Interpump Group S.p.A. (IP) Earnings Call Transcript & Summary

Thanks. This is Federico Pavesi, and I head up IR at Interpump Group. It's good to have you with us on the call covering Interpump's 2026 third quarter financial results, and we're glad you could join as we go through what happened in that quarter. You should know that forward-looking statements are part of this call, and those carry risks and uncertainties that could make actual results come out differently than what we discuss today. Do keep in mind the cautionary language that accompanies our forward-looking statements, which appears in the material handed out today. You can locate it, for instance, in the appendix of the presentation, on slide 30. At this point, I'll turn the conference over to Mr. Marasi, Interpump's CEO.

Thanks, Mr. Pavesi. To begin, I'll walk through our consolidated results on slide two, and those numbers are in line with both our guidance and what we expected. During the third quarter, group sales rose 3.8% organically compared with a year earlier, though the picture differed sharply between our divisions. Hydraulics delivered its fifth straight quarter of positive organic growth — an impressive +8% — whereas Water Jetting posted a year-over-year decline of 4.2%. In a moment I'll return with additional detail on each of those businesses. The consolidated EBITDA margin came in at 22.7% for Q3 2026, just 30 basis points below the prior year, even with the unfavorable mix caused by stronger Hydraulics and softer Water Jetting. That adverse business mix was mostly offset by greater volumes and better capacity utilization in Hydraulics, together with a lean cost base. On top of that, disciplined pricing actions helped make up for inflation in input costs. All in all, our structural efficiency measures stay in place no matter how volumes move. Our diversified model — spanning multiple applications and multiple countries — continues to give us very robust margins amid a dynamic macroeconomic environment, which shows how resilient our business model is. Turning to Q3 EPS, the +21% year-over-year gain came from the operating performance trend just described, a much higher financial income thanks to the earlier-than-expected buyout of the Padoan minority stake, which contributed a positive effect of EUR 6.6 million, a somewhat better tax rate of about 27% in Q3 2026, and a lower share count helped by the buyback we completed at the start of the year. As of the end of September, our net financial position stood negative at EUR 276 million, an improvement of EUR 42 million versus the EUR 318 million recorded one year earlier. That trend was supported by our EUR 77 million of free cash flow in Q3, in line with the quarter's seasonality. Let's now go through the divisions in detail. I'll begin with Hydraulics on slide three. This segment posted its fifth consecutive quarter of organic growth, at 8% in Q3. That marks the strongest growth recorded since the second quarter of 2023, or 7% + 9% across the first nine months. Looking at the Q3 organic trend by application, construction machinery and earth moving showed a double-digit increase, backed by infrastructure and data centers investments. Lifting achieved double-digit growth, once again supported by large-scale project activity. Industrial vehicles grew mid-single digit, as the truck industry overall continues to show some signs of stabilization. Geographically, North America remained among the biggest contributors, with a high teens organic improvement during the quarter. Asia Pacific and South America each rose double digit, while Europe was up low single digit. Growth in Hydraulics stayed well diversified across applications and geographies, which lowers dependence on any single market or project. Hydraulics profitability improved slightly year-over-year, with an EBITDA margin of 20.7%, a very solid result despite the dilution coming from the newly acquired companies. Better margins in valves, PTOs, cylinders, and tanks were more than enough to offset somewhat softer profitability in reduction gears and hoses. Now let's move to the Water Jetting division on slide four. We posted a 4.2% organic decline in the third quarter, partly offset by the Teknoice and MVV acquisitions along with some favorable currency effects. Looking at the Water Jetting applications, food and beverage is still the largest contributor within the division, delivering high single-digit organic growth in Q3 in an industry hit by commodity inflation, with performance differing considerably from region to region. Turning to the weak spot, the double-digit organic decline in Q3 for dealers and contractors was driven mainly by the continued slump in residential activity. Cleaning also recorded a mid-single-digit organic decline in the quarter, reflecting muted customer demand across several end markets. Shipyard and marine remain soft, particularly in Asia, where competition is still present. Geographically, Europe and Asia Pacific each saw a nice single-digit organic decline. In Asia Pacific, we stay disciplined on pricing and concentrate on protecting profitability while we keep supporting our long-term competitive positioning. On the positive side, North America delivered a low single-digit organic increase in the quarter, and Latin America was up too; we managed to keep Water Jetting EBITDA margins above 26%, in line with historical values, despite the weak revenues that weighed on operating leverage. Once again, I want to remind you that our broad diversification is delivering resilient performance at the group level, and this remains one of the defining traits of Interpump Group's business model. The weaker Q3 performance in Water Jetting was offset by the very solid Hydraulics result, which allowed us to grow EBITDA year-over-year and keep an excellent group profitability level, despite the headwinds coming from the business mix and from a volatile macro environment. Margin resilience at Interpump Group continues to reflect our focus on specialized applications, a decentralized operating model, and our ability to take pricing actions when required. Having covered the operating performance, let's now move to the cash flow on slide five. The main driver of our EUR 77 million of free cash flow in Q3 was the solid EBITDA, which we discussed earlier. Trade working capital was another positive contributor in the quarter, helped by sales growth and disciplined working capital management, in line with our target of keeping the cash conversion cycle within a controlled range. Capital expenditures remain at 4% of our sales on a consolidated level, or EUR 22 million in the quarter, consistent with our indications and with our production needs. For 2026, we still expect to invest about EUR 90 million, mostly dedicated to maintenance CapEx. On M&A, at the end of July, we announced the MVV and Teknoice acquisitions. The EUR 33 million cash out you see in the bridge accounts for those two deals and the buyout of the residual stake in Padoan, a purchase that happened in 2025. Our inorganic strategy is confirmed. We’re actively looking at a lot of possible deals that could make our already broad product portfolio even stronger and build more value for shareholders. With 2026 nearly here, we’re still reviewing a solid pipeline of opportunities, though it’s hard to say exactly when transactions will happen. Our priorities for allocating capital haven’t changed: we invest in the business, we pursue acquisitions that create value, and we return extra cash to shareholders when it makes sense. Turning to the 2026 outlook on slide six, we’re repeating the targets we gave in August. For group sales, we expect organic growth of between +1% and +3%. Since we’re close to year end, we feel more confident about the mid-upper part of that range. Announced acquisitions should add roughly another 2.5% to group sales in 2026. On profitability, we forecast an EBITDA margin of between 22% and 22.5%. The different business mix we’ve seen so far, with Hydraulics stronger and Water Jetting weaker, puts us at the lower end of that range. On cash, we confirm our goal of consolidating the free cash flow we achieved in 2025. Let me close the call with a few thoughts about the near future. Demand conditions are still mixed across end markets and geographies, and customers continue to take a cautious approach to capital spending and decisions.

On the whole, industrial activity is still holding up, though how far ahead we can see stays restricted because of the macroeconomic and geopolitical uncertainty that continues. Our order book is still broadly in line with sales for the quarter, which keeps backlog at a healthy level across both divisions and gives us support for near-term visibility. The underlying fundamentals are still supportive, yet order patterns keep showing selective caution among customers and decision cycles that take longer. According to the preliminary industry outlook, a few companies indicated that certain applications might see growth in 2027, though quantifying that now would be premature. Energy and inflation pressures in Q3 2026 are wider and more persistent than we anticipated at the start of the year, with the Middle East conflict serving as the main catalyst. Across our businesses, the prevailing pattern is passing those extra costs through in pricing. Among the input cost inflation components, the ones most affected are freight, raw materials, and energy. At present, we expect energy and transport cost inflation to last through full year 2026 and into 2027. As in the past, our aim is to fully offset any additional cost inflation by passing any additional cost on to final customers, which lets us keep margins amid the uncertain geopolitical environment and a volatile supply chain. Broadly, the October sales trend gives clear support to our full year 2026 forecast. Given the visibility we have now, allow me to describe the coming quarter for both businesses on an organic basis. In Hydraulics, the organic trend in Q4 should stay broadly consistent with recent quarters, since most applications are developing in line with what occurred over the past quarters; in Water Jetting, the environment is expected to stay uneven across applications, but I think Interpump is well-positioned to benefit as industrial demand gradually normalizes. On M&A, we stay fully committed to our long-term ambitions of being a leading consolidator in our industry, bringing together complementary businesses across hydraulics, flow handling, and food processing. We believe our strong industrial footprint, know-how, and global reach, together with proven integration capabilities, put us in a good position to keep driving consolidation in these attractive applications. Interpump remains an attractive long-term industrial owner for specialized businesses that are seeking a global platform and operational support. We stayed highly disciplined on acquisition multiples. Over the years, we have chosen to walk away from opportunities rather than overpay. Essentially, every deal we completed happened when valuations became aligned with industrial fundamentals. That concludes our prepared remarks; we can now take questions from the audience.

Thank you. Thanks a lot. Good afternoon, everyone. I'll start with the order intake. Fabio, you said the attitude among some of your customers is somewhat uneven — stronger in certain segments, weaker in others, and it also varies by geography. What I'd like to ask is whether you could comment on the order intake, or if you prefer, on how the backlog evolved at the end of September versus the end of Q2. Thanks; that's my first question. Then, if I understood correctly, organic growth in Q4 should stay solid, holding at a level similar to Q3 and Q4. Could you comment on whether that's right, with Water Jetting still negative, perhaps somewhat less so than in Q3? Just to say whether that seems reasonable or not; then I have a question about Teknoice. Actually, the Teknoice acquisition was announced before the Q2 release, wasn't it? Because it was at the end of July. My question is how it fits overall with the Water Jetting business, starting from a low margin of 14%, so roughly half of the divisional level. Do you perhaps have a three-year business plan for the subsidiary and some sort of target margin three years from now? Thanks.

Thank you, Matteo. On Water Jetting — sorry, on order intake for the quarter, I can confirm that Hydraulics is accelerating while Water Jetting is lagging behind somewhat because of the missing large projects we have discussed in previous quarters. Broadly speaking, what we have also observed in recent weeks is that demand for Hydraulics globally remains very solid, very strong, and we expect pretty important organic growth in the fourth quarter as well. But we also expect growth in Water Jetting in the fourth quarter, given what we have seen in terms of order intake. And the order backlog in previous quarters. Since Q1 I have been saying that order intake in Water Jetting was well beyond one pair, and we are confident that in the fourth quarter we will deliver positive organic growth in Water Jetting too. Turning to your question on Teknoice, it is important to stress that Teknoice is a company very exposed to large orders, because Teknoice builds large projects in ice cream manufacturing plants, and maintenance and after-sales account for approximately 20% of its sales, while the vast majority of its sales comes from orders or large orders for new equipment for ice cream manufacturing. I do not think it is worthwhile to analyze monthly or quarterly performance. It is much better to look at yearly results in terms of turnover, but more importantly, in terms of order intake and order backlog. Let me point out that the multiple we paid was very, very attractive — roughly 5x EBIT for the Teknoice business, which complements and expands our scope in the flow handling and food processing vertical.

Thanks.

Good afternoon, everyone. The first point is still about Water Jetting. In light of the comments, I'd like to start by returning to what you said about dealers and contractors. I assume that's within Water Jetting, so on the double-digit decline, could you expand a bit more on what's driving that weakness? Second, if you believe — still preliminary — but if you believe the current trend points to a possible risk of lower sales in 2027. Then, a follow-up on Teknoice, just to understand whether there is. I realize looking at a single quarter isn't the relevant way to see it, but on a full-year basis, you mentioned EUR 30 million in sales around last year. So is that still the case, or should this kind of volatility from the big orders lead us to take a more cautious view? The question on Matteo was also about the path to profitability. Is this a business that can get to the division's profitability, or is it structurally different when it comes to underlying medium-term profitability?

Thank you, Domenico. As for what we expect for 2027, I think it's fair, even if it's too early, to say that we anticipate a positive evolution in Water Jetting in 2027, given the order intake and order backlog we see today, and given the easier comparison base, especially in the first couple of quarters, in the first half of 2027, versus what happened this year. On Teknoice, we confirm the EUR 30 million per year business in terms of top line, and we also confirm that we expect the EBITDA margin of the business — the EBITDA margin of the company — if viewed on a midterm perspective, will not match the spectacular profitability of the Water Jetting and Flow Handling division, 26%, 27%; we believe it will be achievable to have at least 20% EBITDA margin for the business. That will more than justify the price we have paid and the synergies we expect from the business acquisition.

All right. If I could just ask one more thing, it concerns Hydraulics profitability. I had anticipated somewhat greater operating leverage, given that, fine, this is the second year running, so you've been posting growth of nearly double digits or high single digits. There's still room on margin, though it isn't material. Could you say more about that?

Sure, absolutely. The 20.8% in the third quarter is a good figure, since we need to keep in mind that inside the Hydraulics division too, we have a blend of various businesses at differing profitability levels. What we've observed is a recovery in certain businesses whose profitability is comparatively lower than the group average. What we're seeing is that top-line growth in the Hydraulics division is speeding up. What we delivered in the third quarter, an 8% organic growth rate, is very reassuring, together with the order intake and the order backlog at quarter end. When we look ahead to the fourth quarter and the pace of entry into 2027, we are especially pleased with the recovery of the Hydraulics division following two very difficult years, 2024 and 2025.

Thanks.

Are you able to hear me at this point?

Yes, thank you. Apologies for that. Good afternoon, everybody, and I appreciate you taking my question. There are three things I'd like to ask. First, returning once more to Hydraulics and that sequential gain in organic growth: do you see that as driven purely by underlying demand strengthening? Could you remind us where things stand with the destocking cycle? That's my first one. My second question concerns Water Jetting and the order book you mentioned. When it comes to the improvement into 2027, are any large projects included in that, or is that still ahead?

Thanks, Natasha, for those questions. On Hydraulics, the sequential gain in organic growth strikes us as quite reassuring, and it's especially encouraging that this pattern keeps firming up quarter after quarter—obviously with varying contributions across applications and across geographies. On prior calls we've noted Asia performing spectacularly, America and the U.S. very strong, and Europe still trailing. Geographically, then, the picture is mixed. On the business side, demand and contribution are very strong in the pure Hydraulics operations and the pure off-highway applications, whereas certain other applications—truck and truck outfitters especially—are somewhat behind. Looking at consolidated demand for the Hydraulics division as a whole, we're confident that as we enter 2027—or when we do enter it—we'll have the right speed and the right order backlog. On the destocking and inventory management side from our customers: following three really tough years, we aren't seeing any specific strategies or especially aggressive destocking moves by them, and as we head toward the close of this year we anticipate normal patterns and normal behavior. Turning to Water Jetting — if we consider the growth anticipated for 2027, we think the delays to large projects and the delayed discussions that showed up in 2026 will come to fruition and will feed into the organic growth we're expecting next year, which will be announced and discussed on a future occasion, notably in February of next year when we announce the 2027 growth target. On pricing—which matters a great deal for Hydraulics—I'm especially glad to report that the leading rivals and key industry participants are showing discipline. Any significant price hike is being passed along by all of them to the final buyer. They did the same previously. That's part of why we have once more been able to protect our margins amid inflation, in an inflationary setting.

Thanks.

Yes, hello. Good evening, everyone. Fabio, I've got two questions for you. First, as you said earlier, you're getting a really strong contribution from certain subdivisions within Hydraulics, such as the base. Could you say a bit about how some of the subsidiaries are contributing? I'm definitely thinking of Walvoil, which makes up a large portion of hydraulic sales, but also whether you could comment a little on how White Drive is performing given this improving demand environment. That's my first question. Thanks.

Thank you. <<foreign_lang>>, Alessandro. You're giving me the chance to highlight how the recovery from pure off-highway application, and from the companies most exposed to it, is especially significant — I mean Walvoil, White Drive, and some businesses in cylinders or also the Hose Fittings business. As you know, since we've said this many times, in the downturn that marked 2024 and 2025 across Hydraulics generally, we saw some resiliency coming out of trucks and truck outfitters application, whereas pure off-highway was hurting badly. What we're seeing in 2026, and what we're seeing in these quarters and these weeks, is that off-highway application and the companies most exposed to off-highway application are the very ones gaining the most from the demand recovery; so it's fair to say that Walvoil, White Drive, Hose Fittings, and the Pure Cylinder companies are growing the most in this environment.