2024-07-27 05:10:26 ET
Alfa Laval Corporate AB (ALFVF)
Q2 2024 Earnings Conference Call
July 23, 2024 03:00 AM ET
Company Participants
Tom Erixon - CEO
Fredrik Ekstrom - CFO
Conference Call Participants
Sebastian Kuenne - RBC
Klas Bergelind - Citi
Daniela Costa - GS
Andrew Wilson - JP Morgan
Max Yates - Morgan Stanley
John Kim - Deutsche Bank
James Moore - Redburn Atlantic
Sven Weier - UBS
Andreas Koski - BNP Paribas
Anders Idborg - ABG Sundal Collier
Presentation
Tom Erixon
Good morning, and welcome to Alfa Laval's Second Quarter Earnings Call. Fredrik and myself will run through the quarter with some details and then we'll open up for Q&A as always.
So, let me start with a couple of introductory comments. 2024 started well with solid demand and a record order intake for the second quarter, and also for the first half of 2024 as a whole. The order book now stands at SEK50 billion, also a new all-time high. We expect markets to remain on a similar level in Q3 sequentially, although order intake is expected to be somewhat lower. In all, we had a clean quarter in a stable operating environment with solid project execution and a good invoicing level as a result. In fact, all financial KPIs moved in a positive direction, including a strong cash flow and a return on capital employed of 22%. The balance sheet matters, and it is now in a very good shape.
So with that, let me go to the divisional review. The Energy division, to start, had a good demand with the exception of the HVAC segment that continued to be weak in the quarter. Otherwise, demand was firm across almost all end markets. The order intake decrease sequentially and year-on-year was more than accounted for by the HVAC/heat pump market, whereas the rest remained slightly positive sequentially. Margins held up well despite the low utilization level in parts of the portfolio due to a combination of short-term cost adjustments and longer-term structural improvements in part of the product portfolio.
Looking forward, we expect the third quarter to be the bottom of the cycle for the brazed heat exchangers with a significant exposure to the European heat pump market. Volumes in Q3 are expected to remain low, and the low utilization during the summer months may affect the Energy division's margin somewhat in the quarter. From Q4 onwards, the trend in the brazed heat exchanger area is expected to turn positive, irrespective of the heat pump market with other applications, including data centers driving the demand going forward.
So moving on to the Food & Water division, market conditions developed as expected with a lower water intake in part of the product portfolio and a continued improvement in the transactional part of the business. The transactional improvement that started already in China in Q4 2023 is now stronger and geographically more broad-based. The growth with our channel partners, was solid in the quarter, with the exception of a weaker business climate in the US specifically. Invoicing recovered after a lag in the first quarter 2024, and as a result, both the operating margin and the EBITA improved to a good level, especially given the high share of project invoicing in the quarter....
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Alfa Laval Corporate AB (ALFVF) Q2 2024 Earnings Call Transcript