Key Points

• Management's raised guidance for the entirety of 2025 didn't hurt, either.

• It increased its forecasts for both sales and headline net income.

• 10 stocks we like better than Garrett Motion ›

The stop lights were green for automotive technology company Garrett Motion (NASDAQ: GTX) on Thursday at least as far as its stock was concerned. Investors bid Garrett up by more than 3% that day, due mainly to its encouraging set of quarterly earnings figures. That rise was notably higher than that of the S&P 500 index, which crawled less than 0.1% higher.

An accelerating bottom line

Garrett's second-quarter results, published Thursday morning, featured rises in key metrics. The company's net sales didn't exactly boom, but they did increase almost 3% year over year to $913 million. Generally accepted accounting principles (GAAP) net income rose more strongly, advancing by nearly 36% to $87 million. On a non-GAAP (adjusted), per-share basis, the bottom line grew by 48% to $0.43.

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Image source: Getty Images.

Although the consensus analyst estimate was $918 million, Garrett crushed the adjusted bottom-line pundit forecast of $0.42.

In the earnings release, Garrett attributed its improvements to broad gains in a number of cutting-edge product segments.

It quoted CEO Olivier Rabiller as saying the company "reinforced our leadership in turbocharging, by securing awards for more than $1 billion in light vehicle program extensions while continuing to advance our zero-emission technologies, achieving new milestones in our e-powertrain, e-cooling, and fuel cell programs."

Turbocharged guidance

Garrett clearly believes the positive momentum will continue, as it raised both its top-line and profitability guidance for the entirety of 2025. The company is now projecting that net sales will come in at $3.4 billion to $3.6 billion (previous guidance: $3.3 billion to $3.5 billion). GAAP net income should be $233 million to $278 million, up from the former estimate of $209 million to $254 million.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Garrett Motion. The Motley Fool has a disclosure policy.

Yesterday, shares of Garrett Motion (NASDAQ: GTX) fell 10% after the company announced a big secondary offering. Today, the stock is making back most of what it lost. Shares of Garrett Motion are up 9% as of 10:45 a.m. ET, and the stock is now down just 3% over the past five days.

Image source: Getty Images.

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A shifting shareholder base

Garrett, the former auto division of Honeywell International, is a maker of turbochargers for internal combustion engine vehicles, as well as components for hybrid and battery electric vehicles.

The company has faced a lot of potholes since becoming independent. Garrett filed for bankruptcy in 2020 to shed liabilities, and returned to public markets with significant ownership by private equity firms that helped it through its restructuring.

Private equity firms, by their nature, are not long-term investors. The firms have been steadily selling down their stakes. Late Monday, Garrett announced a 17 million share offering by those private equity firms, causing the stock sell-off.

As we said at the time, the sales were well telegraphed and are likely not a reflection of the long-term prospects for the business. Since its restructuring, Garrett has turned into a strong cash generator and has used that cash to partially offset the dilution caused by the selling shareholders.

Is Garrett a buy?

The bad news for investors is this drama is not yet over. Even after the offering, the three private equity firms still own more than 20% of Garrett's total shares. That's down from 55% when the company went public, but still implies further selling from here.

The good news is that these sales should not impact an investor focused on the long term. Garrett is a solid cash-producing business with significant market opportunities as automakers try to make their legacy fleet more fuel efficient and plan for an electric future.

For investors seeking a turnaround story that provides a mix of income and growth, Garrett is an attractive candidate despite the ownership overhang.

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Lou Whiteman has positions in Garrett Motion. The Motley Fool recommends Garrett Motion. The Motley Fool has a disclosure policy.