Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Solid order intake with a mixed demand across various market segments.
- Significant growth in gas and process compressors within the compressor technique segment.
- Service business performed well across all regions and divisions.
- Strong regional growth in Africa, Middle East, and South America.
- Solid operational cash flow and return on capital employed at 29%.
Negative Points
- Decline in orders for industrial assembly and vision solutions, particularly in the automotive sector.
- Negative performance in Asia, especially China, affecting overall regional growth.
- Organic decline in revenues and orders received, with a 1% and 2% decrease respectively.
- Restructuring costs in the vacuum technique segment due to a slowdown in orders.
- Industrial technique segment experienced a 13% organic decline, driven by weaker demand from the automotive industry.
Q & A Highlights
Q&A Highlights from Atlas Copco AB (ATLCY, Financial) Q2 2024 Earnings Call
Q: Can you provide more details on the negative development in China despite positive PMI figures?
A: The negative growth in Asia is primarily driven by China. We have a strong position in the automotive and lithium-ion sectors, which are currently weak, significantly affecting our growth. The general industry also has some impact, but the major driver is the automotive sector. There are potential upturns due to incentives to upgrade the installed base, but they have not yet materialized.
Q: How is Atlas Copco positioned in light of potential changes in the Chinese semiconductor industry due to US restrictions?
A: Our localization in China is strong, with most products sold in China being produced locally. We are also investing in R&D capabilities in China. However, we do not disclose specific figures for VT sales in China.
Q: Can you expand on the activity seen in the semiconductor business within Vacuum Technique (VT)?
A: We do not provide detailed figures, but the semiconductor equipment orders have shown sequential improvement. However, the operational leverage and development across divisions are influenced by investments and order mix, and we do not expect fundamental changes in profitability in the near term.
Q: Can you elaborate on the margin development for Q2, particularly in Vacuum Technique?
A: The margin drop is primarily due to volume impacts and an unfavorable mix, with a significant contribution from the restructuring costs in industrial and scientific vacuum. The acquisitions also had a dilutive effect. We are taking measures to protect profitability, but immediate improvements in Q3 are uncertain.
Q: What is driving the solid order growth in compressor technique, particularly in gas and process compressors?
A: Gas and process compressors have expanded their applications beyond the aspiration market segment to include gas processing and LNG. This diversification has driven growth. Although the orders can be lumpy, the business remains solid, and we do not expect a significant negative impact on profitability.
Q: Can you provide more details on the automotive sector's impact on industrial technique?
A: The automotive sector is experiencing a slowdown due to slow EV adoption in Europe and the US, and overcapacity in Asia, particularly China. However, Chinese companies expanding globally present some positive opportunities.
Q: Were you surprised by the magnitude of the slowdown in automotive orders in Q2?
A: The slowdown was more significant in China, particularly in the body shop orders, which are larger and more bulky. The decline in Europe was also notable, but the main impact was from China.
Q: How do you see the future profitability development across different business areas?
A: We do not expect fundamental changes in overall profitability in the near term. We are taking measures to protect profitability, particularly in Vacuum Technique and industrial technique, but immediate improvements are uncertain. We aim to maintain sustainable profitability levels.
Q: Can you provide more details on the impact of price and cost in Vacuum Technique?
A: Pricing effects across all business areas continue to be positive, but the volume impact is the biggest contributor to the margin drop in Vacuum Technique. The mix between different divisions within the business area is currently unfavorable, with a significant drop in semiconductor equipment orders.
Q: How will the increased share of gas and process compressors impact the margin mix in compressor technique?
A: Gas and process compressors currently account for around 10% of revenues. While they have a lower equipment profitability compared to the industrial range, the overall impact on the margin mix is not expected to be significant. The profitability of compressor technique remains solid.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
