Atlas Copco AB (PNK:ATLKY) Q1 2024 Earnings Call Transcript

Atlas Copco AB (PNK:ATLKY) Q1 2024 Earnings Call Transcript April 24, 2024

Atlas Copco AB isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Atlas Copco Q1 2024 Report Presentation. For the first part of the presentation participants will be in listen-only mode. [Operator Instructions] Now I will hand the conference over to CFO, Peter Kinnart. Please go ahead.

Peter Kinnart: Thank you, Operator. Good morning, good afternoon, good evening for all of you on the call today. I’m happy to welcome you to our first quarter earnings call for 2024. Together with me is Mats Rahmström. But before I hand over the word to Mats, I would like already now to ask you that once we start with the Q&A session that you please refrain yourself to only asking one question at a time in order to make sure that all people that have a question are able to bring their question forward and we can provide them with an answer. Once we get to the queue then of course you’re more than welcome to ask additional questions. So thank you for that already now, and with that, I hand over to Mats.

Mats Rahmström: Thank you, Peter. We have a tradition that we honor one of the business areas with the picture and I just want to shortly describe what it is. This is a self-piercing rivet machine. So you can see the aluminum panel and it’s important that it’s aluminum. It’s very difficult to weld and then many of the car customers then use the self-pierce riveting and between the rivet it could be dispense equipment and you can also use vision for these types of applications. So that was the training for today. So we go to Slide #2 and I start by looking at the graph and if you can look at the Q4 orders received in dark blue then — and then the orange in Q1 you can see the sequential growth for orders received. It came in better than we expected and when we guided you earlier.

A construction worker using a mechanical tool for maintenance on a large industrial machine.

So we came in at SEK45 billion, which was minus 4%, but it’s still the second best quarter we have had, and of course, we are building a little bit on orders on hand as well since invoicing was slightly slower down. So, Compressor Technique, SEK21 billion, minus 1%, so pretty flattish, Vacuum Technique at SEK9.1 billion and slight positive development in semi. On the other side then a little bit negative development for Industrial and Scientific. Industrial Technique as they were honored with the first page, you can see they were plus 3% and SEK7.8 billion and then on Power Technique there was SEK8 billion, down 17% which was expected versus the very tough comps from last year. Very promising as well that we can see continued growth for service in all business areas.

Looking at the revenues SEK43 billion plus 7%, positive for Compressor Technique up 8%, Vacuum Technique minus 3%, Industrial Technique plus 19% and Power Technique plus 9%. And you can see at this stage that we are back at a normal delivery for all business areas. We always have problems, but I would say, it’s a fairly normal state. And orders on hand then, still strong orders on hand for Compressor Technique, Industrial Technique and Power Technique, and a very normalized situation for Vacuum Technique, so that we need to bring in some new orders. We go to Slide #3 and the first points are the confirmation of what I just said and then we have the operating profit at SEK9.3 billion, which is 7.5% growth versus last year at a very healthy margin 21.8%.

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Q&A Session

Still diluted a little bit by the acquisitions. Adjusted operating margin is the adjustment for the long-term incentive option and then it was at SEK9.5 billion and the margin at 22.1%. Continued strong return on capital employed at 30%. You can go to Slide #4. The geographic map and if we start with North America, you can see minus 12%. CT did okay. Industrial compressors were flattish. We had lower on the gas and process. Still though on a very high level, so the comparisons was very strong. So, we still see gas and process as strong. Positive for Vacuum Technique, especially from some of the key accounts in semi. Industrial Technique also positive and the big negative actually came from Power Technique and we could not repeat the huge orders we had last year for the rental company and mainly equipment.

If you go to South America plus 8%, Compressor Technique very positive and Power Technique very positive. Same for Africa and Middle East, very positive for Compressor Technique and Power Technique, and the main part of those orders come from the Middle East. A positive surprise I must say in Europe with plus 4%. Slight positive for Compressor Technique. Vacuum a little bit flat. But then positive for Industrial Technique and we can see that that’s come from aerospace, energy transition and also some that we get more scope of the supply with the automation specialty, screw feeding, et cetera, et cetera. And then very positive on Power Technique where industrial pumps continue to deliver good growth for us. Maybe the areas of concern is Asia.

Of course, you know that around 20% of our business is in China. We had less demand in Compressor Technique on the bigger compressors. Vacuum was a little bit negative. IT, Industrial Technique was flattish and there you can see China being a little bit softer on battery, EV and solar compensated by business in Southeast Asia. And also India for the whole group did really, really well as well and Power Technique helped up the number with strong development on the acquisitions, but taking that away it was actually a slightly more negative. You have to take away the acquisitions down. So in this quarter then we have seen a softer China specifically. And if we take that to Slide #5 and you can see then the organic growth was negative. Although it might sound strange but we saw that little negative as something fairly positive for this quarter.

If you go to Slide #6, you have the bridge. You can see that we have some help from the acquisition 2%. Currency negative on 2%. So the organic came down to minus 4% then. But still then 45.5% which was good and Peter will continue as he always does on the guidance for the currency later on in the presentation. We change to Slide #7. Of course, it’s important for the Group that Compressor Technique continues to deliver which they have had on a growth path for many years now and now it’s a little flat. Vacuum, you can see that it’s been on semi specifically that there’s a lot of interest around that. There’s a number of months on the bottom up a little bit and a little bit more positive signals right now. Industrial Technique with a slight growth which was a constant from the broadening the scope of supply and Power Technique at 15 — minus 17%, but 15% of the Group.

Short-term if you — this is 12-month ruling, if you just look at the quarter we actually saw the Power Technique was slightly bigger than Industrial Technique in this quarter. Then we take the specific business areas. So orders down. One of the areas that we saw softer demand was China and it’s linked to the battery and solar. We read it as an overcapacity. But we still — we have no concern about the long-term trend in these segments. It’s really moving forward and taking the lead in EV cars for example which we also see in Industrial Technique. But we also could see the gas and process compressors down. But that is on an exceptionally high level last year. So no concerns there either. Solid performance by service again. They are really developing the digital presence, how they run analytics and also take advantage of AI today, which I’m sure you’re going to see on the Capital Markets Day how we do that.

Revenues continue growth at 8%, and once again a fantastic operating margin at 24.8% with 9% growth and this is when we still go full ahead with R&D and building up capacity and a slight dilution from acquisitions. You could see five acquisitions in the quarter. I think the one from high comp, high pressure is interesting for us. A little bit new competence into the Group. I also see the valves. Energy helps us with energy efficiency, but we stepped into two smaller companies, but interesting technology that they can really build on and then another three distributors that we signed up and now own. I get some kind of questions that if you are taking this business more direct then maybe as a reminder that yes, we buy a few distributors. On the other side we are signing up more distributors than that.

So that is not that we are changing the growth market strategy. We take Slide #9 which is Vacuum Technique and if you look at the graph then you can see sequentially that come back a little bit on the growth path again. And for semi specifically then you can see at our customers that there is a positive development on price. Inventories are coming down and utilization is up and also see the confirmed by our own numbers that we get more pump returns for repair which means that they are really utilizing the factors a little bit more. And we can also see that chamber solution which is a little bit early into this had a positive development. So a few positive signs for semi and that does not mean that the next quarter is going to be fantastic or anything like that.