Earnings call transcript: Sandvik Q1 2025 sees modest growth, misses EPS
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Overview
The financial performance showed modest growth with improved margins and EPS, but concerns about macroeconomic risks, competitive pressures, and supply chain challenges dampen the outlook. The lack of shareholder return plans and unclear management responses in the Q&A further contribute to uncertainty. Despite positive EBITA and revenue growth, the absence of strong catalysts like new partnerships or guidance raises suggests a neutral sentiment.
Key Financial Performance
Total Order Intake SEK 32,800,000,000.0, up 2% year-over-year, driven by strong performance in mining and software.
Revenue SEK 29,300,000,000.0, increased by 1% year-over-year, with organic growth also at 1%.
Adjusted EBITA Margin 19.7%, improved by 1.5 percentage points year-over-year, attributed to restructuring programs and cost savings.
Adjusted Profit for the Quarter SEK 3,800,000,000.0, compared to SEK 3,300,000,000.0 in the same period last year.
Free Operating Cash Flow SEK 3,800,000,000.0, slightly improved from SEK 3,800,000,000.0 last year.
Adjusted EBITDA SEK 5,800,000,000.0, grew by 9% year-over-year, corresponding to a margin of 19.7%.
Net Financial Items Decreased from SEK 500,000,000 to SEK 300,000,000 year-over-year, due to lower interest rates and borrowed volumes.
Net Working Capital Just below 30%, with a seasonal increase driven by inventory typical for Q1.
Cash Conversion 70% in the quarter, with a twelve-month rolling basis cash conversion at 93%.
Financial Net Debt Decreased to 1.1 from 1.2 in the previous quarter, driven by cash flow.
Adjusted EPS Improved to SEK 3.01.
EBITA Margin Increased from 18.2% last year to 19.7% this year, with a positive leverage of 0.6 percentage points.
CapEx SEK 1,000,000,000, lower compared to previous periods.
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Operating Highlights
Electric Rotary Drill Rigs: Launched an electric option for the entire range of automation-ready rotary drill rigs, filling a gap in the product portfolio and improving market position in surface mining.
Mobile Electric Cone Crusher: Introduced a new mobile electric cone crusher to support organic growth for customers preferring electric options.
Acquisitions: Announced nine acquisitions in the quarter, including OSA Demolition Equipment, enhancing the range of demolition and recycling equipment.
Regional Performance: Strong performance in mining markets, particularly in Australia (up 12%) and South America (up 8%).
Adjusted EBITA Margin: Improved by 1.5 percentage points to 19.7%, with a rolling twelve months margin of 19.5%.
Free Operating Cash Flow: Slightly improved to SEK 3.8 billion, maintaining a cash conversion of 70%.
Restructuring Programs: Positive impact from restructuring programs and savings, contributing to improved financial performance.
Software Growth: Manufacturing software continues to grow at mid-single digits, indicating a strategic focus on digital solutions.
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Risk or Challenges
Macro Environment: The company is facing an uncertain macro environment impacting cutting tools and infrastructure segments, which could affect overall performance.
Competitive Pressures: There is a risk of competitive pressures from Chinese manufacturers, particularly in the machining business, which may affect market dynamics.
Regulatory Issues: Tariffs and trade barriers are a significant concern, with potential impacts on costs and pricing strategies.
Supply Chain Challenges: The company is actively managing supply chain activities to mitigate risks associated with tariffs and export restrictions, particularly concerning tungsten raw materials.
Economic Factors: The overall impact on the global economy is a primary risk, making it difficult to predict future performance.
Capacity Utilization: There is a risk of underutilization in manufacturing capacity, particularly in the U.S., which could affect margins.
Investment Decisions: Investment decisions may be influenced by market conditions, with potential delays in capital expenditures if economic uncertainty persists.
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Guidance & Outlook
Innovations Launched: Several innovations launched with a focus on electrification, including an electric option for rotary drill rigs and a mobile electric cone crusher.
Acquisitions: Nine acquisitions announced in the quarter, including OSA Demolition Equipment, enhancing technology development and market position.
Restructuring Programs: Continued focus on restructuring programs leading to improved margins and cost savings.
Digital Solutions Demand: Good demand for digital solutions, contributing to overall growth.
Market Position Improvement: Ambitions to improve market position within surface mining through product launches and acquisitions.
Revenue Growth: Expectations for continued organic revenue growth, with a focus on mining and digital solutions.
CapEx Guidance: CapEx guidance for the year remains at SEK 5,000,000,000, primarily for maintenance and ERP systems.
Currency Impact: Expect a negative currency impact of SEK 600,000,000 in Q2 based on current rates.
Tax Rate Guidance: Tax rate expected to remain within the guided range.
Margin Expectations: Limited margin impact expected from current tariff rates due to mitigation strategies.
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Shareholder Return Plan
Share Buyback Program: None
Dividend Program: None
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Key Q&A
Q:Could you elaborate on the math behind why you think there’s no margin impact?
A:We expect a limited impact based on the current rates due to redirecting flows, using our existing footprint, looking at customer surcharges, and rebalancing production.
Q:How much of the U.S. business comes from SMM, from GMO Sweden?
A:We have an in-such plant in the U.S. as well, which we can leverage for rebalancing production.
Q:If we took your Q4 orders and Q1 orders together for Metal Powders, would it be flat, up or down?
A:If you combine the growth in Q4 with the decline in Q1, you would still have a net positive impact.
Q:How should we think about this on your cost structures or cost margin evolution this year?
A:With the current tariff levels, we’re not expecting a material impact, and we have realized most of the run rate savings from restructuring programs.
Q:Could you say how SMM has performed sequentially through the quarter?
A:When we say stable, it refers to the average of Q1 and not the last weeks of Q1.
Q:How much drag did we have in the quarter from under absorption in the SMM, China factory?
A:We don’t give any specifics, but it’s part of the dilution seen in the structure part of the bridge.
Q:What is the growth in the defense business?
A:We will show more numbers on the defense business at the Capital Markets Day.
Q:How do you see the demand for cutting tools in Q1?
A:In Q1, the local premium was definitely growing higher than the average, but we did not see that as much.
Q:How are you thinking with respect to your own investment decisions in different businesses?
A:The current dynamics will not have a material impact on the type of projects or investment that we have as part of our CapEx pipeline.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the specific drag from under absorption in the SMM, China factory, stating they do not provide specifics. Additionally, there was a lack of clarity on the exact percentage of U.S. business localized in the U.S. and how much could be moved there.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America
Asia
China
Deutsche Bank
Europe
Morgan Stanley
RBC Capital
Redburn Atlantic
SEK
SMM
bridge
capacity
course
currency
demand
digit
dynamic
example
factory
follow
improvement
leverage
manufacturing
margin
order intake
point view
powder
premium
product
rate
resilience
saving
seasonality
segment
software
structure
tariff
tool
volume
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Earnings call transcript: Sandvik Q1 2025 sees modest growth, misses EPS
Unknown4-16
The financial performance showed modest growth with improved margins and EPS, but concerns about macroeconomic risks, competitive pressures, and supply chain challenges dampen the outlook. The lack of shareholder return plans and unclear management responses in the Q&A further contribute to uncertainty. Despite positive EBITA and revenue growth, the absence of strong catalysts like new partnerships or guidance raises suggests a neutral sentiment.
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SAND Report
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