Earnings call transcript: AQ Group Q1 2025 misses EPS forecast, stock rises

AQ Group AB reported its first-quarter 2025 financial results, revealing earnings per share (EPS) of SEK 1.81, which fell short of the forecasted SEK 1.83. Despite the earnings miss, the company’s stock rose by 3.63% to SEK 142.90 in pre-market trading. This increase follows a series of strategic initiatives and positive market sentiment driven by strong demand in key sectors. According to InvestingPro data, AQ Group maintains impressive gross profit margins of 50.2% and boasts a "GREAT" financial health score of 3.19, suggesting strong operational efficiency. InvestingPro analysis indicates the stock is currently trading above its Fair Value.

Key Takeaways

• AQ Group’s EPS of SEK 1.81 missed the forecast of SEK 1.83.
• Stock price increased by 3.63% in pre-market trading.
• Net sales rose by 3% to SEK 3 billion.
• Strong demand in electrification, railway, and defense sectors.
• Proposed dividend increase by 20% to SEK 1.6 per share.

Company Performance

AQ Group’s overall performance in Q1 2025 showed resilience despite missing EPS expectations. The company achieved a 3% increase in net sales, reaching SEK 3 billion, driven by robust demand in electrification, railway, and defense sectors. With a market capitalization of $1.37 billion and a strong current ratio of 3.03, InvestingPro data reveals the company holds more cash than debt on its balance sheet, positioning it well for future growth. Subscribers to InvestingPro can access 8 additional key insights about AQ Group’s financial position and growth prospects. However, operating profit (EBIT) decreased by 4% to SEK 215 million, and profit after financial items decreased by 7% to SEK 205 million. The profit margin before tax remained strong at 8.9%, surpassing the company’s target of 8%.

Financial Highlights

• Revenue: SEK 3 billion, up 3% year-over-year.
• Earnings per share: SEK 1.81, down from SEK 2.01 last year.
• Operating profit (EBIT): SEK 215 million, a 4% decrease.
• Proposed dividend: SEK 1.6 per share, a 20% increase.

Earnings vs. Forecast

AQ Group’s EPS of SEK 1.81 fell short of the forecasted SEK 1.83, marking a minor miss. Revenue also came in below expectations at SEK 2.13 billion compared to the forecasted SEK 2.29 billion. The earnings miss is relatively small compared to previous quarters, where the company has shown consistent growth.

Market Reaction

Despite the earnings miss, AQ Group’s stock rose by 3.63% in pre-market trading, reaching SEK 142.90. This increase suggests that investors are optimistic about the company’s strategic direction and growth prospects, particularly in high-demand sectors like electrification and defense. Trading at a P/E ratio of 19.26, InvestingPro analysis shows the stock is trading at a premium relative to near-term earnings growth. Get access to the comprehensive Pro Research Report, available for AQ Group and 1,400+ other stocks, to understand the full valuation picture and growth potential. The stock’s movement is notable given its 52-week range between SEK 114.8 and SEK 179.76.

Outlook & Guidance

Looking ahead, AQ Group is targeting 15% annual top-line growth and aims to increase earnings per share annually. The company expects continued strength in its key sectors, including electrification, railway, and defense. Future guidance suggests potential organic growth for the full year, supported by customer plans and strategic initiatives.

Executive Commentary

CEO Oguyen highlighted the company’s strategic focus, stating, "We have grown earnings per share 14% over the past ten years." He also emphasized the importance of local operations: "We like to buy local, we like to produce local and we like to sell local." Oguyen’s remarks underscore AQ Group’s commitment to sustainable growth and market adaptability.

Risks and Challenges

• Weak demand in construction equipment, trucks, and buses.
• Decreased organic sales by 5%.
• Inventory turnover remains below target at 2.9.
• Global market volatility and macroeconomic pressures.
• Integration challenges from recent acquisitions.

Q&A

During the earnings call, analysts inquired about regional demand variations and personnel reductions. The management clarified that the defense market segment represents around 5% of sales and discussed the company’s M&A strategy, indicating potential future acquisitions to support growth.

AQ Group’s Q1 2025 earnings call revealed both challenges and opportunities, with the company poised to capitalize on strong sector demand and strategic initiatives despite a minor earnings miss.

Full transcript - AQ Group AB (AQ) Q1 2025:

Oguyen, CEO/Presenter, AQ Group: Okay. It’s 09:00. Welcome to the EK Group Quarter One Investor Presentation for 2025. My name is Oguyen, and with me, I have Kissina Hague here in behind as well, to answer your questions on our quarterly report. First of all, I’d like to say, as I usually do, why we think an investment in AE Group is a good idea.

We have grown earnings per share 14% over the past ten years. We have made profit every quarter since the foundation in 1994. We’re exposed to industrial market segment with underlying growth such as electrification, railway, defense and medtech. We have a long history of acquisitions. We buy two to four factories per year.

So far this year, we have got two factories and one engineering office in Germany and Czech Republic, and we have a strong balance sheet with a net cash position. And we like to grow profit per share every year. Some quick facts about the Europe. We’re in 1,000 employees, about SEK 8,600,000,000.0 in turnover, seven business areas, 15 market segments, manufacturing in 17 countries with 4,000 customers globally. I said, we made profit every quarter for thirty years.

We have grown, earnings per share with 14%, on average the last ten years. And we make acquisitions every year almost, and, we are listed, we are part of this new and global compact since 2012. To the first quarter then. Our net sales increased with 3% to SEK 2 point roughly SEK 3,000,000,000. It is lower than our goal of growing net sales with 15%.

Operating profit EBIT decreased a little bit with 4% to SEK $215,000,000, and profit after financial items decreased with 7% to SEK $2.00 5,000,000. Our profit margin before tax was 8.9%, which is above our target of 8%. Profit after tax was 166,000,000, and cash flow from operating activities was SEK $244,000,000. Earnings per share before dilution was SEK 1.81 versus SEK 2.01 last year. Proposed dividend from the Board is SEK 1.6 per share.

We will see what the AGM will say today. And it is an increased dividend of 20% versus the same versus last year. Some slides showing our earnings per share growth and also our dividend per share. We have a target to grow our top line 15% per year, and we have a target on our profit that should give an earnings per share increase every year of percent. Dividend per share, as I said, was increased from last year with 20%.

And this is our sales development. We grew about 3%, which was due to our acquisitions mostly. We organically, we decreased our sales with about 5%. And we see the same as we have done for a couple of quarters now that it’s quite low demand low demand. It’s lower than it was in 2024 from our market segments in construction equipment, trucks, buses, agriculture, food, especially in Europe.

But it was a little bit better at the end of the quarter. It started quite weak and then it became better. Still, we see high volumes in Electrification, Railway and Defense. And we believe that these three market segments will continue to be good, and we believe that they will continue to increase as well. And the organic growth doesn’t look so fancy anymore with only huge growth, but maybe it was a little bit too high in ’23 and ’24.

I don’t know, but it is still below our target. And we are trying to activate our sales force and be more active and win new accounts and win new products and projects with existing customers. But we are really fighting hard with the low demand in the trucks, buses and construction equipment, even though it improved in the latter stages of the quarter one. We have won a new contract from a major electrification customer for transformers and inductors for medium voltage data centers for EUR 10,000,000 that will start. We have delivered these products for some time, but now we have a minimum volume for the next three years.

We believe it will be bigger, but this is the minimum quantity that they guarantee that we will get. So that is good news. Some recent new customer project wins that we have had. We if we start on the top left, this is a drone from an Eastern European drone, we can say, surveillance drone that we do wire harnesses for in one of our factories. Then on the top, in the middle, it’s a radar system from Poland, where we also do electric mechanical parts and wire harnesses from.

These are organic wins and does not come through acquisitions. Then we are proud our nice and biggest customer, Volvo Group, they launched their new electrical articulated haulers at Bauma in quarter one. And we are delivering the wire harnesses for these trucks. And we are very proud of that because they will save a lot of CO2 in the building sites and mining sites where they operate too. In the bottom left, we see an enclosure for a train in Australia.

And it is fascinating that, it’s a huge enclosure. And, our good people at in Kodara in Estonia, have used friction stir welding and make this very difficult aluminum enclosures for a customer in Australia, very far away. And then in the middle, we see this part of this medium voltage UPS for data centers, where we deliver half of that product that you see on the picture from our factory in Hungary. And the last picture is a nice train where we deliver the enclosures that you see on the top, including inductive components from our newly acquired factory in Trutnov, Germany. This is for Austrian train that will be in operation soon.

And, yeah, it’s it’s a very nice product. We will see a little bit more later maybe pictures of those. So acquired growth, you see those that nice product that we were talking about. But acquired growth, we reached our target, which is 5% per year. We are above with 8%.

And this newest acquisition, the turnover is only two months in the quarter. So it should be a little bit even higher acquired growth in quarter two, I believe. But we are happy that we reached our target in this area. And it compensates a little bit for the negative organic growth, of course. A little bit update regarding Amdex and Vidal.

Turnover for February, March has been okay, not overwhelming or underwhelming. It has been as we thought. We are working on a carve out of the IT systems from the owners, and we believe it will be ready in quarter three with implementation of that ERP system that we use in AQ monitor instead of SAP. It will save some money for us. Region margin is above AQ target, which is good.

So that factory is working. We continue to run really. And then the next margin is below 0%, meaning it’s losing money currently. We will, in quarter two, refinance the factoring that they have been using to improve the margin in both these two companies, have a significant impact. Then our factory will be an important part, in this new, data center product that I talked about.

We lack capacity in Hungary, so we need to do some of the parts in Trutnov factory. So, but we still need to sell more, and we are working on that. And I believe that we will be able to fill this factory up quite quickly. And then, the integration of the design office for these inductive components together with our Harderbond site, will be completed by end of twenty twenty five. So we are happy with our progress and integration.

We’re working hard to implement our core values and the AQ way of working. And we really believe that this will have a big will be a big contributing factor to our profits going forward. The margins then. Margins have been quite stable. I think we have good cost control.

We now have nine consecutive quarters above our earnings before tax target of 8%. It’s really good, I think. Still have opportunities to improve in several of our factories and production sites, which are not according to where we want them to be. And then as we write in the report, Amdex said that grew the margin with about 0.5% for the whole group. And we believe it will improve sequentially starting from Q2 with this refinancing, that we hope we will get it above the zero, and then we will continue to improve it during the year to reach, eventually the EBT margin target of the AP Group.

We really like the people. It’s very, very well organized, and, that it will be a good acquisition, I’m sure. Inventory and inventory turnover development, our target is 3.5. Currently, are at 2.9. We have added, of course, a lot of inventory with the new companies that we acquire and the COGS material share is not calculated completely.

But on the other hand, we also have a bonus then when the currency goes down, then the inventory turnover as the mathematics is will be improved. So we still have a lot of work to do here, and our companies can be much better. We have a focused project that we have been running for some time, and it keeps effect, we believe. We have now currently a big focus on one of our sites in Bulgaria, our site in Canada, our site in UK, our both of our sites in India and still our site in Mexico, even though they have improved a lot during the last year. Cash flow is really important, I believe.

And I think the operating cash flow is really good in the quarter. We have paid the Amlex and Lidl acquisitions in the quarter, but still we have a net cash position, which is really nice when there is a little bit political turmoil in the markets and so on to be really strong then and be able to maybe make some good deals as well. And we have we announced that we will do some investment in our factory in The US, our transformer factory there, and, we believe that that will be a good investment. Also a little bit cheaper now when the dollar is weak, so good for us. Some comments on tariffs.

I know there will I thought there would be questions. I took one picture from our annual report. And I looked back actually. We have had the same writings on our goals and strategy since, I believe, 02/2014. So our overall goal goal is to be close to our customers geographically in order to offer products with the best total cost and at the same time with low environmental impact.

And in the strategy parts, I’ve underlined it here, to be close to our customer production units around the world. This means, I mean, we try to deliver local for local, and we have done it since 1994. This is to avoid transportation costs and tariffs, but also to cooperate better with our customers. We see it as really important for our customers to be close by because by being close by, we can also reduce their inventory levels, which is very important for our customers because they also like to have good cash flow just like we we do. So we like to buy local, we like to produce local and we like to sell local.

Then of course, we have a little bit of, export to U. S, but it is it will not affect And the tariffs need to be huge in order for it to force us to move. But on the other hand, if our customers like us to move our factories, then we would be happy to do so. But still, I haven’t gotten any question to move our factory to U.

S. Can get some more questions on that later maybe. Quality and delivery position. Our on time delivery has improved with 1% versus the same quarter last year. It is still way below our target, but it is moving in the right direction.

And we still have customers that are not happy, but most of our customers are happy with our delivery performance and our quality. That is important. However, we have capacity constraints in AQIAN Systems Shockford, in Jitmek, in Transformer Solutions U. S. Where we invest now, and in inductives Hungary.

That’s also why we buy the Truttnog factory because we need more capacity in Europe for inductive components. And we have still challenges to deliver on time as we want in India, even though maybe the customer requirements in India are a little bit lower than in the rest of the world. I come back to why we think you should invest in AQ Group, but I have said it already, so you know it. So we’re not going to it anymore. And now we come to questions.

Please raise your hand, and we will and then you can ask questions. Maybe you can start.

Analyst: Yes. Thank you, James and Kristina. So firstly, you mentioned good demand from the electrification, defense and railways end markets in the quarter. Can you comment on the demand split here between Europe and The U. S, please?

Oguyen, CEO/Presenter, AQ Group: I mean, I would say like this. In The U. S, we have currently two factories. We have one factory that does transformers. The demand is really strong.

We have one factory that does wire harnesses and electrical cabinets. And they are one of the main customers is buses. So that is not so strong in The U. S. At all.

So on the other hand, I would say, in Europe, I think for power grid electrification and transmission, the demand is very, very strong, very strong. And also for railway, I think all the railway manufacturers in Europe are completely fully booked. So that is a good demand side to be in, I would say, and supply side as well from our perspective. And in the defense in Europe, I mean, it is I would say the constraint here is not that we cannot deliver to our customers. It’s rather that our customers need a lot of work in order to ramp up to deliver all the orders that they have received.

So so I I I mean, it it looks, Europe looks good, I think, in in those three market segments. But then on the truck and the and bus and the yellow machines, demands are are weak, I would say, in both, both places, really, I would say. I mean, we don’t have so much truck, I would say, in U. S. I would say we have almost zero truck in U.

S. So, it is mostly in Europe. And that it’s I mean, it’s okay, but it’s not as good as it was in 2023.

Analyst: Okay. So just one last question here. I note some changes in the personnel during the quarter with, I think, you’re 80 people less sequentially despite the last acquisition. So can you comment on this change? As I think it was quite a large change in Lithuania, for example.

Oguyen, CEO/Presenter, AQ Group: Yes. I mean, we constantly adapting our people the amount of people we have based on the demand. But also, of course, we are continuously, as I also write in the report, we need to improve always our productivity. And, when you improve the productivity, then you should have less people, I think, in general. So so I think it’s a mix of the improved productivity, but also, maybe maybe in some senses.

Yeah. I mean, Germany was not great, I think. But I would say in in we we can say like this, that we have a lot of people also in the wire harness business area. And, yes, volumes are not great in those segments because they are a lot in the vehicles side.

Analyst: All right. That’s fair. Thank you.

Oguyen, CEO/Presenter, AQ Group: Good question. Thank you. Karl, maybe?

Karl, Analyst: Yes. Good morning, James.

Oguyen, CEO/Presenter, AQ Group: Good morning.

Karl, Analyst: Questions from my side here as well. I mean, firstly, on the Easter impact. I mean, now Easter was in Q2 instead of Q1. Would you say you have a positive impact on your operations from that? Or

Oguyen, CEO/Presenter, AQ Group: Yes. I you could say like that, that it should have a positive impact. There’s a few more working days in all the Christian countries, so for sure. On the other hand, the Christmas was not great this year. It was quite a long holiday or to say.

So so, and and as I said, January was really poor. But but, for sure, Easter has some impact because one or two days have a big impact on the amount of product we can deliver out.

Karl, Analyst: Yes, yes. Okay, clear. And on the acquisitions here made in Germany late last year or early this, I mean, you have any targets in terms of profitability for the full year where you expect them to end?

Oguyen, CEO/Presenter, AQ Group: Yes. We, of course, have targets, I

Karl, Analyst: mean External targets.

Oguyen, CEO/Presenter, AQ Group: No. But I I think I think like this. It is better to deliver than to promise. So so so yeah. I mean, we we we are we the the the team in in in Amdex, especially, because digital is doing really well, I would say.

It is it is running very, very nicely. So we don’t we don’t have to do that much actually in that. But but for for Amdex, we have a very dedicated team. They are doing their best to fill the factory and to reduce costs where they can. And I think we are supporting them.

I think this financing will really improve the profitability because they had really expensive financing before, and we have much better financing through SEB. So we are happy with that. But I don’t like to promise anything.

Karl, Analyst: Which you expect improvement from Q2 onwards, you say, the report.

Analyst: So I guess we’ll

Karl, Analyst: yes, we can stay there, and I That’s good. And then just on demand. I mean, tariffs, I think you’re quite well positioned there. But I guess the overall cautious in the market is around that people will order less or that we enter a recession in The U. S?

I mean, you don’t really seem to see any signs of that your customers in The U. S. Are ordering less or slower activity?

Oguyen, CEO/Presenter, AQ Group: I mean, it doesn’t go so fast for us. And I can say like this, that this transformer factory, I mean, it is big project. They deliver big transformers for for projects that have been, I mean, they that have been made for a long time. I mean, it is transformers for New York City Metro and these kind of things. They will not have those kind of projects quickly.

But on on the on on on the demand side going forward, I mean, I that I cannot see. Is impossible to see how that will happen. But we we don’t see any changes in our customers’ plans and so on, but who knows? Yeah. How how what

Karl, Analyst: And in in in Europe, I mean, now we saw your one of your customers or large customers, Volvo, reported here this morning. And I think they had quite good order intake in Europe. Are you seeing that that is I mean, you mentioned that March was better, but are you seeing any general trend improvement, you would say, in Europe generally?

Oguyen, CEO/Presenter, AQ Group: I think like this, that like we said in quarter four, I think that we based on the plans that we see from those type of customers, the Volvo and Skolnir and MAN, there, we believe that there will be some organic growth for the full year still. But as I said, those plans, I mean, they they their orders to us are normally placed on the day before or the same day. Then we only have forecasts, and they can change them tomorrow. So so so, it is it is what it is. But we we believe that it is it looks okay in Europe, we think.

Karl, Analyst: Yep. That’s good. That’s not what we thought one quarter ago. So that’s nice. Thank you, Jens.

Have a good day.

Oguyen, CEO/Presenter, AQ Group: Thank you, Karl. Forbes?

Forbes, Analyst: Yes. Hi, good morning. Yes, just a couple of questions from my side. Defense, how much is that of sales now? You said 5% last year, but how does it look now in Q1?

And what are you expecting for the coming quarters?

Oguyen, CEO/Presenter, AQ Group: It is yes, I can say like this, that it is around 5%. It is maybe a little bit over or or a little bit under, but it is still around 5%. Maybe it is 6%. Maybe it is four But it is around 5%, I can say. Going forward, it’s very hard to predict because it’s a percentage of sales.

If the truck and bus and those start to pull volumes again, then of course, the percentage will drop, but still the volumes will increase. I still believe defense will grow in absolute terms for us this year, and then we see where it ends up on a percentage term. We see, for instance, that there is big orders for CV90 in Sweden, and we deliver a lot of parts to those machines. So so so both, the wire harnesses and the pan Panzer sheet metal. It’s I don’t know if it’s the armor, so to speak, and and other stuff.

So but those when will those machines be produced? Who knows? It it will be ’25 or ’26. It depends on our customer if they can ramp up, as I said before. So so let’s see where where it ends up.

But we we we believe that the the fans will increase for us, and we think it’s a good segment to be in. It’s very high demanding, and we yes, we like those type of customers.

Forbes, Analyst: All right. And then on the profitability target, you have the 8% target there, and you’ve been above that for nine quarters now. So how should we think about that one going forward now, especially with demand in some of your key segments like trucks, construction equipment perhaps coming back now to better levels throughout the year?

Analyst: It

Forbes, Analyst: looks quite good from my point of view here.

Oguyen, CEO/Presenter, AQ Group: I mean, we the target I mean, we based on the law in Sweden, the shareholder law, we should try to make as much money as we can, and we will always try to do that. Then we have a target of 8% because we have seen during the years in AQ that it can fluctuate a little bit. But I don’t see anything right now that that would say that, yes, our margins will go down. I don’t see it. But on the other hand, I don’t see that they will increase a lot either.

So, but maybe my board will change that target someday. But I mean, we will try to make as much money as possible for our shareholders and create as much value for our customers as we can.

Forbes, Analyst: Excellent. One more question on M and A, what you’re seeing there for in the near term? And then if you could just give a small breakup of your exposure to construction equipment and trucks, how much is that in Europe? Because it’s mainly a European operation, right?

Oguyen, CEO/Presenter, AQ Group: Yes. We deliver also to in construction equipment, we deliver also to Americas. But let’s say now the first question regarding M and A. I mean, we are always looking at companies, and, we are making offers, and we try to agree with companies. But, it is very hard to say when we agree on on a price level that we think is okay.

We like to buy cheap, and, seller like to to have a high price. So it it takes time to get agreements. But, I would say my M and A team and myself, we’re working very hard to add more businesses to us. But we we have to have respect also that we added a lot of companies last year, and we need to implement the core values and integrate them in IT in our IT environments and so on. So it it’s also a lot of work.

So but we we will I hope we will make acquisitions this year. Let’s put it like that. That would be fun, and we like to do that. And we are working hard to achieve that. On this segment, I would say like this, that, things that are on the road, I mean, the asphalt paved road, it’s about 20% of our turnover.

Then vehicles that are off road, construction equipment, mining equipment, agriculture equipment, logistic equipment, these kind of things, is also around 20%. And then mainly, I mean, you know that our biggest share of business is in Europe. So I mean, it is a substantial part of our business, the construction equipment, I would say. It’s an important part. And we really like them as customer, those type of customers.

Sorry for not getting more into detail than that, but

Forbes, Analyst: Sounds good. All from me. Thank you.

Oguyen, CEO/Presenter, AQ Group: Thank you. See if we have some more questions or we are done maybe. Since there are no more questions. So thank you so much for attending our call. Yeah.

And if if you have other questions after the call, then reach out to me and Kristina. We will try to be transparent and answer the questions that you have. And with that, I wish you a a big, nice day, and, we go back to work. Thank you. Bye bye.

Thank you.

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