Sandvik AB Q3 2024 Earnings Call Transcript

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

Question: John Kim - Deutsche Bank - Analyst : Hello. Okay, sorry about that. I was wondering if you could talk a little bit more about the aerospace and I know that you have an agreement coming or expected in North America? But should we think about that as a 4 to 3 week impact in, in your aerospace business putting into Q4 or is the backlog going to cover that?

Question: John Kim - Deutsche Bank - Analyst : Okay, thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 21, 2024 / 11:00AM, SAND.ST - Q3 2024 Sandvik AB Earnings Call

Question: Andrew Wilson - JP Morgan - Analyst : Hi, good afternoon. Thanks for taking a call. I wanted to ask two on the SMR side, can you remind us a little bit in terms of the powder dynamic for the Q4, appreciate the last two quarters I think have had relatively easy comps. So just trying to kind of recall how we should think about powder in the Q4 and then I guess, should we expect any change to what's been actually pretty sustained strength on the software side for the Q4 and just trying to kind of understand the building blocks for, for the Q4 development.

Question: Andrew Wilson - JP Morgan - Analyst : Can I just squeeze one more just on, on the China picture? I think from memory, the Q2 benefited from a prebuy and I presume the Q3 therefore was impacted negatively. It'd be great if you could just try and help us in terms of what you think the impact of that was and then maybe sort of China underlying if that's not too hard. And then I guess also just thinking about, will Q4 similarly have a bit of a headwind from this prebuy or do you think that kind of flushes out within a quarter?

Question: Andrew Wilson - JP Morgan - Analyst : Thank you, Stefan. Very helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 21, 2024 / 11:00AM, SAND.ST - Q3 2024 Sandvik AB Earnings Call

Question: Magnus Kruber - Nordea - Analyst : Hi, Stefan, Cecilia, a couple from me as well. Could you talk a little bit about the Universal Field Robot acquisitions? Do you see any need for any upfront investment here to gain attraction and volumes in this business over the over the coming quarters, please?

Question: Magnus Kruber - Nordea - Analyst : Perfect. Thank you so much. And I just want to make a clarification on the SMR demand dynamics. Here call out specifically some hesitation here on the equipment side, is that sort of on par with what we have seen in prior quarters or is there anything that's been sequentially software here that you have seen?

Question: Magnus Kruber - Nordea - Analyst : Excellent. Thank you so much.

Question: Klas Bergelind - Citigroup - Analyst : Thank you. Hi, Stefan and Cecilia. This is Klas. So my first one is on price cost in SMR, looking at the operating leverage here organic revenues up SEK15 million, but the EBITA is falling SEK243 million and I get that this is on small volumes and equipment effect from volume is particularly hard but just on price cost. And do you foresee a worsening here in the coming quarter when you look at sort of the bridge effect from overearning effectively last year and that is now normalizing or is this sort of bridge effect as worse as it gets when we back out the equipment volume effect? Thank you.

Question: Klas Bergelind - Citigroup - Analyst : Okay. Then my second one is for you on the short cycle side, I want to zoom in a bit on the general engineering segment in Europe. We obviously we already saw this development in Germany and Italy, I think we doubled the declines earlier in the quarters during the year. But if you could help us with the quarter on quarter development in Europe on general engineering and to what extent this development got particularly worse in September. And if it was spreading outside the core, thank you.

Question: Klas Bergelind - Citigroup - Analyst : No, it was really, whether it was September, I mean, adjustment. September -- yeah. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 21, 2024 / 11:00AM, SAND.ST - Q3 2024 Sandvik AB Earnings Call

Question: Klas Bergelind - Citigroup - Analyst : Very quick one on China. Would you agree? It's mainly autos and aero for machining solutions that were the main delta with general engineering, sort of perhaps a little bit impacted by the hangover from the earlier pre-buy. I know you said to Andrew that it wasn't a big prebuy effect, but to me, at least it felt like auto and aero in China was sort of the bigger delta rather than general engineering, whether you agree with that.

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

Question: Daniela Costa - Goldman Sachs - Analyst : Hi, good afternoon. I have two as well, but I'll ask them one at a time. And the first one is regarding basically portfolio and the non-core, I guess you did these two divestments and it, it had been a while since you, I guess Selena was the last big thing. Can you give us a bit of context of sort of, what are these two isolated things? Are you doing more of a review of the portfolio? Are there other non-core areas? How are you assessing the portfolio overall?

Question: Daniela Costa - Goldman Sachs - Analyst : Got it. Thank you. And then the second one more just in terms of the restructuring savings, I think Cecilia mentioned that you were slightly ahead of your plan and but obviously you mentioned macro uncertainties. Can you accelerate the pace of the whole plan? And if so, which would be the areas where you could do that over the near term?

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

Question: Edward Hussey - UBS - Analyst : Hi there. Thanks for taking my question. I've got two, first one, just on -- so I think within the margin within SMR you talked about weaker equipment, revenues basically being a driving force behind weaker margins. Does that mean that sort of backlog you sort of work through the backlog now and, and things are a bit more normalized there or is it, was there sort of something specific that meant deliveries in the equipment business were weaker?

Question: Edward Hussey - UBS - Analyst : Okay, thank you very much. And then just going back to SMM and I know you've already commented on price versus cost, but I guess just thinking about it for the next couple of quarters, I mean, from what I can gather you to put up prices by about 45% at the end of Q1. I'm just wondering, is the price cost dynamic going to get worse for the next couple of quarters? And then also if we think that pricing costs go back to normalized level next year and let's say you put it up 1% to 2% versus cost increase of 1% to 2% next year. Would that also lead to a headwind from a margin perspective or given it was given this dynamic is neutral this year and then it would be neutral next year. It actually just be, it wouldn't be a headwind next year. Thank you

Question: Edward Hussey - UBS - Analyst : But I guess, I mean, you say it's basically a diluted effect year on year because it was the last year in Q1 next year -- for SMM in the second quarter?

Question: Edward Hussey - UBS - Analyst : Okay. Thank you very much.

Question: Max Yates - Morgan Stanley - Analyst : Thank you. Just my first question is on rock processing and I think you called out a sort of larger order in the US on the sort of infrastructure side. I, I guess that's kind of contrary to maybe what we heard from Volvo in their construction business. So if you could just give us a little color of kind of what you're seeing in, in North America where the inventory situation is at the dealers, that that would be a helpful starting point. Thank you.

Question: Max Yates - Morgan Stanley - Analyst : Okay. And just to follow up then on, on mining and rock kind of margins, we're obviously 1st, first 9 months, we're now at kind of around the 20% level. We've obviously come from being kind of nearly 21% last year. Could you just give us a feel for kind of what you feel is the normalized margin maybe in a sort of midcycle equipment environment, normalized price cost. I think people used to talk about maybe you could close the gap with kind of where Epiroc was in the 22% 23% level. Is that too optimistic for your business? Should we be thinking about kind of more in that 20% to 21% level? This is the right level in a normal pricing backdrop. How should we think about the mid cycle margin for this business?

Question: Max Yates - Morgan Stanley - Analyst : Okay. And, and just the final one would be on the sort of manufacturing and machining business. I mean, I guess if I was being sort of a bit more sort of negative on this, you've talked a lot about the kind of improvements you've made in the business, the kind of improvements in the manufacturing methods, the flexibility in the business. But I guess if I look at year-to-date your kind of detrimental margins in this business with quite a few, with quite a lot of cost savings having gone through, they're still 60%. So I'm just wondering, is there, is there anything else kind of this quarter included? Have, have you had a big underproduction impact this year? Has it been the speed of kind of certain end markets and certain regions that have made it difficult to kind of balance the, the capacity utilization? I guess how is sort of, what's your perspective on how the resilience and the operational leverage and how this business has performed here to date?

Question: Max Yates - Morgan Stanley - Analyst : Yeah. No, that's fair. Okay. Thank you very much.

Question: James Moore - Redburn Atlantic - Analyst : Yeah, thanks for taking my questions and perhaps I could start with SMM, European softness, Stefan. We're seeing this with everybody. Could you give your view on what your customers are telling you and why you think this is really happening? My question is really whether you think this is more Chinese export related in the sense that China wants more self-sufficiency. So Europe's biggest customer on the export side of Germany and Italy have been hit by that versus the lack of the cheap gas discount. And the fact that gas prices in Europe are much closer to say, Japan and US gas prices relatively than they were for a decade. And maybe we could go one at a time and start with that.

Question: James Moore - Redburn Atlantic - Analyst : Thanks. Just a technical couple. If I could, the powder business just given the comp are we up 50% or are we just up sort of 10% to 20% normal double digit or extreme double digit and the software margin? I think you wanted it to head to 20%. How, how's that progressing this year?

Question: James Moore - Redburn Atlantic - Analyst : Great and last one, if I could, with the margin down 70 bps and SMR, can I just clarify something you asked earlier? Would you say that margins fell more than that? And aftermarket margins fell less than that year on year. And if that is the case and you look around the business unit and the equipment side of SMR, can you say whether there's any specific unit or units that are underperforming? I'm talking excluding demand effects here where you see a specific topic that you could fix. And some specific upside on any units.

Question: James Moore - Redburn Atlantic - Analyst : Great just to follow up on that any particular units, but they've got more margin upside in the next couple of years within equipment.

Question: James Moore - Redburn Atlantic - Analyst : All right. Thanks very much.