Marel hf (CHIX:MARELa) Q2 2024 Earnings Call Highlights: Navigating Challenges with Strategic Innovations

Marel hf (CHIX:MARELa) reports steady profitability improvements and anticipates a stronger order pipeline in the second half, despite current market challenges.

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Oct 09, 2024
Summary
  • Revenue: EUR415 million, flat compared to Q1 and down just under 2% year-on-year.
  • EBIT Margin: 9.1%, showing improvement both quarter-on-quarter and year-on-year.
  • EBITDA Margin: 13% on EUR415 million in revenues.
  • Orders Received: EUR393 million, soft compared to previous quarters.
  • Book-to-Bill Ratio: 0.95, indicating a soft order book.
  • Order Book: EUR538.5 million, representing 32% of trailing 12-month revenues.
  • Operating Cash Flow: Negative EUR4 million, impacted by increased working capital commitments.
  • CapEx: EUR5.6 million, 1.3% of revenues.
  • Leverage: Increased to 3.9 times due to higher working capital.
  • Poultry Segment Revenue: EUR206 million with 15.6% EBIT margin.
  • Recurring Aftermarket Revenues: 48.5% of total revenues, with trailing 12-month levels above EUR800 million.
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Release Date: July 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Marel hf (CHIX:MARELa) reported an encouraging profitability improvement with a 9.1% EBIT margin and a 13% EBITDA margin on EUR415 million in revenues.
  • The company has a healthy pipeline and expects stronger orders in the second half, particularly in the poultry segment.
  • Recurring aftermarket revenues remain robust, with trailing 12-month levels staying above EUR800 million, accounting for 48.5% of total revenues.
  • Operational performance is trending positively, with improved EBIT margins due to cost discipline and efficiency initiatives.
  • Marel hf (CHIX:MARELa) is launching innovative solutions in the poultry segment, such as the ATHENA and ALPINE systems, which are expected to enhance market competitiveness and customer value.

Negative Points

  • The company is operating in a challenging environment with geopolitical tensions, persistent inflation, and high interest rates impacting short-term certainty.
  • Orders received were soft at EUR393 million, with a book-to-bill ratio of 0.95, indicating a decline in new orders.
  • The poultry segment experienced particularly soft orders due to delays in customer decision-making, impacting future revenue and operational performance.
  • Operating cash flow was negative by EUR4 million, affected by increased working capital commitments and lower orders received.
  • Leverage increased to 3.9 times, above the target level of 2 to 3 times, due to higher working capital, although liquidity remains ample.

Q & A Highlights

Q: Could you please explain the plateauing of aftermarket revenues? Is it due to high aftermarket penetration or other factors?
A: Sebastiaan Boelen, Chief Financial Officer: The slight drop in aftermarket revenues this quarter was mainly due to fewer business days. We expect this to rebound as the current quarter has more business days. While we have a strong installed base, there are still opportunities to increase aftermarket services, such as spare parts and remote control offerings, which should drive future growth.

Q: Can you provide more details on the expected demand recovery in the poultry segment?
A: Arni Sigurdsson, Chief Executive Officer: We anticipate a pickup in poultry orders starting in the third quarter. Our competitive advantage with new innovations like the line split solution positions us well. The North American market, in particular, shows strong fundamentals, with favorable pricing and low production costs, indicating a healthy pipeline.

Q: How should we think about the gross margin trends into the third quarter, given the expected softness in poultry?
A: Arni Sigurdsson, Chief Executive Officer: While poultry margins were strong this quarter, we expect some weakness in Q3 due to revenue fluctuations and cost coverage issues. However, we anticipate recovery in Q4, supported by a strong pipeline and improved visibility in poultry.

Q: Do you expect the book-to-bill ratio to exceed 1 in the second half of the year?
A: Sebastiaan Boelen, Chief Financial Officer: Yes, we believe the order pipeline is improving, particularly in poultry, and expect the book-to-bill ratio to exceed 1 in the second half.

Q: What is the stance of Icelandic pension funds regarding the merger with JBT?
A: Arni Sigurdsson, Chief Executive Officer: We have engaged with our shareholders, including Icelandic pension funds, to discuss the merger's industrial logic. While some shareholders are still evaluating the offer, the general sentiment is positive, and they are conducting thorough assessments before making a decision.

Q: Are there any measures in place if order intake does not improve and impacts working capital?
A: Sebastiaan Boelen, Chief Financial Officer: We expect working capital to improve with increased orders and higher EBITDA levels in 2024. We are prepared to react if our base case doesn't play out, and we maintain strong relationships with our banks to manage any potential covenant issues.

Q: How confident are you in the second half recovery, given signs of a weaker US market?
A: Arni Sigurdsson, Chief Executive Officer: We have strong evidence of recovery in poultry, with improved industry fundamentals outweighing macroeconomic challenges. However, the meat segment remains softer, and we need more concrete evidence to be confident in its outlook.

Q: What actions are being taken to control costs and manage the business amid uncertainty?
A: Arni Sigurdsson, Chief Executive Officer: We are rationalizing our footprint, controlling non-product-related spending, and implementing a hiring freeze to manage costs. Additionally, we are focusing on converting our pipeline into orders and adapting our go-to-market strategy to target small to medium-sized customers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.