Atlas Copco AB (PNK:ATLKY) Q4 2023 Earnings Call Transcript

Atlas Copco AB (PNK:ATLKY) Q4 2023 Earnings Call Transcript January 25, 2024

Atlas Copco AB misses on earnings expectations. Reported EPS is $0.13 EPS, expectations were $0.14. 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 Group Q4 2023 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, everybody to this quarterly earnings call for the Atlas Copco Group. I’m happy to be here together with Mats Rahmstrom to comment on the results of the quarter, and also to give you some guidance on the upcoming quarter. Before I hand over to Mats, I would like already now like to point out as usual that after this presentation, we will have the Q&A session, and I would like to ask all of the participants to only raise one question at a time in order to make sure that all participants have the opportunity to at least raise one question. Should there be more time after the first question has been raised, we will be happy to come back to you for a second follow-up question. And with that, I hand over to Mats for the start of the earnings call.

Mats Rahmstrom: Thank you so much, Peter, and welcome, everyone. I thought I would mention a couple of words of the starting picture first. We normally write about large industrial compressors and this is what you have in front of you. So, these are the rotary screw oil-free machines and it’s been successful in this quarter and in many quarters before. So it’s tenor range with VSD. So this is a variable speed compressors and up to 35% savings — cost savings in energy. And in this case also, we take the excess heat from the compressor, process and use that for the integrated driver as well, which also helps them to save on energy, up to 60%. And this is a typical machine that we sell for food and beverage, pharmaceutical, electronics, semiconductor, textile and paper, for example.

So when we talk about large industrial, this is what it could look like. And the sales pitch for our teams around the world is not that difficult. Energy efficiency comes from VSD so it’s a cost leadership. And of course, they are also a good pitch for sustainability. It’s reliability and uptime, and of course, with connected services, we will also give them more uptime on their machines. So this is one of the successes that I have on compressor side. If I then go to Slide number 2. We mentioned in the heading a mixed demand. And as we could see them, we talked about the activity level between Q3 and Q4, and we could see sequentially a decline as expected. All the orders received year-on-year, SEK 37 billion, so 1% up, so pretty flat. Fantastic by Compressor Technique, 7% up.

A warehouse filled with industrial products reflecting efficiency and growth.

And once again, it was these large compressors and service that really stands out as a good performance in the quarter. Slight change in Vacuum Technologies. That was minus 5. And there we could see Industrial and science vacuum. And then instead, is being kind of flat. So a little bit changed scenario there. Industrial Technique, up 3%. Strong development for auto in Europe and a weaker development for auto in Asia and a very strong development in general industry accounts. PT minus 11%. There, I must say that it might look like a big number. But last year, we had some unique orders to Ukraine and also that along at the time. So the early ordering for some of the rental companies. And then continued the positive development for service in all our business areas.

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Q&A Session

Record revenues. It’s really getting up to speed. There are smaller issues still in operations with components but we are getting close to a normalized situation in terms of lead times. So SEK 45 billion and a 10% growth for the quarter and double-digit growth for Compressor Technique, Industrial Technique and Power Technique and then also Vacuum up 3%. And you can see on the graph, of course, that a sequential decline on orders received. But if you take that back a few years and take away the peaks, of course, it’s not bad, but sequentially, it of course, down. If you take a look at Page number 3, that’s the confirmation of the numbers that I just mentioned. If you look at the operating profit, it was close to — it was SEK 9 billion, plus 16% and the margin at 20.2%.

I’m also going to mention the adjusted margin, which was up 24% and more than 22.1%, and it was the two things there. You had the long-term incentive program, we re-evaluate the shares or the options, I should say, when the Atlas Copco share price went up, quite a lot. We have a provision. In this case, this is a commercial dispute between us and an old former distributor in the Middle East. We canceled this distributor five years ago, and this is a 30-year-old contract. And we have taken a provision for this, and we believe this would be the worst case. Also very, very strong cash flow in the quarter. If we go to Slide number 4, you have the full year results and it can easily be summarized by a lot of records down. So record orders, SEK 170 billion, plus 8%, record revenues, SEK 172 billion at 22% up, and record operating profit at SEK 37 billion, up 23% at the margin at 21.5% and adjusted mainly for those two things, LTI and the provision we took at 22.1 and also record cash flow.

We did 17 acquisitions. I think two of them a lot of roll-ups in CT, but a couple of them for Peter that I thought was extra interesting, that was the NPE and Sykes. That really takes us into a new growth platform with the dewatering pumps, and it’s good for two divisions, both the specialty rental and also the flow division. So very interesting for us, and it’s been a good start for those new acquisitions as well. And the Board of Directors then proposes the dividend increase to SEK 280, that’s up 22% to be paid in two installments, one in April and one in October. We can take a look at Slide number 5. And that’s still on the full year and you have the operating margin then with an increase of 23% at SEK 37 billion and then the adjusted at 22.1. I think the last three years’ development, we always said that we would benchmark with 2019 before COVID, so we shouldn’t fool ourselves, but there was a slight decrease in 2020, but then rapid development for the last three years.

If you take a look at Slide number 6, we will have the geographical map and the teal color, the darker color is the share, the middle light grayish is the year and the yellow box is the quarter. Starting in Asia, you can see that, that’s 37% of our business and that also include Oceania. And why I mentioned that is, of course, with some of these interesting acquisitions have been done by PT in Oceania. And it’s becoming quite an interesting market for us. And PT was also very, very strong and specifically the new pump business is doing really well in Asia. Industrial Technique, as I mentioned earlier, a softer [indiscernible] and they’ve been debated a little bit capacity or not, but we normally also see somewhat of a slower business in China in Q4 versus Q1.

And VT was down both in Industrial levels. Flattish CT business. And I must say that this seems like bigger operations with bigger ambition with national profile is still significantly better than smaller businesses where they are very cautious with new investments. If we then go to Middle East, Africa, very strong performance for the year, 17%, 11% strong finish as well, and it’s mainly a compressor region, and they also had a very strong Q4. Then if you go to South America, you can see 11% for the year, 17% for finishing in the Q4, double-digit growth in all our business areas with exceptional ones. And what’s been performing here is the energy transformation. We also see strong business in agriculture. So coming to Americas. One reflection is that Mexico is doing very well.

I said it’s onshoring, but it’s close onshoring, you could say, I guess. CT stands out a very strong business, both in battery and solar, liquid natural gas, also summed very well. and more flattish development from IT and PT. And you can see what we also mentioned that here 27% of our business is in Europe with a growth rate of 3% coming in the lower range and also a weaker finish of the year with minus 6. We go to Slide number 7. And there, you can see the organic growth rates over a number of years. And you can see then that was a little bit uptick at 1% for the quarter year-on-year. If you go to Slide 8, you can see on orders received and revenues that get the structure change. The acquired businesses helps us with the capital percentages.

Currency is now pretty flat, organic plus 1 for orders received a plus 10 for revenues. Then go to Slide number 9. Well, Compressor Technique, as I said, a fantastic performance for the year, but also a very, very strong finish standard, 7% growth. Power Technique, although down, there was in the beginning of the year added tract to the portfolio of industrial pumps. So they are almost equally in size then to Industrial Technique, and Industrial Technique was slightly positive and Vacuum Technique then slightly negative, but more flattish in semi and saw more of a decline in Industrial and science. You go to Slide 10, which is the Compressor business. Orders received at SEK 17 billion, up 7%, especially then the larger size of compressors that we have seen, seems that they are more firm in their decision-making when it comes to strategic long-term business and somewhat lower demand for gas and process year-on-year.