Electrolux Professional AB (publ) (EPROB) Earnings Call Transcript & Summary

Good morning, and welcome to Electrolux Professional Group Q1 Results Presentation. My name is Jacob Broberg. I'm Head of Corporate Communications and Investor Relations. With me, as always, I have Alberto Zanata, CEO; and Fabio Zarpellon, CFO. I leave the floor for you to start. Alberto, please go ahead.

Thank you, Jacob, and good morning. So Q1 closed with increased EBITA in an environment that showed an increased uncertainty. So considering the geopolitical situation, I would say that we delivered a positive result with sales more or less on the same level of the previous year and with an increased margin. The increased margin is coming from different elements like the raw material, the price and the growing sales in Laundry and Food & Beverage in North America. I think the last 2 comments, so the increasing sales in Laundry and Food & Beverage in North America is the other positive elements of the quarter that I like to underline because they are confirming a trend that for loading has been going on for many quarters in a row. And for North America, that was the area, where we had some challenges in 2024 is confirming that we turn in some way, we turn the curve that the recovery started in Q3 with an improved sales in Q4 and confirming the improvement also in the first quarter of 2025. In addition to sales and margin development, we also delivered a solid cash flow slightly below last year. But we have to consider that as we already anticipated in 2025 -- 2025 is a year, where we will have massive investments for the new product line in Laundry that are going to be launched at the end of this year, beginning of next year. Last point about the overall picture of the result that we deliver is the order intake that was positive and higher than last year in Food and Beverage. In Laundry was somewhat lower compared to the order intake that we had last year. But we have to consider that in Q4 2024, we had huge sales for Laundry in North America. And I always said that in particular, North America, considering the setup and the go-to-market structure that we have, we have to consider this, and we have to accept this fluctuation related to both sales and order intake. Moving on to the geographical picture of our sales. Out of this one, I would like to highlight the following point. The first one, as I already said, the continued growth in Food and Beverage on Americas. The decline in Laundry that seems to be quite significant. Again, it has to be matched. It has to be -- we have to look at that one, matching it with what we saw in the last quarter in the Q4 2024, where it was very high, the growth there. And also, that when we commented the last quarter of last year, we said it that we should expect a rebalancing of the things. The good thing is that if we look at the external sales, so from our distributor to the customer in North America, the flow is good. Sales are doing well. Also, the collection of order is doing well. So it seems that it is not reflected in this minus 14%. In Europe, we have a decline in Food and Beverage. Also here, I think everything is related to basically the beverage business in the Mediterranean area. The season was not so good at the end of the summer of last year. Our distributor, they had product in stock that they didn't deliver. And as a consequence, we had a weak start of the year. This is the preseason, in particular for beverage, where typically the distributors are filling the stock for -- to be prepared for the season that starts typically with the Easter time, so just a week ago. They didn't do this year in a significant way. The only thing, again, a comment that I can make is that April looks completely different from this picture. So it seems that after the, let me say, weak preseason in beverage, now the situation is normalizing with April showing a good growth, both for sales and order intake, while the food part, the remaining part of the Food and Beverage business was positive also in Europe. The third region is the APMEA. And here, it seems that the picture is not changing. In reality, also in this case, we see a change in the picture because in APMEA region, we basically have a project business. And the project business is a business that has obviously a delay between the collection of the order and the invoicing. We already saw at the end of last year that the order intake was positive in the region, even in Middle East, that is the most affected area, the area that is in reality marking in some way the negative trend in the region. We saw a positive order intake, but it takes time between receiving the order and then invoicing the full project, as we do in that region. Also, in this case as well as for beverage, a comment about April. In April, the region is providing a good positive development for the sales. So we are starting to materialize to invoice the order that we collect in the past. I believe now we added this page because, as I said, I believe that this is in some way the subject of many discussions. So how is the tariff that have been announced in the United States impacting our business. With this chart, we want to try at least to clarify the magnitude of the impact because the headline in some way is that we expect a limited impact -- negative impact of the tariff during the full 2025. With the knowledge that we have today, obviously, but with knowledge that we have today and after the execution of the mitigating activities that we already have in place, we don't see a significant impact of the tariff in our business. And why is that? Several reasons. The first is obviously because we already have many products in our warehouses in the United States, many are on water, and they are covering a large portion of the business that we have in the United States in 2025. Secondly, because if you look at the first pie on the left, the group sales, it is true that 25% of our sales are generated in the Americas. Americas is including South America, but basically more than 90%, 95% is North America. So 25% of our sales are in North America. But half of these sales are generated with products that are produced in North America. So we are competing in North America like all the other player in the region. The other comment that I think is also relevant is that the 12% of sales generated with imported product, in reality, half of it is generated with imported products that are competing in North America against imported product. So also, our competitor, even if they are American companies, are importing the product. And I would say that in some cases, for instance, beverage, we could have even a competitive advantage because our competitors are importing product from China, while we are importing product from Thailand. So this means that the business that could potentially be negatively impacted by a competitive disadvantage that we have versus American companies is roughly 6%, 7% of the total group sales. On this 6%, 7%, not only on this one, but also on the other, but we have been putting in place already actions to first increase price. We are doing this as well as all our competitors, including the one that are producing in North America. Resourcing components because the negative impact is not only on the finished products that are imported, but also on the components that are used by American competitors. So resourcing and we already have in place actions because the suppliers that are using that eventually are producing, for instance, in China electronic components, they have also facilities in Europe, in the Eastern European countries that are already active for our components. And the third one is to change the mix. So moving towards products that are less impacted by the tariffs. All this to give a comment, and this is, by the way, is valid both for Laundry and Food and Beverage. All this to say that we estimate the impact of the tariff on our business being limited in 2025. If we move to the 2 segments, Food & Beverage, I think the comment we said is that we declined sales -- we declined sales in Food and Beverage. And the decline is mainly related against to the APMEA region, Middle East, in particular, with a comment that I made earlier about the recent trend that we saw and the soft start of the beverage in Europe and in particular, in the South European countries. For the margin development that was lower than a year ago, we have to consider that, yes, last year, we had some cost for the acquisition, the portion that was allocated to the Food and Beverage for the acquisition of Tosei. On the other side, we -- this year, we have extraordinary cost, cost that we didn't have last year to attend exhibition, to launch a new product that obviously we are expecting will develop good sales along the year and to continue to invest in R&D that is above the 5% ratio versus net sales. The other positive things for the Food & Beverage segment is that the order intake was higher than a year ago. If we move to Laundry, as I mentioned earlier, the good things in Laundry is confirming trend, a positive trend of the sales. This was done despite the mentioned the decline of the sales towards North America. So this means that in all the other regions that we've been growing enough to compensate that drop -- drop that is just a phasing of orders because the external sales in the country are positive and are growing. The increased margin also in this year, we have to be transparent that the increase is also related because last year, we had the acquisition cost penalizing the margin. But it's also true that also in Laundry, we had higher R&D cost for the preparation of the important new product range that we are developing and marketing cost also in this case, attending exhibitions all around the world. Order intake in this case was slightly lower than a year ago. And it is, again, the explanation comes to the dynamics of the order flow that we have in North America. With this said, now I would leave the word to Fabio to go into the details of the financials.

Thank you, Alberto, and good morning to all. As Alberto anticipated, quarter 1 was another quarter, where we solidified our performance. Margins in terms of EBITA were close to 12%, driven by continued good price execution, lower material cost, higher sales with improved mix in the Laundry segment and the continued positive development of the customer care business that grew faster than the overall business. When we compare the development of quarter 1 this year and quarter 1 last year, last year, we were affected by, let me say, onetime costs related to acquisition, SEK 38 million was the impact of the inventory step-up and acquisition cost or roughly 1 point in margin in 2024 results. At the same time, as Alberto was anticipated, in this quarter, we faced higher investment in marketing. We attend important exhibition like NAFEM U.S. HOTELEX in China, and we had increasing R&D cost to sustain our innovation pipeline. Another word on price that was well executed across the different geography, fully compensating the inflationary items that we face like the labor cost and transportation cost. Currency, in particular, [ currency ] transaction had a negative impact on the profit in the quarter. Going through the different ingredients on the P&L. Finance net was roughly SEK 21 million significantly lower than last year due to the reduction of the borrowing that we activated last year from the acquisition of Tosei and Adventys. On the tax rate, we have had a sort of peak in the quarter. Tax rate reached 30% due to one-off costs, mainly related to not credible withholding tax on distribution of dividend. The expectation and somehow for the remaining quarter and overall as guidance is that the tax rate should approximately around 26%. Last but not least, earnings per share in quarter 1 was SEK 0.9 per share, up 10% compared to last year. Cash flow generation was solid with SEK 175 million despite increased investment to support the innovation projects in Laundry and in Beverage. This is confirming overall the consistent cash generation of this group. In terms of forward-looking picture, CapEx as anticipated in the previous call, is expected to remain at higher than the historical level, but I do not expect it will be materially affect the cash generation power of this group. When it come to balance sheet management and asset management, happy to report a further improvement on the operating working capital on sales that has been further reduced to 16.1% on sales, thanks to a remarkable improvement, in particular, on the account receivable area. Our financial position has been further strengthened with a ratio net debt on EBITDA that is now at 1.3x with an improvement that was driven by a combination of increased [ EBITDA ], as well as reduction of borrowing. And with that, back to you, Alberto.

Thank you, Fabio. I mentioned earlier that Q1 was a quarter, where we operated the company with higher than normal, I would say, operating cost. And in particular, this higher-than-normal costs were mainly R&D and R&D costs are there to support the development of all the new products that we are bringing to market. But in particular, I would focus, and I would spend a couple of words on the marketing activities. We have been spending, and we are -- we have been investing all along even 2024 to develop a new product and new solutions. And in Q1 of this year, there have been a lot of important events, a lot of important exhibition, where we presented ourselves with all this new product. There have been also exhibition in Europe. There have been an exhibition in India, in other part of the world. I would focus on these 3 ones, the one in Japan, in the U.S. and in China because they are significant moment. Clearly, the one in Japan, it has been the first time when we presented the full portfolio of the Electrolux Professional products. In this case, this is the picture related to the Food and Beverage exhibition, but after a month, there have been also the same exhibition for Laundry, where we presented the full portfolio of products, including the one that are locally produced, but also the one that are producing in the other factory of the group under the brand Electrolux Professional and under the brand Tosei, but leveraging the strength of the Tosei organization in the go-to-market, so in the ownership of the channel and the service setup. Products were well accepted. Obviously, in particular, Japan, it is not a fast-reacting market, but we expect to start seeing the benefit both in sales synergies and then clearly also in the cost synergies already during the second part of the year. The second one is the exhibition that happens every second year in the United States is the NAFEM show this time of the -- this year in Atlanta, where we presented our organization. We presented new cooking product. We presented a new beverage solution. All the brands belonging to the Electrolux Professional Group altogether. Also in this case, well received. The sales are confirming -- the trend of the sales are confirming that we are on the right path. And in some way, all the challenges that we had to face in 2025 -- 2024 are behind us. The third picture is representing the HOTELEX in Shanghai in China. And in this case, also, we present a lot of novelties. In this specific case, we presented the product in the cooking and dishwashing area that we are producing in our factory in China. China more and more is becoming a country, where it's important to have a local sourcing of the product. And I think a strength of the group is the fact that today, we have a factory in the big markets, in the big continents of the world. We have operations in North America. We have operations in China, in Thailand, in Japan, so in Asia, and we have operation in Europe. Why is important the Chinese one? Because the cooking part, in particular, not necessarily the dishwashing, but the cooking part is in some way a transfer of production -- transfer is probably not the right word because we continue to produce the product in Europe, but we also started to produce the same product in China to be closer to the customer and to be more competitive in that environment. So coming to the conclusion, what we can say that we closed the quarter -- we closed the quarter with a good business progress. It is another step in the direction of making this company a company with higher margin, a larger organization. Sales increased it was below 1%. But considering the environment and the geopolitical situation, I would look at this one positively. Margin also increased more 1 point. It is true that the comparison is with a quarter that was negatively impacted by the acquisition cost, but it's also true that this improvement of the margin comes despite all the investment that we are making to transform the company, to have this company a better company with a better product and with more opportunity to sell. We continue to generate cash. Q1 is typically the weakest quarter in terms of generation. Despite that, we have been generating cash and reducing the debt -- the -- sorry, the ratio between net debt and EBITDA. And we had a quarter with increasing order intake in Food and Beverage. That is what at the end should turn into sales in the coming months. Slightly lower order intake for Laundry. But if we exclude Americas from that one, and I already commented about the cyclical flow of orders that we have in North America, if we exclude North America, the order intake also for Laundry was improving. And in both cases, this trend is confirmed also in the month of April. And last but not least, the general comment about the core topic of all the discussion that is the impact of the U.S. tariff on the business. What we can say is that considering the current knowledge, considering the current situation and considering the mitigating activities that we already implemented and put in place, we see that we expect to have a limited impact on the result in 2025. Back to you, Jacob.

Thank you, Alberto. And with that, we open up for questions. Please go ahead, operator.

[Operator Instructions] The first question comes from Hageus Gustav, SEB.

Gustav Hageus here with SEB. I have a question on sort of your discussions with the chain operators on the Food and Beverage side in the U.S. given the turmoil and the uncertainty, do you see any signs of postponement or cautiousness in rolling out new locations or refurbishing existing ones on the franchise side? That's my first question.

Thanks for asking. We don't see this happening. We don't see this happening because, as I said, sales in North America, in particularly in [ seasons ] grew and the order intake improved.

Sure. That's coming from a bit of a lower base, but sort of I was more after sort of your discussions and the general feel and perhaps April, is it still -- there's no change to the sentiment thus far as you can tell...

Exactly. For the time being -- for the time being, we don't see a change of the sentiment. This doesn't mean that they will not change later on, but this is hard to predict, honestly.

Sure. And on the public side and roughly as big, right, in the states for Food and Beverage, given the DOGE initiatives and everything, have you seen anything on that side in terms of order intake or sentiment in the market or outlook for the market that you're willing to share?

No, we didn't see any change, honestly. This is I don't know honestly what to say. Reality is that we can speculate about these things, and I have many ideas you can probably have. But the reality is that in the discussion we are having with the customer, with the dealers, with the channels, nowadays, we don't see change in the behaviors. Let me say, not yet at least.

Yes. That's all we have there. And -- but then on the -- again, in the U.S., sorry for sticking to this topic. But on the Laundry side, quite exceptional growth there in Q4, right? And some fallback from that, I guess, was on everybody's mind. But going into Q2, Q3, what's your assessment on the inventory situation at your major customers and resellers in the States on Laundry? Is it still a bit on the high side, likely to impact Q2? Or do you now see that you are sort of on a like-for-like basis, sell-out should be sell-in?

No, no, no. And again, with this customer, we have a really strong relation, and we are discussing all these things. Sales -- external sales are up, order intake is up and stock is going down.

And stock levels are at a normalized level?

Stock level is going down compared to what it was at the end of last year and it is continuously going down. So in this moment, I would say that we don't see a reason to change our expectation for what the market is concerned.

Okay. And then if I can sneak in a final one. Given the turmoil in the global markets, what's your -- what's the likelihood of you being able to engage in M&A now in the next 6 months, you reckon? Has that likelihood gone down on the back of sort of uncertainty and hard for sellers and buyers to meet on price and so forth?

Yes. That is obviously a very good question because M&A is up in our agenda. We are, as usual, working with several companies in different geography, even if remaining focused in our priority. The discussions are still going on and they have not been changing, honestly, on the matter. So then if and when we are coming to a different stage of the discussion, most probably we will see if there are different behaviors. But also in this case, as well as with the discussion with our customer, I don't see a change. I don't see a change yet.

The next question comes from Eliason Johan, Kepler Cheuvreux.

This is Johan at Kepler Cheuvreux. I was just wondering a little bit; I missed the very first part of your presentation. I must excuse myself. But you mentioned on the tariff situation, 12% of total sales, but [ locals ] is actually competing against other imported products. Now you mentioned 6% to 7% is facing local competition. Is that only in Laundry? Or is it also in some [indiscernible] Food and Bev?

No, but yes. By chance, the situation is exactly the same for Laundry and for Food and Beverage. If -- going back to that chart, if you look at that one in Laundry, 15% of the sales -- of the Laundry sales are in North America. So we generate 15% of the total Laundry turnover selling in North America. Out of this 15%, half of it is generated with the models that are the most sophisticated and expensive models that we are producing in Europe, in particular. And with this 50% -- and with this product, we compete against the product that are also produced in Europe. Even the American competitors are producing a similar model in Europe. The remaining 50% of the sales of Laundry in North America are done with products that we produce in Europe or Thailand. And in this case, yes, our competitors are sourcing this product locally. So that was the explanation. If we look at Food and Beverage, where 10% of our sales are imported -- are generated with imported product. 5% are product, in particular, in this case, the beverage that we import from Thailand, and we compete against competitors that are importing this product mainly from China. So in this case, I would say we should have even a competitive advantage more than a disadvantage. Was it clear?

And then -- yes, sorry, did you want to add?

No, I was just asking if I was clear in the explanation.

Yes. No, no, it's perfectly clear. Absolutely. So I was a bit curious on Laundry. You say that the U.S. was down a little bit. Is there no signs of prebuying -- because even though your competitors, they are also on the high end is importing from Europe, there is a tariff today of 10%. Wouldn't there be a logic to do some stuff in the channel right now ahead of this? Or were they too late? Or how should one think about that?

We are discussing this with our distributor, with our partner, planning well the production and the shipment of the product. We have time because eventually, things should change middle of July. But we are planning this one and discussing openly and in a collaborative way with our distributor.

[Operator Instructions]

Operator, I have a question from the web. It's from Stefan Stjernholm now at Handelsbanken. On a group level, was order intake up, down or stable in the quarter?

In the quarter, at group level, the order intake was stable, more or less stable with a different dynamic that we described and with the caveat of what I said about Laundry North America. So excluding that one, I would say that it is growing or it was growing. And the same, I think the important notice is that in April, this trend is confirmed.

Thank you. Please, operator, if there are any more questions?

There are no questions on the phone.

Okay. I have one more question on the web from Henrik Christiansson at Carnegie. Could you quantify the impact on [ EBITA ] of the stronger SEK for the rest of the year? Fabio, if you could elaborate on the SEK impact on EBITA?

I mean, here, first of all, it's very difficult to predict what is going to happen on the currency. But overall, here, we have 2 pieces. We have a piece related to currency translation. And normally, we generate roughly 7% of sales in Sweden. So majority of our sales are reported in outside Sweden, meaning a strengthening of the SEK will have an impact in terms of top line and bottom line in absolute term in terms of translation. Normally and what we have seen historically, the margin is not affected, meaning the impact on top line, bottom line is equal. Now talking specifically about currency, and we have also added a simulation also in the annual report, in particular, if we look at one currency that is very important and relevant for us that is U.S. dollar. We were running a simulation that you see in the material, the annual report, a 10% strengthening of SEK versus U.S. dollar may have an impact of roughly SEK 70 million for the business we generate in United States. This is an order of magnitude. Of course, this is before any corrective action, meaning also in the past, when we have faced currency -- negative currency implication for our business, either on the U.S. dollar or in other currency, we have been very proactively to act to mitigate the impact, in particular with pricing. And I would say, historically, we have been pretty successful in terms of compensating this.

Thank you, Fabio. Are there any more questions?

On the phone, no questions.

Okay. Thank you, operator. With that, I would like to thank you all for listening. Thank you, and have a good day. Goodbye.