D-Wave Quantum falls nearly 3% as earnings miss overshadows revenue beat
Introduction & Market Context
AQ Group AB reported mixed first-quarter 2025 results on April 23, with revenue growth driven entirely by acquisitions while organic sales declined. The Swedish industrial manufacturer, which specializes in component manufacturing for demanding industrial customers, continues to benefit from strong performance in electrification, railway, and defense sectors while facing headwinds in construction equipment, trucks, and agriculture markets.
The company’s stock (STO:AQ) closed at SEK 137.90 on April 22, 2025, down 0.51% ahead of the earnings presentation. The shares have traded between SEK 114.80 and SEK 179.76 over the past 52 weeks.
Quarterly Performance Highlights
AQ Group reported a 3% increase in net sales to SEK 2,290 million for Q1 2025, compared to SEK 2,225 million in the same period last year. However, profitability metrics declined across the board, with operating profit (EBIT) decreasing by 4% to SEK 215 million and profit after financial items (EBT) falling by 7% to SEK 205 million.
The company’s profit margin before tax contracted to 8.9% from 9.9% in Q1 2024, while earnings per share before dilution decreased to SEK 1.81 from SEK 2.01. Despite these challenges, AQ Group maintained strong cash flow from operating activities at SEK 244 million, unchanged from the previous year.
As shown in the following quarterly performance summary:
The company’s growth was entirely driven by acquisitions, which contributed 8% to revenue growth, while organic growth was negative at -5% and currency effects were neutral. This highlights AQ Group’s continued reliance on its acquisition strategy to drive expansion in a challenging market environment.
Acquisition Strategy
AQ Group’s acquisition-driven growth strategy remains a key focus, with recent additions of Mdexx in the Czech Republic and Michael Riedel Trafobau in Germany contributing significantly to the company’s performance. These acquisitions helped the company achieve 8% acquired growth in Q1 2025, offsetting the organic sales decline.
The following chart illustrates the company’s acquired growth trajectory:
However, the integration of these acquisitions presents challenges. According to the presentation, Mdexx’s margin is below 0%, diluting the group’s overall margin by approximately 0.5% in the quarter. The company expects margin improvements to begin in Q2 2025, with plans to refinance factoring arrangements and implement new IT systems by Q3.
As detailed in the acquisition update:
Long-Term Financial Performance
Despite the quarterly challenges, AQ Group continues to emphasize its long-term track record of consistent growth and profitability. The company has maintained profit every quarter since its foundation in 1994 and has achieved an impressive 14% compound annual growth rate (CAGR) in earnings per share over the past decade.
The presentation highlighted this long-term performance as a key investment thesis:
This consistent growth has enabled AQ Group to increase its dividend, with a proposed payout of SEK 1.60 per share for 2024, representing a 20% increase from the previous year’s SEK 1.33. The company’s dividend growth is illustrated in the following chart:
Operational Challenges
AQ Group faces several operational challenges that were addressed in the presentation. The company’s inventory turnover stands at 2.9 turns per year, below the target of 3.5, indicating room for improvement in working capital management. Recent acquisitions have negatively impacted this metric, and the company has ongoing improvement projects focused on operations in Bulgaria, Canada, UK, India, and Mexico.
The inventory situation is illustrated in this chart:
On-time delivery performance, while improving to 94% from 93% in the previous year, remains below the company’s 98% target. The presentation noted capacity constraints in several facilities, including Rockford, JIT Mech, Transformer Solutions (US), and Inductives Hungary, as well as ongoing delivery challenges in India.
The quality and delivery metrics are shown here:
Market Segment Performance
AQ Group reported divergent performance across its market segments. The company continues to see low demand from construction equipment, trucks, buses, agriculture, and food equipment customers, particularly in Europe, though it noted some improvement toward the end of the quarter.
In contrast, volumes remain strong in electrification, railway, and defense sectors. The company highlighted a new contract from a major electrification customer for transformers and inductors for medium-voltage data centers, worth a minimum of 10 million euros over three years.
The quarterly sales development by segment is illustrated in this chart:
Strategic Initiatives
AQ Group emphasized its strategy of local production near customer facilities to reduce logistics costs, tariffs, and improve collaboration. This approach aligns with the company’s goal of being "a reliable growing partner for demanding industrial customers."
The company also highlighted recent new customer and project wins, including components for electric vehicles and data centers, which are expected to contribute to future growth. These new business developments are particularly important given the organic growth challenges the company currently faces.
Forward-Looking Statements
Looking ahead, AQ Group maintains its long-term goals of over 15% annual growth and an EBT margin exceeding 8%. While the company has consistently achieved its margin target for nine consecutive quarters, the growth target remains challenging in the current market environment.
The company’s EBT margin development is shown here:
AQ Group expects to see sequential improvement in the performance of its recent acquisitions starting in Q2 2025, with integration of Mdexx Weyhe planned for completion by the end of 2025. The company also anticipates continued strong performance in its electrification, railway, and defense segments, which should help offset weakness in other areas.
The company’s strong balance sheet, with a net cash position of SEK 253 million including IFRS 16 adjustments, provides financial flexibility to pursue further acquisitions and investments as opportunities arise.
In summary, while AQ Group faces near-term challenges with organic growth and acquisition integration, its long-term growth trajectory, strong cash position, and exposure to growing industrial segments position it to weather the current market environment and potentially emerge stronger as conditions improve.
Full presentation:
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