Sandvik AB Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: James Moore - Redburn Atlantic - Analyst : Yes, good morning, everybody. Good afternoon. Thanks for the time. Can 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 US 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 US 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.

Question: James Moore - Redburn Atlantic - Analyst : And that's very helpful. And then 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 US cutting tools that come from Temu, are you putting all of the tariff onto the price? And is the market accepting it or are you doing something else to react?

Question: James Moore - Redburn Atlantic - Analyst : I just follow up.

Question: James Moore - Redburn Atlantic - Analyst : How much of the kind of I got the sense that the majority of your US business came from in SMM came from Temu 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?

Question: John Kim - Deutsche Bank - Analyst : Hi, good afternoon. Thanks for the opportunity, too, if I may. If we took your Q4 orders and Q1 orders together for metal powders, and we were to think about the year on year, would it be flat up or down? And could you comment on volumes?

Question: John Kim - Deutsche Bank - Analyst : 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 prebuying or however you want to phrase it?

Question: John Kim - Deutsche Bank - Analyst : Okay. Very helpful.

Question: John Kim - Deutsche Bank - Analyst : 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?

Question: John Kim - Deutsche Bank - Analyst : Okay. Thank you very much.

Question: Klas Bergelind - Citigroup - Analyst : Thank you. Hi, Stefan and Cecilia. Klas at 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've 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 16, 2025 / 11:00AM, SAND.ST - Q1 2025 Sandvik AB Earnings Call

Question: Klas Bergelind - Citigroup - Analyst : Okay. But that's good. Then my, yes, 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.

Question: Klas Bergelind - Citigroup - Analyst : Sounds good. Very quick one on mining. My final one is the arrow is now pointing upwards. Could you comment here across the commodities

Question: Klas Bergelind - Citigroup - Analyst : Thank you.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : 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 would be my first question.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Okay. Second is on currency. I mean, we go into a major currency headwinds time now. I calculate up to minus 10% currency headwinds by Q4. Can you explain a bit how you hedge the existing contracts especially for the mining equipment. And what do you see as the headwind for on the margin from translation? Thank you.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Thank you. My last question is on the powders. Can you tell us a bit about the contribution to SMM. And again how can the market change going forward? Are you by far the largest provider for tungsten powder going forward? Maybe a bit more clarity there. Thank you.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : A big is it? Yeah, sorry. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 16, 2025 / 11:00AM, SAND.ST - Q1 2025 Sandvik AB Earnings Call

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Yes. How big is it in the context of SMM powder?

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Thank you. Very helpful. Thank you very much.

Question: Michael Harleaux - Morgan Stanley - Analyst : 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 US 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 your customers or a slowdown given the uncertainty that we're seeing right now. Thank you.

Question: Michael Harleaux - Morgan Stanley - Analyst : Thank you. That was very helpful.

Question: Daniela Costa - Goldman Sachs - Analyst : 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 400 basis points of margins in SMM in 2020. This time around, given 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?

Question: Daniela Costa - Goldman Sachs - Analyst : 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'd rather do now?

Question: Daniela Costa - Goldman Sachs - Analyst : 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.

Question: Daniela Costa - Goldman Sachs - Analyst : Got it thank you very much.

Question: Magnus `Kruber - Nordea Markets - Analyst : Hi, Stefan, Cecilia, Louise. Magnus here from Nordea. A few from me as well and a follow-up on Daniela's question on the China factory and SMM. I mean SMM was the only business area which saw margins decline year-over-year adjusted for FX. So how much drag did you have in the quarter from under absorption in SMM, China factory?

Question: Magnus `Kruber - Nordea Markets - Analyst : 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 will 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?

Question: Magnus `Kruber - Nordea Markets - Analyst : Yeah, that's true that's fair. I appreciate that. Thank you so much. Cheers.

Question: Tore Fangmann - Bank of America Securities - Analyst : Good afternoon. Thank you for taking my questions. 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 6% was basically driven by March and the later part of March? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 16, 2025 / 11:00AM, SAND.ST - Q1 2025 Sandvik AB Earnings Call And then just to clarify here, the April comment of stable development then refers to the whole Q1 or rather to the end of 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&A topic, a COGS topic? And what would you expect is more to come for the next one or two years? Thank you.

Question: Tore Fangmann - Bank of America Securities - Analyst : Perfect. Thank you so much both.

Question: John Kim - Deutsche Bank - Analyst : 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, 1.5 years ago, two years ago? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 16, 2025 / 11:00AM, SAND.ST - Q1 2025 Sandvik AB Earnings Call

Question: John Kim - Deutsche Bank - Analyst : Okay. Helpful. Thank you.

Question: James Moore - Redburn Atlantic - Analyst : Yes, Thanks for the follow-up. I just wanted to go back to the manufacturing footprint of SMM in the US and 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 70%, 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 math's of the response works?

Question: James Moore - Redburn Atlantic - Analyst : That's really helpful math, Stefan. Thanks.

Question: Michael Harleaux - Morgan Stanley - Analyst : 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 Kennametals in the US? And what happens if we see, well, if you would have an advantage or a disadvantage in case of a price increase if that makes sense to you? Thank you.

Question: Michael Harleaux - Morgan Stanley - Analyst : Thank you. Very helpful.

Question: Magnus `Kruber - Nordea Markets - Analyst : Magnus here again. I think it's very difficult to assess, obviously, what your customers are doing more than what you had already said. But how are you thinking with respect to your own investment decisions in different businesses? Are you holding on investments now in anticipation of what we will see over the next 90 days or how are you thinking?

Question: Magnus `Kruber - Nordea Markets - Analyst : Thank you very much.