Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Assa Abloy AB (ASAZF, Financial) reported a top-line growth of 10% in Q2 2024.
- The company achieved a record operating profit for the quarter, exceeding SEK6 billion.
- Strong operational execution led to an operating margin of 16% and an EBITDA margin of 16.9%.
- Excellent cash conversion rate of 107% was achieved in the quarter.
- The company completed eight acquisitions in the quarter, contributing to an 11% growth through acquisitions.
Negative Points
- Organic sales development was negative at minus 1%, primarily due to challenging market conditions in the residential sector.
- Sales declined in the APAC and Global Technologies divisions.
- The residential market in Europe and Australia/New Zealand remains challenging, with recovery expected to take more time.
- The loading dock business in North America experienced a double-digit negative growth due to reduced investments in warehouses.
- Interest costs increased significantly, impacting income before taxes, with SEK850 million in interest costs for the quarter.
Q & A Highlights
Q: Can you provide more color on why your confidence in the US recovery remains high, given mixed data on housing starts and institutional momentum?
A: On the residential side, we see positive growth in new builds, particularly in our window hardware business. However, the R&R segment is still declining. We are optimistic that interest rate cuts will help the R&R market recover. On the non-residential side, while it's not as hot as 18 months ago, we still see good momentum, especially in institutional verticals like education and government. The Architectural Billing Index (ABI) mainly reflects new builds, whereas we are more exposed to R&R. We remain confident in the non-residential market for the coming quarters.
Q: Could you estimate the underlying growth in Global Technologies excluding the backlog impact, and when do you expect a return to normalized growth?
A: It's challenging to provide an exact estimate due to varying delivery times and stock situations. However, we believe that once the backlog stabilizes, we will return to a mid-single-digit organic growth rate by the end of Q3 or early Q4.
Q: Can you update us on the specified activity growth in the US and Europe?
A: The spec business grew in the lower single digits this quarter. In the US, we see strong momentum in K-12, universities, and government-related projects, though healthcare was weaker this quarter. In Europe, we continue to see high double-digit growth in sustainability-related projects.
Q: What is the impact of M&A dilution on Global Technologies' margin, and how much is due to acquisition-related costs versus ongoing dilution from Messerschmitt?
A: Approximately one-third of the 100 basis points dilution is related to Messerschmitt, while the remaining two-thirds are due to acquisition-related costs.
Q: How do you view the HHI growth in the context of the challenging US residential market?
A: We are pleased with the high single-digit growth in HHI, although it comes from an easier comparison base. We expect this positive trend to continue.
Q: Can you expand on the underlying margin progression in Americas excluding HHI?
A: HHI has shown continuous margin improvement, and we expect this trend to continue. On the organic side, the leverage has been neutral due to less price component and ongoing inflationary pressures.
Q: What are your expectations for cost actions and price contributions for the rest of the year?
A: We expect a price component of at least 2% for the year. While Q3 should still see positive price versus cost accretion, it will be less than in Q1 and Q2. By Q4, we expect a more neutral situation.
Q: Can you comment on the broader market dynamics as we look towards 2025?
A: We remain confident in the non-residential market, expecting it to stay at a good level globally. The residential market in North America has bottomed out, and we anticipate gradual improvement. In Europe, recovery will take longer, likely into 2025. Entrance Systems will continue to deliver high single-digit growth in services, and we expect improvement in the loading dock business by Q4.
Q: What is the impact of the US loading dock business on Entrance Systems, and when do you expect normalization?
A: The loading dock business represents around 15-20% of Entrance Systems. We expect challenges to continue in Q3, with improvements starting towards the end of Q4.
Q: Can you provide more details on the HHI margin and synergy realization?
A: The 14% mentioned in the EBIT Bridge is not the actual EBIT margin for HHI. We are seeing good synergy realization, particularly in material savings, operational efficiencies, and cross-selling. We expect continuous margin improvement in the coming quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
