Sandvik AB reported its financial results for the first quarter of 2025, showing a slight increase in revenue and order intake. However, the company missed its EPS forecast, reporting an actual EPS of 2.97 SEK against a forecast of 3.16 SEK. Revenue came in at 29.3 billion SEK, below the forecasted 31.15 billion SEK. Following the announcement, Sandvik’s stock experienced a decline of 0.74%, with the share price dropping by 1.4 SEK to 189.3 SEK. According to InvestingPro analysis, the company maintains a "GREAT" overall financial health score of 3.03 out of 5, with particularly strong momentum and profit metrics.
Key Takeaways
- Revenue increased by 1% with organic growth of 1%.
- Adjusted EBITA margin improved to 19.7%.
- Stock price fell by 0.74% post-earnings announcement.
- Sandvik launched new electric and automation-ready products.
- Full-year guidance remains unchanged despite the EPS miss.
Company Performance
In the first quarter of 2025, Sandvik demonstrated modest growth, with total order intake increasing by 2% and revenue rising by 1%. The company continues to benefit from strong momentum in the mining market, although its cutting tools segment faced challenges due to weak industrial activity. The software segment saw growth in the mid-single digits, reflecting a diversified business strategy. With an impressive gross profit margin of 84.65% and a healthy current ratio of 1.95, InvestingPro data shows the company operates with strong fundamentals and moderate debt levels.
Financial Highlights
- Revenue: 29.3 billion SEK, a 1% increase from the previous year.
- Earnings per share: 2.97 SEK, compared to a forecast of 3.16 SEK.
- Adjusted EBITA margin: 19.7%, up 1.5 percentage points.
- Adjusted profit: 3.8 billion SEK.
- Free operating cash flow: 3.8 billion SEK.
Earnings vs. Forecast
Sandvik’s EPS of 2.97 SEK missed the forecast of 3.16 SEK, marking a shortfall of approximately 6%. Revenue also fell short of expectations, coming in at 29.3 billion SEK compared to the anticipated 31.15 billion SEK. This miss contrasts with Sandvik’s historical trend of meeting or exceeding earnings forecasts, which may have contributed to the negative market reaction.
Market Reaction
Following the earnings release, Sandvik’s stock price decreased by 0.74%, with shares trading at 189.3 SEK. This decline reflects investor disappointment with the earnings miss and revenue shortfall. The stock remains within its 52-week range, which has seen a high of 242.4 SEK and a low of 168.1 SEK. Despite recent volatility, InvestingPro data reveals impressive returns of 51% year-to-date and 61.61% over the past year. Based on InvestingPro’s Fair Value analysis, the stock currently appears slightly overvalued. For more insights on market valuations, explore the Most Overvalued Stocks list.
Outlook & Guidance
Despite the earnings miss, Sandvik has maintained its full-year guidance. The company is preparing for potential trade complications and expects limited margin impact from current tariffs. Sandvik continues to focus on geographic diversification and innovation, with plans to hold a Capital Markets Day on May 21st.
Executive Commentary
CEO Stefan Wiedding emphasized Sandvik’s global manufacturing capabilities and resilience, stating, "We continue to show that our setup, with a global footprint manufacturing in all key regions, strong customer relationships and market-leading innovations, means that we are well placed to manage this situation in a good way." CFO Cecilia Felton highlighted the company’s margin resilience improvements since 2020.
Risks and Challenges
- Potential tariff impacts could affect margins.
- Weak industrial activity may continue to impact the cutting tools segment.
- Economic downturns could challenge overall demand.
- Supply chain disruptions, though minimal currently, remain a risk.
- Trade tensions, particularly involving China, could affect global operations.
Q&A
During the earnings call, analysts inquired about the stability of order intake and any supply chain disruptions. Sandvik reported stable order intake in early April and no significant supply chain issues. The company also highlighted its flexible manufacturing strategy to mitigate future challenges.
Full transcript - Sandvik AB (SAND) Q1 2025:
Luiz Cheddar, Head of Investor Relations, Sandvik: Hello, everyone, and welcome to Samik’s presentation of the First Quarter Results 2025. My name is Luiz Cheddar, Head of Investor Relations. And beside me, I have Sandvik’s CEO, Stefan Wiedding and CFO, Cecilia Felton. We will do the normal procedure, meaning Stefan and Cecilia will start with the presentation and take you through the key highlights of the quarter. And after that, we will move on to the questions.
And with this, I hand over the word to you, Stefan.
Stefan Wiedding, CEO, Sandvik: Thank you, Luis. And also from my side, welcome to our first quarter report in 2025. If we start by summarizing the quarter, we see good momentum in the mining business, while cutting tools and infrastructure continue to be impacted by the uncertain macro environment. Also positive is that manufacturing software continues to grow at mid single digits. Total order intake increased by 2%, and of that, the organic growth was 2%.
And revenue increased by 1%, and of that, organic was also 1%. We improved our financial performance on all key metrics. Adjusted EBITA margin improved by 1.5 percentage points, corresponding to a margin of 19.7, and the rolling twelve months margin is now 19.5%. We see, in particular, a very strong positive impact from the restructuring programs and savings that we have had. And this quarter, the positive bridge effect was $3.00 7,000,000.
Adjusted profit for the quarter was SEK 3,800,000,000.0, 3 point 3 billion in the same period last year. And the free operating cash flow was SEK 3.8 slightly improved versus the same rounded number of SEK 3,800,000,000.0 last year. We also continued to focus on our strategy execution and made good progress. Several innovations launched with a focus on electrification and also nine acquisitions announced in the quarter, which I will come back to in this presentation. If we start with innovation, a very important launch in the quarter, where we have been lagging an offering for cable electric rotary drill rigs.
And now we have launched an electric option for our entire range of automation ready rotary drill rigs. So this fills an important gap in our product portfolio and is part of our ambitions to improve our market position within surface mining. If we then take a look at the regions and segments as usual, starting with the regional view first. Europe was down 8%. Here, cutting tools was down 7%.
North America was up 4%, cutting tools down mid single digits. Asia, up 9%. China cutting tools down low single digits, while Asia was flat, driven in particular by a strong performance in India. And then we have more of the mining markets with Africa, Middle East, up 2%, strong performance in Australia, up 12% and South America also strong at up 8%. Looking then at the segments, you can see that mining is had a strong performance.
We believe the market momentum has improved, and in particular, strong performance this quarter in Australia and South America. General engineering, weak, down mid single digits overall, also down mid single in both Europe and North America, while China saw an improvement in general engineering of up mid single digits, while Asia was more flattish overall. Infrastructure, I would say stable but at muted levels as before. We continue to see more positive picture in North America, but of course, that is also more risky going forward, of course, in North America, given everything that’s happening there. Automotive, down.
And this was the most negative segment in the quarter, down low double digits overall. Europe, down low double. North America, down low double. And China, down a little bit better, but still down high single. Aerospace, positive sentiment there, up mid single digits in Europe.
North America underlying flat in reported numbers, down mid single digits, where we continue to see a slow pickup of order intake from the largest customers. That is clearly working through some inventories. And then also negative in China with low double digits in Aerospace. The other segments, a bit more mixed picture. Overall, down low single digits.
Europe, down low single. North America, up double digits, driven by some specific segments like Rail that was positive in the quarter. And then Asia down mid single digits. So overall, a quite mixed picture in terms of the demand across regions and segments. If you summarize this then, we see an order intake of SEK 32,800,000,000.0 in the quarter, revenues of SEK 29,300,000,000.0, which is a healthy book to bill of 112%, in line, I would say, with seasonality, but a healthy book to bill still.
If we look at this from a slightly different perspective then, we can see that this was the fourth quarter in a row with positive organic order intake, and that has also gradually translated into now a positive organic revenue growth of 1%, where we were flat in Q4. Margin development, strong, 19.7% and in absolute terms, up 9% to almost SEK 5,800,000,000.0. I would say this is a good margin level considering quarter one is always seasonally low from a volume point of view. We see strong leverage in all business areas on the back of the structural savings and good cost control we have had, and we are also supported in this quarter by currency accretion in most of the businesses. Mining and Rock Solutions, strong organic order intake, 26% up in Equipment, double digit growth in Parts and Services again, aftermarket growth, 2%, but excluding a major order in aftermarket last year, up 5%.
So here, you see a little bit of difference between parts and services and the consumables in the aftermarket, but overall, very strong performance. We had major orders totaling almost SEK 1,000,000,000. Excluding major orders, organic order intake was up 7%. If we include them, it was up 10%. Very strong margin performance, SEK 20,800,000,000.0, especially then given that Q1 is a low volume quarter from an invoicing point of view.
So good leverage, positive impact from savings. And I would say, overall, surprisingly good with a very clean quarter from an execution point of view. We had help here from savings and also from exchange rates. Already mentioned the important product launch for the electric rotary blast hole drill rig range. And also want to highlight that we continue to see good demand from our digital solutions in the quarter.
Rock processing. Here, demand in mining continues to be stable, while infrastructure then continues to be at a lower activity level, especially in Europe. Total order intake decreased by 3%, which the organic decline was 2%. But if we exclude major orders, it was a positive development with plus 2%. Good margin improvement as well at 15.1%, good savings realization and contribution from the savings programs in particular, also here support from currency.
Also here, we launched a new important product in the field of electrification, a mobile electric cone crusher that will support our organic growth journey for customers that prefer electric options. We also announced in the quarter the acquisition of OSA Demolition Equipment, which gives us a full range of demolition and recycling equipment for attachment tools. This is something we have already had in the assortment before, but then it’s been a traded product. Through this acquisition, we are bringing this in house, which is supporting both technology development and long term from an opportunity point of view. Then going into Manufacturing and Machining Solutions.
Industrial activity continues to remain at a low level. I already went through all the segments. Also mentioned that software continues to grow at mid single digits, driven by strong performance in The U. S, while powder in this quarter declined year on year in mid single digits. And here, we had a very high order intake in Q4.
We mentioned then that some of that might be timing. So I would say we that is most likely the case here that this is timing between the quarters. Overall, demand for Powder is good, and we’ll come on to that also when we talk tariffs and restrictions imposed by China that is likely to have a positive impact on us. Total order intake decreased by 3%, organically down 6%. And if we look at cutting tools then, overall down mid single digits, and this represents a stable development in dailies compared to the fourth quarter.
So overall market situation, I would say, stable going from Q4 into Q1. Also, if we look at the end of the quarter, we didn’t see any specific effects such as pre buys or declines. And when we look at the April in the first two weeks, we see the daily order intake being stable compared to what we would expect from normal seasonality and dynamics around beginning, end of months and so on. I want to highlight, though, I always say this. We only report what we see in the first two weeks.
And of course, the external events in the world means that drawing conclusions from this is more difficult than it has ever been. But this is what we see so far. The margin in SMM was strong given the volume declines, 20.9%, so an improvement versus last year. Again, similar story, very good cost control, quite material positive impact from the restructuring programs here, slightly less help from currency and also some dilution from structure. Mentioned acquisitions.
We have acquired seven resellers, chem resellers in the quarter, and this is an important strategy. It’s very value accretive acquisitions overall. It supports our customer relations as we get closer to our customers, and it also supports the synergy realization when it comes to cross selling among our different software brands. And this is something that Matthias will talk more about at our Capital Markets Day in May. We also wanted to give you some more flavor on the tariff situation and an update on that.
First of all, and I think a key takeaway is that at the current tariff rates, the one that are in effect here and now, we expect a limited margin impact based on all the activities we are doing to or have done to mitigate this. I would say the main risk for us, as we see it today, is the overall impact on the global economy, which, of course, is as difficult for us to predict as it is for you. But that is today, I would say, the main risk, not the tariffs themselves. We have here a number of examples of mitigating activities. And of course, all our divisions have different exposures and different footprints.
So this is not a list that applies to all of them, but these are examples of activities our businesses are taking. We, for example, have very limited flows between China and U. S, but those that we have had are being mitigated, for example, through supply chain activities. We are rerouting flows that today might go through The U. S.
And then into Canada and Mexico because that has been a tariff free zone and those are, of course, being rerouted. So we minimize that exposures, bringing goods directly into Canada and Mexico. Tungsten raw material is exempt from tariff currently, but there has been earlier in the quarter export restrictions placed on this raw material by China, and that we have seen has led to increased demand for tungsten outside of China. And as you know, we are one of the major providers of that raw material in the world, mostly for our own internal consumption for drill bits and cutting tools, but we also sell externally. So this is a potential upside depending on what happens with this going forward.
We have put in tariff clauses and revisited our commercial agreements where applicable. We have also notified customers and partners in several of our businesses of potential upcoming tariff surcharges. We are rebalancing product capacity where, in some cases, we might produce today in Europe, sending to The U. S. And vice versa, we produce something else in The U.
S. And sending to Europe. And of course, depending on the tariff levels, that’s something that will be rebalanced. We will also, if needed, increase production capacity in The U. S.
But currently, we don’t really see a need for that. But if tariff rates would increase materially, that will also be something we would look at. And I want to be clear here, we’re talking about existing manufacturing footprint that we have already in The U. S, increasing capacity and that there is no need for any type of greenfield investments. So overall, current situation, I think, is very much manageable, but there is, of course, a risk to the overall global economy.
I will, with that, hand over to Cecilia to take us through some more details.
Cecilia Felton, CFO, Sandvik: Yes. Thank you, Stefan. So let’s dive into the numbers then in a bit more detail together. And as usual, let’s start with the growth bridge. And as Stefan mentioned, you can see here that organically, orders grew by 2% and revenues by 1%.
Structure contributed positively with 1% on both orders and revenue, while currency had a negative impact of 1%. And in total, then orders grew by 2% and revenues by 1%. Adjusted EBITDA grew by 9%, reaching SEK 5,800,000,000.0, corresponding to a very good margin at 19.7%. Net financial items came down year over year. I will show you a detailed specification of that in a few minutes.
And the tax rate, both excluding items affecting comparability and also on a normalized basis, was in line within the guided range. Net working capital, just below 30% cash flow, 3,800,000,000.0, corresponding to a cash conversion of 70% in the quarter. Returns improved. And excluding amortization of surplus values, it reached 16.7% in the quarter. And adjusted EPS also improved to SEK 3 point 0 1.
If we continue then with the bridge, the EBITA bridge and starting as usual with the organic column. As Stefan mentioned, we had a highly positive leverage in the quarter, although, as you can see on small numbers. Nevertheless, this gave an accretion to the margin with 0.6 percentage points. Currency also had a positive impact, one percentage point accretion, while structure was neutral to the margin. And then that brought us from a margin of 18.2 last year to 19.7% this year.
If we then continue down the P and L, looking at the finance net. As I said, this came down year over year from about $500,000,000 to 300,000,000 as you can see here, and this is mainly driven by the lower interest net. And that’s due to a combination of a positive currency impact, lower interest rates and also slightly lower borrowed volumes. As I said, tax rate, both excluding items affecting comparability and on a normalized basis, came in at 23.8, so pretty much in the middle of the guided range. If we then continue looking at the balance sheet and net working capital in relative terms, you can see here in the graph on the left that we are just below 30%.
In absolute terms, though, if you look at the bars, you can see a sequential step down versus the fourth quarter. This was driven by currency. In terms of net working capital volume, we had a normal seasonal increase driven by inventory, which is typical for the first quarter of the year. Cash flow then. If we start with looking at the year over year development in the table, you can see that EBITDA adjusted for noncash items was slightly higher compared to last year.
CapEx was a bit lower. And then as I mentioned, we had a normal seasonal buildup of inventory here beginning of the year. And then that resulted in a free operating cash flow of SEK 3,800,000,000.0. And in the graph, you can see the trend line that on a twelve month rolling basis, cash conversion is at 93%. Financial net debt came down slightly sequentially from the fourth quarter.
This was driven by the cash flow. And also our balance sheet target metric, financial net debt over EBITDA, came down to 1.1 in the first quarter. We ended last year at 1.2. Capitalized leases came down or decreased a little bit sequentially, driven by currency, while the pension liability was largely unchanged. And that resulted in a net debt of €40,000,000,000 If we then look at outcome versus guidance, currency for the quarter came in at $237,000,000 CapEx, 1,000,000,000 interest net, 200,000,000 and the normalized tax rate, as I mentioned, pretty much in the middle of the guided range.
And then if we look ahead at the second quarter and the full year, we expect a negative currency impact of minus SEK 600,000,000 in the second quarter based on the currency rates at the March. And for the other items, CapEx, interest net and the tax rate, we have left the full year guidance unchanged. And with that, I will hand back to you, Stefan, for summary and conclusions.
Stefan Wiedding, CEO, Sandvik: Thank you, Cecilia. Yes, so if we conclude, we saw a mixed demand in the quarter with strength in mining, continued order growth in software, while cutting tools was impacted by the weakness in industrial activity, although stable then sequentially from fourth quarter. We see improvements in all financial metrics, good margin performance with good cost control and good savings realizations. And I think we show in the quarter, again, a proven resilience both on the top and bottom line. And we’ll, of course, continue to have focus on executing in an agile way in this dynamic environment.
We continue to execute on our strategy. Several innovations launched in the quarter. We have strengthened our positions in CAM further with the seven reseller acquisitions and also strengthened our position and offering in demolition and recycling. I think we all know it’s a challenging geopolitical and macroeconomic environment that we are in with tariffs and barriers to global trade. I do think we continue to show that our setup, we have a global footprint manufacturing in all key regions, strong customer relationships and market leading innovations means that we are well placed to manage this situation in a good way.
And we will continue to leverage this platform to deliver on the targets we have communicated and our strategic ambitions. I know it’s a lot of focus on the short term now, but of course, we are really pleased to be able to talk more about the mid- to long term view as well at our Capital Markets Day in May on many of these topics. So I think I will see many of you there. Thank you.
Luiz Cheddar, Head of Investor Relations, Sandvik: All right. Thank you, Stefan and Cecilia. It’s now time to open up the Q and A session. So operator, please, can you coordinate the first question?
Conference Operator: Thank you, madam. We will now begin the question and answer session. Our first question comes from James Moore from Redburn Atlantic. Please go ahead.
James Moore, Analyst, Redburn Atlantic: Yes. Good morning, everybody. Afternoon. Thanks for the time. Could I ask two questions, please?
I was surprised about the stable comment for SMM on the first two weeks of April. I wondered if you could dig into that a little bit in two dimensions, really on timing and geographically. I’m just wondering whether there was any sign of The U. S. Demand deteriorating and whether that’s been offset by better performance in other geographies like Europe, Asia and Africa.
And if you could quantify that and whether you see any growing signs of a U. S. CapEx freeze just because the tariffs were not implemented at the beginning of the first two weeks of April, they’ve come in more belatedly. And I wonder since that date, whether there’s been a change. That’s really maybe we can take them one at a time.
That’s the first question.
Stefan Wiedding, CEO, Sandvik: No, I mean, I understand your question. And I mean, I can tell you, we were also nervous waiting for these numbers to come in during these first two weeks. But I mean, the only thing we can say is we don’t see any abnormal activity, so to say, and that goes also across the geographies. Is very much the levels given if we go from Q4 to Q1, stable dailies, given what we then would expect in the first two weeks of April, that’s also what we see. So yes, it’s difficult to really put more color to it since it is nothing really to call out.
The only thing we are calling out is, of course, that we understand the let’s say, the overall uncertainty and maybe expectations that things will change, but we can only say what we see here and now, and it is stable.
James Moore, Analyst, Redburn Atlantic: That’s very helpful. And the second one is, could you elaborate on the math behind why you think there’s no margin impact? And tied to that, how are you handling U. S. Cutting tools that come from Chimo?
Are you putting all of the tariff onto the price? And is the market accepting it? Or are you doing something else to react?
Stefan Wiedding, CEO, Sandvik: Yes, you want to start on that?
Cecilia Felton, CFO, Sandvik: I mean when it comes to the margin impact and the reason why we don’t why we expect a limited impact based on the current rates, I think those are the reasons that Stefan went through in the presentation. So the example, bullets that we saw there. So it’s redirecting flows using our existing footprint, looking at customer surcharges, rebalancing what we produce where in the world. So it’s really what you saw in those bullets that are the reason for that.
James Moore, Analyst, Redburn Atlantic: And maybe if I just follow-up
Stefan Wiedding, CEO, Sandvik: Yes, go ahead.
James Moore, Analyst, Redburn Atlantic: How much of the kind of I got the sense that the majority of your U. S. Business came from in SMM, from GMO Sweden. So I guess the question would be how much of that are you able to relocate to coming from other geographies? Or is it more that you’re taking it through Mexico and Canada?
Stefan Wiedding, CEO, Sandvik: No. We have an in such plant in The U. S. As well. And that is, of course, something we can leverage both when we talk about rebalancing of the production.
But then, of course, we also can address this through pricing. And it’s a combination of all of these things.
James Moore, Analyst, Redburn Atlantic: Okay. Thank you very much.
Conference Operator: The next question comes from John Keem from Deutsche Bank. Please go ahead.
John Keem, Analyst, Deutsche Bank: Hi, good afternoon. Thanks for the opportunity. Two, if I may. If we took your Q4 orders and Q1 orders together for Metal Powders, we were to think about the year on year, would it be flat, up or down? And could you comment on volumes?
Stefan Wiedding, CEO, Sandvik: What do you mean volumes in?
Luiz Cheddar, Head of Investor Relations, Sandvik: Powder.
John Keem, Analyst, Deutsche Bank: In metal powders. So if you were to kind of neutralize the price effects, is the metal powders demand up if we adjust for seasonality or pre buying or however you want to phrase it?
Stefan Wiedding, CEO, Sandvik: Yes. I would say, if you combine the growth in Q4 with the decline in Q1, you would still have a net positive impact not net positive in the overall. And so I would say it’s a positive trend. We are not separating out price from volume in Powder specifically, but also volumes are up.
Klas Bergelind, Analyst, Citi: I would
Stefan Wiedding, CEO, Sandvik: as I mentioned, that we are seeing rather an increased sort of interest in our powder since China is limiting exports of tungsten powder, and we are one of relatively few non Chinese suppliers in the Western part of the world. So yes, let’s see where that goes, but that’s a potential positive at least.
John Keem, Analyst, Deutsche Bank: Okay. Very helpful. And second question, if I may. You previously talked about the steps you’re taking, the levers you can throw to optimize for an uncertain tariff world. How should we think about this on your cost structures or cost margin evolution this year?
Stefan Wiedding, CEO, Sandvik: Do you want to?
Cecilia Felton, CFO, Sandvik: Yes. I mean, with the current tariff levels, we’re not expecting a material impact. Also, if we look at we initiated some restructuring programs, last year and in 2022. And we had realized most of the run rate savings at the end of last year, but still as in this quarter, but also coming quarters during the year, there’s still a positive bridge effect coming through from those restructuring initiatives also supporting leverage then throughout the year.
John Keem, Analyst, Deutsche Bank: Okay. Thank you very much.
Conference Operator: The next question comes from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind, Analyst, Citi: Thank you. Hi, Spiegel, Klas of Citi. So I want to come back to tariffs, but I want to ask a little bit about supply chains. I just wonder if you have started to see some disruptions yet. You might not have a direct impact, but can impact you indirectly in the supply in the assembly end of the business if you start to see shortages of components.
I have one more, but I’ll start there.
Stefan Wiedding, CEO, Sandvik: No, I cannot say that we are seeing any impact of the kind you described here. Not at the moment, at least. Okay.
Klas Bergelind, Analyst, Citi: But that’s good. My yes, my exactly, that was a short answer. My second one was on the defense business. It’s a small part of SMM, but it’s arguably very cutting tool intensive and should be growing a lot at the moment. It sits within other.
How big is it today? And what is the growth there currently? I mean, like we’ve seen with the Powder business, it’s small, but growth can be meaningful. And I guess every little bit helps. So interested in that.
Thank you.
Stefan Wiedding, CEO, Sandvik: Yes, thanks. Good question. And I’ll pass on it now. It’s something we will show some more numbers on at the CMD because of the interest in defense, and it is a positive, definitely. But we are doing a bit more deeper, let’s say, analysis because of the historical historically, it’s maybe not been as much focus.
So we have defense business sitting in some of the other segments as well, and we are cleaning that up, and we’ll come with more, let’s say, sort through view at the CMD in May. So I’ll you’ll have to wait until then.
Klas Bergelind, Analyst, Citi: Sounds good. Very quick one on mining, my final one, is the arrow is now pointing upwards. Could you comment here across the commodity steel front? To what extent gold versus copper are sort of developing more favorably quarter on quarter?
Stefan Wiedding, CEO, Sandvik: No, I think both of them are positive. I mean gold, obviously, at record high. But copper is also at very healthy prices. Even if it came down a bit in the past weeks, it basically only came back to where it was a few months ago. And with the long term cycles, we see customers in both of these commodities going at full speed to take maximum advantage of the current prices.
Klas Bergelind, Analyst, Citi: Thank you.
Stefan Wiedding, CEO, Sandvik: Thank you.
Conference Operator: The next question comes from Sebastian Kuner from RBC Capital. Please go ahead.
Sebastian Kuner, Analyst, RBC Capital: Yes. Hi. Thank you for taking my questions. I have three, hopefully short questions and answers. First is on capacity utilization in SMM.
I mean, you adjusted capacity last year in Q1. But since then, we have like a 5% drop in organic volumes. What’s the utilization there at the moment? That’s my first question.
Stefan Wiedding, CEO, Sandvik: Yes. I mean, of course, there is some under absorption in these numbers. That’s a given, considering where we are on the volume side. But we had quite significant programs that we launched beginning of last year on top of also previous programs. So I think we have done a lot to mitigate this, which you can also see in the numbers.
And whether we need to do more going forward, that remains to be seen. I think let’s see now what happens overall in the market. But I think right now, we are quite comfortable with the balance that we have. But yes, let’s see going forward.
Sebastian Kuner, Analyst, RBC Capital: Okay. Second is on currency. I mean, we go into a major currency headwind time now. I calculate up to minus 10% currency headwinds by Q4. Can you explain a bit what how you hedge the existing contracts, especially for the mining equipment?
And what you see as the headwind for on the margin from translation?
Cecilia Felton, CFO, Sandvik: Yes. On mining, on the equipment order, we hedge the vast majority of orders so we can lock in the margin, especially as it’s typically sometime, of course, between the point of order and delivery. Then that is, of course, it gives margin predictability for us. But it’s I mean, over time, we need to work with mitigating currency headwinds, of course, in other ways to make sure we’re looking at our cost base price, etcetera. But the majority of orders are locked in or currency hedged, so we have predictability of the margin on the orders that we’ve already taken.
Sebastian Kuner, Analyst, RBC Capital: Thank you. My last question is on the powders. Can you tell us a bit about the contribution to SMM? And again, how
John Keem, Analyst, Deutsche Bank: can
Sebastian Kuner, Analyst, RBC Capital: the market change going forward? Are you by far the largest provider for tungsten powder going forward? Maybe a bit more clarity there. I
Stefan Wiedding, CEO, Sandvik: think there are a couple of larger providers in the outside of China, and we are one of them. About roughly half of what we produce, we use ourselves in the cutting tools and the drill bits. And then we sell also externally, including to some of our competitors. And of course, if there is a shortage and maybe I should also add, we our raw material comes from our own mine and then also from recycling. So we have buyback programs where we buy back scrap.
And here, it’s also very limited capacity, very few that can do that and recycle the scrap into new powder. I think we are one out of two that can do that in a substantial way. So if there’s a
Sebastian Kuner, Analyst, RBC Capital: And how big is it yes, go ahead. Sorry,
Stefan Wiedding, CEO, Sandvik: what did you?
Sebastian Kuner, Analyst, RBC Capital: Yes. How big is it in the context of SMN? It’s
Stefan Wiedding, CEO, Sandvik: haven’t given a specific figure, but it’s between 510% of SMN.
Sebastian Kuner, Analyst, RBC Capital: Thank you. Very helpful. Thank you very much.
Stefan Wiedding, CEO, Sandvik: Thank you.
Conference Operator: The next question comes from Michael Harlow from Morgan Stanley. Please go ahead.
Michael Harlow, Analyst, Morgan Stanley: Hello. Thank you for the presentation and thank you for taking questions. I was wondering if you could give us your views on your competitors from China for the machining business and how we should think about capacity going to Europe given what’s happening between The U. S. And between China?
And then on the mining business, I was wondering if you could update us on what you see from your customers. I don’t mean regarding gold and copper, but regarding other commodities, if you see more hesitation from the customers or a slowdown given the uncertainty that we are seeing right now. Yes.
Stefan Wiedding, CEO, Sandvik: If I start with mining. Well, as you can see at this point with order intake and so on, it’s very good momentum. I cannot call out any specific areas where we see hesitation at this point. Of course, again, going forward, it’s difficult to predict. But the commodities, where there might be some hesitations, are not related to the latest developments.
It’s more related to where the commodity prices have been. For some time, it’s been more challenging in nickel. Iron ore is okay, but a little bit more hesitation and so on, depending on iron ore prices. So no new dynamic as we can see yet. But of course, mines typically have a little bit longer planning cycles as well.
But that’s where we are right now. Chinese competition in machining in relation to the current tariffs between China and U. S, I think it’s way too early to have a view or to speculate. At this point, most of the local competition we see in China is, I would say, towards the lower end of mid market, if we take a European point of view. So there might be some opportunities for them.
But it’s not that they are selling much into U. S. As of today, so it’s not that they need to redirect anything. So yes, too early to say if this will have any change in the dynamic. But at the moment, I don’t think it’s something that is likely, at least for the moment.
Michael Harlow, Analyst, Morgan Stanley: Thank you. That was very helpful.
Speaker 9: The
Conference Operator: next question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Stefan Wiedding, CEO, Sandvik0: Hi, good afternoon. Thank you for taking my questions. I have three follow ups as well on things that have been previously discussed, but I would ask them one at a time. Just going back to it’s very clear you’re not seeing much on SMM at the moment, but you’ve changed the portfolio, I guess, from 2020 to now quite a bit. And I was wondering if you could comment on your how different do you see the resilience if we end up seeing, let’s say, a 20% drop in volumes, just to put out an example, you dropped by about 4,400 basis points on margins in SMM in 2020.
This time around, given what everything that you’ve done to the portfolio, would you say you’re substantially different in terms of your detrimental leverage if we do end up seeing any slowdown?
Cecilia Felton, CFO, Sandvik: I can start if you want to. Yes, I mean, since 2020, we worked really hard with improving our resilience our margin resilience in the within SMM, both through increasing variable costs, working with our fixed cost footprint through the restructuring programs, being more agile with price through the inflationary period that we went through and also building or increasing the share of software revenues. And I think we’ve had also a couple of quite tough years behind us and demonstrated a very good margin resilience. And I mean, typically, we say that we would aim for a leverage of around 40. And that’s both, of course, when we grow and in a downturn.
Now, of course, volumes are already at a low level given the developments in the last couple of years. But I mean, if we look at this quarter and volumes were down, we had a very good leverage of 25%. So we are, of course, working very consciously on this continuously. And I think if you compare to where we were in 2020, I think as an organization, we’ve improved a lot. Don’t know if you want to add anything, Stefan.
Stefan Wiedding, CEO, Sandvik: No, I agree with that. Then it’s always difficult to predict if we take what you described here as financial crisis scenario and so on. But I think we showed during COVID that we could handle a much deep already done a deeper decline in a much better way. And since then, I think we have improved further. So I don’t think we can quantify but I think we are more comfortable now with how we would handle it than in the past.
Stefan Wiedding, CEO, Sandvik0: Got it. Thank you very much. And then just a clarification or a follow-up on China. You were going to or you are going to do some big investments on SMM to expand their capacity locally. Would the picture change if China saw a significant contraction on GDP because of the cross currents with the tariffs?
How is the investment sensitive to the local climate or really not is a longer term decision that you rather do now?
Cecilia Felton, CFO, Sandvik: Yes. This is linked to investments in an inserts factory for our newly acquired local premium company, Shoso Anno, in China. And the new factory went live or was completed in Q4 of last year, so it’s already there, so to So the current developments would not impact that. But I mean, long term, this is an important investment for us to be able to continue to grow and have a competitive position in China and also part of working with regionalization. Then this year, we are slowly then or starting to ramp up volumes factory, and that will gradually continue throughout the year.
Stefan Wiedding, CEO, Sandvik: I mean you can take this in two angles. You could say, okay, if there is now a big drop in the GDP in China because of this, the timing is bad. But on the other hand, if there is a global trade war involving China, the timing is great to have local manufacturing capability. So I guess depending on what your focus is, I think it shows that this was the right thing to do, to push forward with having local manufacturing capability in China, even if the timing from an economical cycle point of view would prove to be challenging.
Stefan Wiedding, CEO, Sandvik0: Got it. And then just a final one, just a clarification on sort of I think the mine the SMR organic sales growth was a bit lighter than the market expected. Maybe can you elaborate a little bit whether on that, maybe expectations were just too high? Or are the conversion between orders and revenues taking longer for any reason or for types of projects? Just wondering the color there.
Stefan Wiedding, CEO, Sandvik: Yes. No, I mean, for I don’t think there is any specific driver at all. I think it’s normal seasonality. If you look historically, with the exception of 2023, we always have a gradual increase in volumes throughout the quarters and Q4, and then you always then you have a drop into Q1, and then it climbs upwards. I know there was a little bit extra drama last year when the drop was bigger than also we maybe had anticipated as a normal outcome.
But this year, I would say this is normal seasonality. And maybe 2023 distorts the picture a bit if you see that as a normal seasonality. The seasonality in 2023 was much lower than we usually have had if you look at 2021, ’20 ’20 ’2, ’20 ’20 ’4, now 2025. So there is no, let’s say, driver negative or anything behind it. It’s just seasonality.
Stefan Wiedding, CEO, Sandvik0: Got it. Thank you very much.
Conference Operator: Next question comes from Magnus Kruber from Nordea. Please go ahead.
Stefan Wiedding, CEO, Sandvik1: Hi, Stefan, Cecilia Lewis. My name is here from Nordea. A few from me as well. And a follow-up on Daniel’s question there on the China factor in SMM. I mean, I think SMM was the only business area we saw margins decline year over year adjusted for FX.
So how much drag did we have in the quarter from under absorption in S and M, China factory?
Cecilia Felton, CFO, Sandvik: We don’t give any specifics, but you can see the factory sits in, as I said, in Shosoano, which is part of structure. So it’s part of that dilution that you see in the structure part of the bridge. So that’s where it sits. We’re not giving any more specifics other than that.
Stefan Wiedding, CEO, Sandvik1: Understand. Thank you. And then just also a follow-up on James’ question on the tariffs and the offsets that you’re implementing there. Do you think that there is actually no possibility at all that we see any sort of change in or different phasing with respect to how quickly you can offset it and how quickly the tariffs will come through on the cost side. I’m thinking if we see something of that in Q2 before you sort of claw that back through the rest of the year?
Or is it too small for it to matter?
Stefan Wiedding, CEO, Sandvik: I think, first of all, a general comment. Of course, it’s a highly complex situation with a lot of moving pieces. So it is very difficult to give precise answers given timings here and there. So but so that’s why I think you should look at the general statement. We believe it will be a limited impact.
And I think we can say that growth I mean, if we thought it would have a much bigger impact, for example, in Q2, then we will probably have said something around that. I don’t know if you have anything to add
Conference Operator: to that.
Stefan Wiedding, CEO, Sandvik: No. Yes,
Sebastian Kuner, Analyst, RBC Capital: that’s
Stefan Wiedding, CEO, Sandvik1: fair. I appreciate that. Thank you so much.
Conference Operator: The next question comes from Thor Fangerman from Bank of America.
Speaker 9: Two from my side. One is more of a clarification on SMM. Could you say how this has performed sequentially through the quarter as we came out of Q4 with organic order growth rate of around minus 3%? And how much of the minus six was basically driven by March and the later part of March? And then just to clarify here, the April comment of stable development then refers to the whole Q1 or rather to the March?
And then my second question would be on the restructuring program. Could you just explain a little more where the improvement is coming from? Is it more an SG and A topic, a COGS topic? And what would you expect is more to come for the next one to two years? Okay.
Stefan Wiedding, CEO, Sandvik: If I start with the market stuff there on the SMM. And starting then with the April comment, when we say stable, whatever we say, but now stable, it is in relation to the daily order intake as an average in the quarter. You will so it’s the average of Q1 and not the last weeks of Q1. And that is because you will always if you look at the months, they are always a little bit like a sawtooth. Months always start a little bit slower and then they go up towards the end.
So we see the normal pattern in April and then also versus the average in Q1. On the progression through the quarter and the minus 3% in Q4, I want to emphasize that versus Q4, this is a stable development. In Q4, the minus 3% was helped a lot by high order intake on the Powder side. But if you look at the comment around cutting tools in Q4, it was a different number, and it’s very similar to the cutting tool numbers now also in Q1. Then the progression through the quarter, I would say, is nothing to call out.
It’s normal how Q1 usually looks like with a stronger March and so on. But that’s just normal seasonality in Q1. Restructuring?
Cecilia Felton, CFO, Sandvik: Yes. So with the restructuring programs, we’ve had two programs running in parallel. The first program, we launched in 2022 and the second program, we launched in Q1 of last year. Then at the end of last year, we had realized most of these programs. So the ’22 program, we had realized around 90% of the run rate savings.
And for the program that we announced last year, we had realized about 80% of the run rate savings. And now at the end of Q1, we were at 90, 90 five percent savings realization. So there’s not so much in terms of additional savings coming from these programs. It’s more a full year bridge effect that we are expecting this year.
Sebastian Kuner, Analyst, RBC Capital: Perfect. Thank you so much both.
Conference Operator: We have a follow-up question from John Kim from Deutsche Bank. Please go ahead. You may proceed with your question, sir. We are not able to hear you.
John Keem, Analyst, Deutsche Bank: Hi. Sorry about that. Thanks for the opportunity. Could we go back to China for a second? And could you give us some color on cutting tool demand that you saw in Q1?
Maybe a little bit more detail between the local premium segment and your core segment before the Chinese acquisition, call it, one point years ago, two years ago?
Stefan Wiedding, CEO, Sandvik: Yes. If go back to Q1, we commented on that and said that the local premium was definitely growing higher than the average. I would say in Q1, we did not quite see that as much. But I don’t know really how much conclusions to draw from that since it’s only one quarter, and we are quite new with having this business as well. So in Q1, the average China business and the local premium business had similar performance, so as similar as the premium.
Sebastian Kuner, Analyst, RBC Capital: Helpful.
John Keem, Analyst, Deutsche Bank: Thank you.
Conference Operator: Also, next one is a follow-up from James Moore from Redburn Atlantic. Please go ahead.
James Moore, Analyst, Redburn Atlantic: Yes. Thanks for the follow-up. I just wanted to go back to the manufacturing footprint of SMM in The US. I’m trying to understand your exposure. Would it be possible to say how much of the cost of goods sold of SMM is localized in The US?
I assume it’s quite a low number, like 20% or something. And I guess you can do two things to handle this. One is move more of your COGS into The US, and secondly, put prices up. And I’m really just trying to understand how much your mitigation action is the former versus the latter. Like, do you think you can get to 80% of US SMM COGS into The USA through moving to your existing facilities?
Could you move it that much? Or is it more on the pricing side that really the maths of the response works?
Stefan Wiedding, CEO, Sandvik: Yes, I understand. And this will, of course, depend on the level of the tariffs. And if tariffs at current levels, I think it’s easier and actually better to mitigate more towards this with pricing because otherwise, the cost in The U. S. Is higher than the tariffs pretty much.
But the higher the tariffs, the more, of course, we will rebalance production. And this first step is to rebalance with existing capacity, as I said, meaning then produce less for Europe and The U. S. And focus The U. S.
Manufacturing we have on The U. S. Market. The second step will be to increase capacity in those facilities. And I cannot say exactly how much we will do or what currently because we don’t know where the, let’s say, mid- to long term tariffs will be.
We know what we’re doing here and now with the current situation, but we also know there’s ongoing negotiations, and this is a so called pause. So what will happen beyond that? But that we are planning for all of these scenarios, preparing. And then exactly how it will end up depends on the level of the tariffs. But we can increase capacity, of course, in The U.
S. We have existing facilities. Even if we have set up we have to set up, for example, a new production line, that is something we I mean, we move things around in these restructuring programs all the time. So it will be, of course, a little bit of a lag to do that. But the time frame is still very much manageable in relation to sort of the time scales we’re talking about here.
We’re talking about quarters in terms of timing. And then depends on what products, some take, some are faster, some are longer. But very difficult to give a straight answer given that we don’t know yet exactly what we’re going to optimize towards. But we have the plans, we know what to do depending on the outcomes.
James Moore, Analyst, Redburn Atlantic: That’s a really helpful map, Stefan. Thanks.
Conference Operator: We have another follow-up question from Michael Harlock from Morgan Stanley. Please go ahead.
Michael Harlow, Analyst, Morgan Stanley: Thank you for taking my question. If I may just ask a follow-up on the topic of tariffs. How should we think about your setup versus Kennametal in The U. S? And what happens if we see well, if you will have an advantage or a disadvantage in case of the price increase, if that makes sense to you?
Yes.
Stefan Wiedding, CEO, Sandvik: First of all, let me say, I don’t think there’s going to be any winners if there’s a global trade war. And we had talked about China before. We are now the only Western manufacturer with local manufacturing capability for InSearch in China. So there’s going to be puts and takes here for sure, which also means opportunities in some regions. We are, of course, going to I mean, if you look at The U.
S, most of competition are in a situation actually where they are importing basically everything. We are one of the few with local manufacturing capabilities. If we have to, we will simply increase production capacity in The U. S. It’s not a big thing for us.
So if the competitive dynamics forces us to increase capacity in The U. S, we will do that. That’s our plan.
Michael Harlow, Analyst, Morgan Stanley: Thank you. Very helpful.
Conference Operator: The next question is a follow-up from Magnus Kruber from Nordea. Please go ahead.
Stefan Wiedding, CEO, Sandvik1: Magnus here again. I think it’s very difficult to assess obviously what invest what your customers are doing more than what we had already said. But how do you how are you thinking with respect to your own investment decisions in different businesses? Are you holding on investments now in anticipation of what you will see over the next ninety days? Or how are you thinking?
Cecilia Felton, CFO, Sandvik: In terms of CapEx investments that we have part of the SEK 5,000,000,000 guidance for the year, the vast majority of that is maintenance CapEx and also investment into new ERP systems, etcetera. So you can see in the first quarter now, we had SEK 1,000,000,000. So I think the current dynamics will not have a material impact of the type of projects or investment that we have as part of our CapEx pipeline.
Stefan Wiedding, CEO, Sandvik: Then we should add that CapEx is also part of our contingency plans. So if we end up in a situation where we go into a more serious contingency because of market developments, we can, of course, tighten the screws. But I don’t think that’s where we are right now.
Sebastian Kuner, Analyst, RBC Capital: All
Luiz Cheddar, Head of Investor Relations, Sandvik: right. I think it’s time to end now. And but before we do, also I would like to remind you that Sandvik has our Capital Markets Day, twenty first of May. And if you wish to attend but haven’t registered, please contact Investor Relations, and we will help you with that. And with this, we say thank you for calling in, and have a good day.
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