Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alfa Laval AB (ALFVF, Financial) reported a record order intake for the second quarter, reaching SEK18.9 billion, marking a 3.5% organic growth.
- The company's balance sheet is in excellent shape, with a strong cash flow and a return on capital employed of 22%.
- The Marine division experienced strong demand, particularly in the tanker segment, contributing to a solid order book for 2024 and 2025.
- The Food & Water Division saw improved operating margins and EBITDA due to a recovery in invoicing and solid growth with channel partners.
- Service growth remains strong, with sequential growth in the Marine and Energy divisions, indicating a robust underlying growth momentum.
Negative Points
- The Energy division faced weak demand in the high-value segment, particularly in the HVAC/heat pump market, leading to a decrease in order intake.
- The third quarter is expected to be the bottom of the cycle for brazed heat exchangers, with low volumes and utilization potentially affecting margins.
- North America showed weaker demand after a long period of strong growth, raising concerns about future performance in the region.
- The Food & Water Division experienced a decrease in order intake in some product areas, despite improvements in transactional business.
- There is uncertainty regarding the US market, with potential impacts from tariffs and a slowdown in project decisions affecting future demand.
Q & A Highlights
Q: Is the strong demand in the Marine division driven by speculative preordering, and are lead times expanding?
A: Tom Erixon, CEO: We don't see it as speculative preordering. Lead times for ship deliveries are increasing, and we are now placing orders into 2026. There has been some swapping of slots, and we've rushed in a few short-term orders this year. Yard capacity is fully utilized for this year and next, with some expansions expected.
Q: Regarding the HVAC and refrigeration segment, is the current low demand level mainly due to destocking or underlying demand issues?
A: Tom Erixon, CEO: It's hard to split between destocking and underlying demand, but sales of new heat pumps are higher than our numbers suggest. We expect a gradual improvement from Q4 as destocking concludes. We are also focusing on other applications for brazed heat exchangers, expecting growth irrespective of the heat pump market.
Q: Can you provide an update on the backlog and delivery times for Marine, particularly regarding cargo pumping?
A: Fredrik Ekstrom, CFO: We had strong offshore order intake previously, which was weaker this quarter but compensated by cargo pumping. We are ramping up operations on the cargo side, and while financial outcomes are uncertain, we have stabilized current margin levels.
Q: How are you addressing potential tariffs in the US, and what is the status of your CapEx plans?
A: Tom Erixon, CEO: We haven't factored IRA benefits or trade headwinds aggressively into our plans. We rely on imports for commodities like steel and titanium, which could be affected by tariffs. We are expanding our US footprint but not due to duties. Fredrik Ekstrom, CFO: Our CapEx guidance remains SEK2.0-2.5 billion, focusing on long-term capacity investments.
Q: What is your outlook for the Energy division in Q3, given previous guidance discrepancies?
A: Tom Erixon, CEO: We are confident in our Q3 guidance for higher demand in the Energy division, supported by a strong project review. The US situation is not expected to significantly impact these numbers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
