anticipated cyclical recovery in the truck market, paint a promising picture for future growth, particularly in 2026. CMT's disciplined approach to capital allocation, balancing organic investments, strategic M&A pursuit, and share repurchases, further supports the long-term investment thesis. Investors should monitor the execution of the growth strategy, the timing and strength of market rebounds, and the company's ability to convert its robust sales pipeline into realized revenue amidst the prevailing economic uncertainties.