ARB’s financial year 2025 results and outlook
ARB’s financial year 2025 ( FY25) results reflect a challenging environment, with a four per cent profit before tax (PBT) miss driven by lower gross margins. The Thai Baht’s strength and lower factory recoveries (more on this below) squeezed margins, a trend exacerbated by ARB’s unhedged foreign exchange (FX) exposure. However, the company’s ability to offset this through cost control – particularly a leaner employee cost base – demonstrates operational resilience. The 50-cent special dividend, backed by a net cash position and significant property assets, highlights ARB’s financial strength and management’s confidence in future cash flows.
The Australian aftermarket faced headwinds from a fitter shortage, which depressed sales as ARB turned away time-sensitive customers. Despite this, flat revenue in a market down 9 per ent underscores ARB’s competitive position. The broader vehicle market’s signs of recovery, coupled with ARB’s proactive hiring of skilled migrant fitters, positions the company for a stronger FY26.
Factory recoveries
Factory recoveries, in the context of ARB’s FY25 results and similar manufacturing businesses, refer to the extent to which a company can recover or absorb its fixed manufacturing overhead costs (e.g., factory rent, utilities, equipment depreciation, and labour) through production volumes and sales. These costs are incurred regardless of output levels, so higher production and sales volumes allow these costs to be spread over more units, reducing the per-unit cost and improving gross margins. Conversely, lower production volumes lead to “under-recovery” of these costs, increasing per-unit costs and compressing
In ARB’s case, lower factory recoveries are a key factor contributing to the ~370 basis point decline in the second half of 2025 (2H25) gross margins (54.9 per cent vs. 58.6 percent in 1H25). This was driven by:
Reduced production volumes: A shortage of fitters in Australia and softer demand in the domestic aftermarket market limited sales, reducing factory output. Lower production meant fixed costs were spread over fewer units, increasing per-unit costs.
Operational inefficiencies: The fitter shortage led to ARB turning away time-sensitive customers, depressing sales and leaving production capacity underutilised.
How ARB is addressing factory recoveries?
Skilled migrant fitters: ARB plans to onboard 22 new fitters in FY26 through skilled migration visas, which should boost Australian aftermarket sales and increase factory output, improving cost absorption.
U.S. growth and toyota contracts: Strong U.S. sales (+21–24 per cent in 2H25) and the anticipated Toyota Trailhunter program expansion are expected to increase production volumes, aiding factory recoveries and supporting gross margin recovery in FY26.
Price increases: ARB implemented a ~2.9–3 per cent price increase in August 2025 to offset some margin pressure, indirectly supporting recovery by maintaining revenue streams.
Factory recoveries reflect ARB’s ability to utilise its manufacturing capacity efficiently. Lower recoveries in FY25 pressured margins, but strategic initiatives like hiring fitters and expanding U.S. sales are expected to improve this in FY26.
U.S. market: a growth engine
The U.S. business emerged as the clear highlight, with 21–24 per cent revenue growth in in the second half of 2025 (2H25) and ORW/4WP outperforming expectations. The integration of these retail channels has driven profitability, with some months seeing ARB product sales double year-on-year (YoY). Strategic price increases of 7–8 per cent and Toyota’s absorption of tariff costs have effectively neutralised U.S. tariff risks, a significant positive for investor sentiment.
ARB’s U.S. engineering investments are yielding early product wins, and the anticipated Toyota contract announcement at the annual general meeting (AGM) signals further momentum. Opportunities in merchandising, store-in-store concepts, and new store openings (e.g., Houston) enhance ARB’s growth runway. The U.S. market’s strong performance, combined with consistent growth in New Zealand, the Middle East, and Europe, reflects and reinforces ARB’s global brand appeal and export potential.
Outlook: balancing risks and opportunities
Looking ahead, ARB faces near-term gross margin pressure from the Thai Baht, with most analysts forecasting FY26 margins at 55–55.3 per cent. However, price increases and improving factory recoveries (aided by the Toyota Trailhunter program and new fitters) could provide relief. The Australian market’s recovery, evidenced by strong June/July sales, and ARB’s store rollout plans (+3 net new stores in FY25) support revenue growth expectations of ~5 per cent in FY26.
Long-term growth will be driven by its U.S. expansion and global demand for 4WD accessories. The company’s ability to navigate tariff risks and maintain cost discipline mitigates the key concerns affecting other businesses such as Breville Group, while its strong balance sheet provides flexibility for reinvestment or further dividends.
While some brokers argue the re-rating has largely played out, the consensus view is that ARB’s risk-reward remains favourable. ARB’s high-quality business model, global growth optionality, and resilience in a tough market make it worth investigating, particularly for those betting on U.S. expansion and a domestic recovery.
The Montgomery Small Companies Fund owns shares in ARB Corporation. This article was prepared 23 August 2025 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade ARB Corporation, you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
