KION GROUP AG (KGX) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the KION GROUP quarter 3 2026 update conference call and live webcast. I am Chloe, the conference call -- Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rob Smith. Please go ahead.

Thank you, Chloe. Good afternoon, ladies and gentlemen, and welcome to our update call and our webcast on the Q3 2026 results. Please refer to our update call presentation on our IR website if you're joining by telephone. I'm going to start with a quick summary of the third quarter and some recent business developments, and Christian will then take you through the detailed Q3 financials and talk about our outlook for 2026, which we updated on October 14. Then I'll be back with some key takeaways, and we'll start the Q&A session. Let's start on Page 3. Order intake was EUR 2.7 billion, 1% lower versus last year. This was driven by ITS where order intake in EMEA fell behind our expectations as well as market growth, especially in the value and the economy truck segments. In contrast, we're showing outperformance in APAC, particularly in China, which shows that we can succeed in a very competitive market environment. It also shows that we need to further leverage our existing capabilities in China even more to reverse the developments in EMEA. Revenue was up 5% to EUR 2.8 billion, driven by both segments. Adjusted EBIT increased 7% to EUR 203 million, driven by IAS. And the adjusted EBIT margin was 7.2%. Free cash flow was positive at EUR 99 million and included cash out for M&A. With physical AI, KION is creating measurable value in real supply chain operations. Artificial intelligence, digital twins, autonomous vehicles and technology partnerships help customers deploy automation faster, improve safety and boost performance. At GXO's site in Epinoy, France, KION has integrated autonomous vehicles into daily warehouse operations. The deployment reduced on-site implementation time by more than 60%. And with further new AI capabilities, we expect to further reduce implementation time beyond that point. KION used AI-powered digital twins and simulation technologies to test, validate and optimize autonomous systems before the physical deployment. This cuts commissioning time from weeks to just a few days. KION is working with NVIDIA on AI-based safety concepts using the NVIDIA Halos blueprint to support safe operation of autonomous vehicles alongside warehouse staff. We're collaborating with NVIDIA, Accenture and other partners to combine expertise in simulation, computing, spatial intelligence, perception and autonomous operations. At our ROSSMANN regional warehouse, KION delivered the Robotic Case Picker in October 2026. The AI-enabled autonomous truck identifies, picks and stacks packages in a challenging commissioning environment. Following strong pilot results, ROSSMANN is increasing the on-site fleet.

So let me take over then. Let's go to Slide 6 for the key financials for the ITS segment. Order intake in units in the third quarter 2026 increased by 13% and was mainly driven by warehouse equipment and regionally, the APAC and Americas. Order intake in value terms was 1% lower year-on-year. Service growth of 5% almost entirely compensated for the mix-driven 9% lower new truck orders. Revenue increased 1% year-over-year. Service growth of 4% more than compensated for the 3% lower new truck revenue. Adjusted EBIT reached EUR 163 million, mainly due to lower capacity utilization and adverse currency exchange effects, offsetting savings from the efficiency program and lower expenses for long-term incentive programs. The adjusted EBIT margin was 8.3%. I will now continue on Page 7, which summarizes the key financials for IAS. Order intake showed a slight increase of 1%, driven by a 7% growth in services, which benefited from a double-digit increase in modernizations and upgrades in particular. Orders from the pureplay e-commerce vertical more than doubled and accounted for 61% of business solutions orders. IAS also grew its orders in the general merchandise and apparel verticals. Overall, revenue increased by 16% year-over-year due to higher order intake in recent quarters and driven by a 22% growth in business solutions. Service revenue increased by 8%. Adjusted EBIT showed a strong increase of 39% year-over-year to EUR 66 million, and the adjusted EBIT margin increased by 120 basis points to 7.4%. Higher revenues as well as lower expenses from long-term incentive programs contributed to the increase in profitability. Now let's quickly run through the key financials for the group on Page 8. Order intake reflects the development in the two operating segments. Revenue growth of 5% was driven by both operating segments. Adjusted EBIT increased 7% to EUR 203 million, corresponding to an adjusted EBIT margin of 7.2%. The profitability improvement was driven by the IAS segment and slightly lower expenses in the corporate services and consolidation line. Page 9 shows the reconciliation from adjusted EBITDA to group net income. The only thing that may stand out here is the asymmetrical development in the earnings before and after tax. This is due to the unusually low tax rate in the prior year quarter. Last year, there was a benefit from a onetime revaluation of deferred tax liabilities resulting from Germany's federal government's decision in June 2025 to reduce the corporate income tax rate starting in 2028. Let's now continue with the free cash flow statement on Page 10. Free cash flow in the quarter reached EUR 99 million. The increase in net working capital is due to higher trade receivables in IAS from outstanding milestone payments. A large part of these receivables are expected to be paid by the end of this year. Free cash flow included EUR 53 million M&A cashout, especially for the 70% stake in Smart Innovation NV and the strategic expansion of the portfolio of product solutions for warehouse automation and supply chain robotics. Moving on to Page 11, which shows the development of net financial debt and our leverage ratios. Please let me remind you that beginning June 30, 2026, the calculation of industrial net operating debt was adjusted and deducts the EUR 495 million financial debt used for the refinancing of the leasing business that is included in the net financial debt. We had a slight decrease in net debt and in the INOD as of September 30. Leverage ratios remained unchanged compared to the level as of June 30. Slide 13 then lays out our updated guidance for fiscal year 2026, which we published on October 14. For ITS, we have lowered the midpoint of the guidance range based mainly on the order intake in the third quarter and its expected impact on Q4 revenues as well as on the adjusted EBIT. We expect revenue between EUR 8.1 billion and EUR 8.3 billion and adjusted EBIT between EUR 690 million and EUR 740 million in the full year 2026. For IAS, we have narrowed the guidance brackets based on better visibility on the remaining weeks of the year. We expect revenue between EUR 3.35 billion and EUR 3.45 billion and adjusted EBIT between EUR 230 million and EUR 250 million for the full year 2026. For KION, this results in narrowed guidance ranges with lower midpoints in all outlook metrics. Please note that also the slide on the housekeeping items in the appendix, you will find that we have made a minor adjustment to our full year expectations for nonrecurring items. With that, I hand back to Rob for our key takeaways.

Thank you, Christian. Let's turn to Page 14 to our key takeaways. KION grew revenue and adjusted EBIT in the third quarter of 2026. Our IAS segment showed another strong quarter with double-digit growth in revenue as well as adjusted EBIT and developed in line with our profitable growth strategy. Order intake in ITS segment remained below expectations in EMEA, especially in the value and economy truck segments, while APAC showed strong performance. This shows that we can succeed in a competitive market. It also shows we need to further leverage our existing capabilities in China even more to reverse the developments in EMEA. With 9 months in 2026 behind us and increased visibility on the remaining weeks of the year, we've narrowed and lowered our guidance ranges for revenue, adjusted EBIT, ROCE and free cash flow. This concludes our presentation. Thank you for your interest, and now we're looking forward to taking your questions. Back to you, Chloe. Let's open the line, please, for Q&A.

[Operator Instructions] The first question comes from the line of Sven Weier from UBS.

So I'll start with the first one is on the truck EBIT. When I take the midpoint of the new guidance, we are down slightly year-on-year despite the fact that you had more than EUR 100 million of cost savings and double-digit help from the share price. I was just wondering, if I look into next year, you don't have these factors probably from today's point of view. Does it mean that we should prepare ourselves for a declining EBIT next year? Or what could be the potential countermeasures? That's the first one.

So Sven, you make a reference now in terms of the development of the EBIT and also the adaptation of the outlook as we have published that a few weeks ago, right? Now if I look at that and I look at sort of the implied margin, as we have shown that gives sort of the view that we have at -- in today's perspective and it gives our best view. We would actually not expect for ITS in 2027 that the adjusted EBIT margin that we are showing for the fourth quarter would differ actually from what we have now in the implied exit for the fourth quarter. So that gives our view in -- from this perspective and reflects our view as we see it at this point.

So basically, this like 8.5% exit rate is also a fair assumption for next year from today's point of view?

As I said, from today's perspective, we would not expect an improvement from that exit rate that you rightly referred to as an implied rate for Q4.

And what do you do about the risk of a decline? Because, as I said, this year, you had this huge tailwind from cost savings and the share price. What other measures do you have to mitigate then next year instead of those?

Sven, let me pick that up. And let me step back just a second and talk about the order intake and growing in the EMEA market not as fast as the market's going. And then let me talk about some countermeasures. But let's differentiate the answer by market segment. And let's start in the premium segment. In the premium segment, we kept our pricing discipline in the third quarter and have positive price assertion to show for that. On the other hand, the negative impact it had was on order intake, which lagged behind the market. In the value and eco segment, it's clear we're not sufficiently addressing the value and eco segment in EMEA, and this is where the market did grow the fastest. So now, what are we doing about that? In the premium segment, we'll be very carefully reviewing the full portfolio of sales measures, including pricing, to ensure competitiveness in that premium market. And for the value and eco segment, Sven, our outperformance in China is proof that we have the right capabilities, and we are able to perform and even outperform in the most competitive market in the world. So what we need to do is further leverage our own China capabilities to grow the market share in EMEA.

And maybe just to follow up on that when we think about the counterbalance trucks because, when we look at other industrial companies, some companies have started to benefit from economic upswing in Germany in Q3, I think your counterbalance truck numbers have not shown it yet. I mean, is it still a utilization problem of your clients that the utilization is still not high enough to buy new counterbalance trucks? And what you reckon out of your service activities, how far are we from that point that they start to buy new counterbalance trucks?

Sven, let's be clear, the market grew. And our performance, we kept our pricing discipline in the third quarter in the premium segment, and we have good price assertion to demonstrate that. But we didn't get an increase in order intake year-on-year. Do we get counterbalanced orders? Sure, we did, but we didn't get a year-on-year growth. As we reevaluate all the different commercial measures, including pricing, we expect that we will be very competitive in that market, and we expect that we'll be growing with the growing market, which, as you point out, is indeed growing. It's actually growing in each of the regions, including EMEA.

Now I have a question from the line of Fangmann Tore from Bank of America.

Two from my side. The first is on your strategy in ITS. It sounds to me like you're aiming to import more from your own Chinese plant into Europe. And my question here would be, how long would it take for you to see a positive impact or like a change to the growth versus the European market that's from your side?

Good question. You picked it up -- picked up on that right. We expect we will be ramping up the production of our China factory footprint even further, and we'll be using that to be addressing the value in eco segment in EMEA. And I would expect you'll be seeing impact there during the course of next year.

I appreciate this. And then second question would be a little bit on the pricing, pricing strategy here. Could you comment on how you currently see inflation impacting your business? And at the same time, how are you seeing your own pricing strategy? Are you pricing through? Or are you rather tapping this a little bit more similar to one of your European competitors with selective price decreases? And then, just as a clarification, following up on Sven's question here, did I understand correctly that you would say it's fair that the 8.5% EBIT margin from Q4 is a rate that you could see in 2027 as well?

So let me dissect your question a bit, Tore, right, into the different pieces, right? I mean the one element you started with costing. The question was sort of how do we see costing, right? And so basically, what we've seen in the course of the third quarter, the costing impact that we've also identified as a potential consequence out of the Iran War so started to hit us, but a bit slower than we initially expected when we put the price increase in April into place. But in the course of the third quarter, as expected, impact started to hit us. We've talked about it initially. We obviously had the direct consequences of freight costs and fuel costs and so on. But now it also comes through with some selective material costs. So that's starting to hit us. However, I want to reiterate what Rob just said before, right, because we've put that price increase in April in place. And so far, we have actually maintained that and asserted that price increase in our order intake. So basically, we were covering the cost development that we are having, but obviously, that has a consequence on the order intake. Now your third element was just a follow-up question, I think, to the one from Sven. And again, just let me repeat here. From today's perspective, I think the exit rate from the first quarter is what we also would see going forward. We would not have an indication right now for anything different than that.

We now have a question from the line of Akash Gupta from JPMorgan.

I have two as well. My first one is on restructuring. I was a bit surprised that you lowered your guidance for full year restructuring, while I think a lot of people were anticipating you might increase a step-up restructuring to optimize your cost base further. So maybe if you can talk about what drove that change? Is it because people are leaving on their own or maybe you are more optimistic on recovery? So yeah, thoughts on what's driving this change in restructuring charges this year? That's first one.

So you make the reference to the change in nonrecurring items in the appendix. Basically now like, every quarter, basically, we will make an assessment. We also made an assessment after now 3 quarters of the year for the remainder of the year and sort of the assessment came -- we came to the conclusion that we actually don't need the nonrecurring items as such as we had prior in our housekeeping [indiscernible] we don't need that for the remainder of this year. And maybe, Rob, do you want to add on?

Yes, Akash. Good questions. Appreciate that. Look, as I just described, we've got a review underway of the full measures of different sales measures we can take, the full portfolio of those, including pricing, to ensure competitiveness in the market. And we need to see how effective these different measures are going to be and how that's driving the demand. And based on that, we will continue to do what we always do, which is be very focused on cost. You're right, we did complete the efficiency program in 2025. It delivered sustainable indirect cost savings of about $150 million per year by changing organizational structures and business processes focused in the ITS segment in the EMEA region. And we continue to review our efficiency and continue to drive our efficiency and review the cost structure in all footprint elements, Akash. So we'll continue to do that.

And my second question is on the portfolio. I think when we look at your portfolio, you have a business -- forklift business where I think a lot of people in the market see some structural headwinds. On the other hand, you have a portfolio of warehouse automation business where I think when we look at some of the peers, they have traded quite well this year and outlook is quite different. And when we look at current share price, it looks like you are not getting benefit of some of the growth prospects in warehouse automation that we see ahead of us. So the question is that, if this low valuation persists, would you be more open to also look at the structure of the company or that is not going to be on the agenda?

Good question. Look, what you're actually asking is all the rest of the analysts to start doing the sum-of-the-parts analysis, which we would highly encourage as a matter of fact. Because we see clear growth in both of our segments, and we see a very exciting orchestration capability to help our customers benefit from KION solutions, whether it's in fully mechanized start-up and flexible automation, large-scale automation all the way up to lights out automation. And most of our customers have in their footprint that entire portfolio of automation needs. And so our addressing those automation needs across the full portfolio with a very strong orchestration capability is a fundamental part of KION becoming the supply chain solutions company. And we're clearly on that route, and we are excited about the journey we're on and the prospects it has for us and for our share price and for our shareholders.

A question from the line of Gael de-Bray from Deutsche Bank.

As you've been losing market share in the premium segment in Europe, it's pretty obvious, right, that you've priced yourself up a bit too much. So the question, I guess, is by how much? I mean, what could be the magnitude of the pricing concessions you're ready to make to regain the loss of ground?

You see -- you got to be kidding, Gael. Come on now. Look, we're reviewing all our commercial measures. We're looking at the whole portfolio, also including pricing, but it's a very competitive market and we're going to be competitive in that market. We did sell trucks in the third quarter. We just didn't grow year-on-year as fast as the market shall. We'll continue to sell significant trucks in the fourth quarter and going beyond in the next year or 2, and we'll be calibrating to make sure that we're doing that and taking advantage of a market tailwind.

So let me try perhaps maybe from a different perspective. So then, I mean it -- I suspect you need obviously a new round of cost-cutting initiatives to achieve the medium-term margin objective of about 10% for the ITS division. So how long do you think you need to sort of prepare a more comprehensive plan to get back to the 10% margin level? I mean could you elaborate perhaps on what can be done to further reduce the breakeven point?

So Gael, you're asking a really good question about the midterm targets here. And I'm looking forward to addressing that one, and I appreciate you bringing it up. Look, our IAS segment is improving. The improving performance in our IAS segment is on a very good way. And for our ITS segment, as our measures gain traction, we'll be back in position to be talking about the timing for the updated midterm targets -- for the midterm targets. So as we get that traction and as we bring that traction in the ITS segment, we'll be back talking about the timing for delivering on our midterm targets.

I have a question from the line of Philippe Lorrain from Bernstein.

I wanted to follow up a little bit on the order intake trend in ITS in Q3. How do you reconcile the fact that units were up 13% year-on-year, that it was driven, of course, by warehouse equipment, but also to some extent by e-trucks, i.e., counterbalance trucks that were also up 13% year-on-year. Yet the new business order intake was down 9%. So that's a pretty steep gap that we have between plus 13% and minus 9%. I understand that there are mix impacts and so on and so forth, but I would like to get a bit more color on that piece.

No, Philippe, I take that fair enough, right? A very good question, and I think that's on many people's minds, right? So very obvious here. I think the word that I'm going to use repeatedly now is mix, right? Because basically, that's what we have. But we don't just have one mix. We actually have several mixes overlaying each other and all playing into the development that we have seen. The first one is actually a regional mix in the third quarter, right? Because basically, we've seen a very different development in the third quarter in the growth versus last year, versus prior year from our 2 largest regions, EMEA and APAC. And so the share of EMEA this year in the third quarter and the order intake is significantly lower than the share was a year before. So that's the regional mix because we were growing in APAC actually pretty well, and we had a comparatively low growth year-on-year in EMEA. The second one is, and we have been talking about for a while now is the product mix, which is basically, again, a growing share of the warehouse entry-level trucks that have a significantly lower price point compared to the entire portfolio, and that share again grew. The third element, and that comes back, if you just think back in terms of also the initial statements that also Rob did, I think we need to understand the segments in the market, right, and the price segments in the market. We have a premium segment, we have a value in the eco segment that also command different price points. And they -- and we have that not just in Europe, we actually have that in the different markets. So that's the third mix element. We actually have seen significant growth also in the lower -- the, value eco segments, but again, than in APAC. And if you combine all those elements, the result then is that basically in value terms, we have a significantly different development than we have on the -- in unit terms.

So maybe a follow-up on that. First, did you have significant impact as well from the rental fleet ordering into -- and leading to volumes, but no monetary impact and maybe as well from the partnership that you have with EV equipment? So has this been also distorting the picture or not really?

No, that has not a major impact.

And the last follow-up on that, and I'll be back in the queue, is would you expect that negative combination of mixes at different levels, so to say, to continue also in Q4 and maybe up to Q2 next year because that's when we really started to have this very, very big headwinds.