Earnings call transcript: Bufab’s Q2 2025 sees revenue dip but margin gains

Bufab Holding AB reported its Q2 2025 earnings, revealing a decline in revenue but an improvement in gross and operating margins. The company’s stock fell by 2.79% following the announcement. According to InvestingPro analysis, Bufab maintains a GOOD financial health score, though current trading metrics suggest the stock is trading above its Fair Value. Despite the revenue drop, Bufab’s strategic initiatives and market positioning offer a positive outlook.

Key Takeaways

• Revenue decreased by 4.8% year-over-year.
• Gross margin improved to 31.1% from 29.8%.
• Operating expenses reduced by SEK 8 million.
• Stock price fell by 2.79% after earnings release.

Company Performance

Bufab’s Q2 2025 performance was marked by a decline in revenue to SEK 2,039 million, a 4.8% decrease from the same quarter last year. This follows a broader trend, with InvestingPro data showing a -4.08% revenue decline over the last twelve months. The company managed to improve its gross margin to 31.1% from 29.8%, maintaining its strong profitability track record with a 30.41% LTM gross profit margin. The adjusted operating margin increased to 13.1% from 12.2%, while the company has focused on cost control, reducing operating expenses and reallocating sourcing to mitigate tariff impacts.

Financial Highlights

• Revenue: SEK 2,039 million, down 4.8% year-over-year
• Gross margin: 31.1%, up from 29.8% last year
• Adjusted operating margin: 13.1%, up from 12.2% last year
• Cash flow from operations: SEK 245 million
• Net debt: SEK 3,199 million

Market Reaction

Following the earnings announcement, Bufab’s stock price decreased by 2.79%, reflecting investor concerns over the revenue decline despite margin improvements. The stock closed at SEK 96.1, moving away from its 52-week high of SEK 101.8. Despite recent volatility, InvestingPro data reveals impressive returns, with a 29.1% price gain over the past six months and a strong 32.79% return over the past year. The stock currently trades at an EV/EBITDA multiple of 20.55x, suggesting a premium valuation.

Outlook & Guidance

Bufab remains optimistic about its future, targeting a 14% EBITDA by 2026. The company aims to grow its market share and continue improving gross margins and cost efficiency. Analyst consensus remains bullish, with target prices suggesting potential upside. Bufab’s strategic focus includes consolidating warehouses and reallocating sourcing to reduce costs and improve operational efficiency. For deeper insights into Bufab’s valuation and growth prospects, investors can access comprehensive analysis and 10+ additional ProTips through InvestingPro’s detailed research reports.

Executive Commentary

CEO Erik Lundin expressed confidence in Bufab’s ability to navigate the challenging market environment, stating, "We continue to strengthen our gross margin, and we also delivered a strong operating margin despite lower demand in the market." Lundin emphasized the company’s focus on factors within its control, such as market share growth and cost efficiency improvements.

Risks and Challenges

• Geopolitical and economic uncertainties may impact demand.
• Weak performance in the automotive and construction sectors.
• Tariff impacts on U.S. business operations.
• Potential supply chain disruptions.
• Market saturation in certain segments.

Bufab’s strategic initiatives and focus on niche markets provide a robust foundation for future growth, despite current challenges. The company’s ability to adapt to market demands and improve efficiency will be crucial in achieving its long-term goals.

Full transcript - Bufab Holding AB (BUFAB) Q2 2025:

Erik Lundin, President and CEO, BUFAB Group: Good morning and good afternoon, everyone, and a warm welcome to Q2 report. My name is Erik Lundin, President and CEO of BUFAB Group. And together with me here today, I have Per Iskog, my CFO. This presentation will be recorded, and by attending to the meeting, you agree to the recording. I will start today’s presentation to go through the highlights of our Q2, and then I will leave the word over to Per for some financial highlights before I go through the performance of each region.

And then at the end, I’ll sum up the quarter, and then we’ll have time for Q and A. If we then start to look at the highlights in the quarter, I must say that I’m overall pleased with our performance, considering the geopolitical situation. Our efforts in the quarter to continue strength on gross margin while gradually reducing our cost base have been paying off and leading to an all time high gross margin and also a strong operating margin in the quarter. The revenue was down by 4.8%, largely driven by currency effect. Our organic growth remained slightly negative in the quarter at minus 0.3.

Regionally specific showed the strongest growth in the quarter, while UK Ireland the weakest. The demand varies still across companies and segments, with the defense sector and agriculture showing the strongest growth. The gross margin, as I mentioned, strengthened during the quarter amounted to 31.1 compared to 29.8% Q2 last year. The increase is a result of our effort to continue to create more customer value creation and also due to lower purchasing prices during the quarter. Our adjusted operating margin was strong and up at 13.1 compared to 12.2% last year.

And also, I would say, a step in the right direction to reaching our profitability target of 14% EBITDA by 2026. I’m also pleased to see that we continue to be very active in the market. And we could see in the quarter that we’ve been able to secure several major customer projects in key segments, like defense, agriculture and also general industry. One example is Kraaneland in Norway, an international company producing agriculture machinery, where we’ve been appointed as new sea parts supplier. And what I highlighted by choosing Buffab was how we could offering the broad solutions within logistics, sustainability and also our global presence.

I’ll also briefly like to mention what we communicated last week, that is the divestment of a small manufacturing unit within CST Group in U. S. The divestment is a result of the review that we presented in December 2023 at the Capital Markets Day, where we, going forward, aim to focus on our trading and complementary niche businesses as our core, with aim to gradually improve our profitability. The transferred business generates, let’s say, approximately 35,000,000 SEK, and the the divestment expect to have a positive impact on profitability in the region Americas going forward. I will then leave the word over to Per for some financial highlights.

Please, Per.

Per Iskog, CFO, BUFAB Group: Thank you, Eric. Good morning, good afternoon. Some more details on the financials then, starting with the sales. Our revenue, was down by 4.8% in the quarter, ending up at $2,039,000,000 The 4.8% can be explained by a negative organic growth of 0.3%, a currency effect of minus 4.9% and then a positive effect from this is a net effect of acquisition of Vital and also the divestment of Halbone and Lund last year. So, the positive effect from Vital is 5.4%, and the negative from the divestment is 5%.

So net ends up at plus 0.4%. Then if we move to the next slide, our gross margin strengthened in the month, ending up at 31.1%. And the combination with also a good cost control resulted in an improved EBITA margin in the quarter, ending up at 13.1% compared to 12.2% last Q2 last year. The, the, if we move to the next slide, the on the cost control side, our operating expenses, was reduced compared to Q2 last year by 8,000,000. And it’s, a combination of our cost reduction initiatives that we’ve been running now for a while.

We’ve reduced FTE and reduced traveling and and other, cost, that we have reduced. But also, have a positive currency effect, helping out. The cost control is compensating the inflation that we are still facing. And despite inflation, we can then reduce operating expenses by $8,000,000 The initiative on the cost reduction will we will continue to see some result for the remainder of the year coming from that. I will also like to mention related to the manufacturing unit in U.

S. That Erik mentioned, that we will see some minor and not material, restructuring costs during the upcoming quarters from that activity. So going over to the cash flow. We had a cash flow from operating activities of two forty five million dollars in the quarter. That is representing cash conversion of 89%.

The cash flow is lower than Q2 last year, and that’s mainly coming from high inventory reduction last year that we now we have come to a normalization of our inventory. We still had a positive effect from inventory reduction this quarter, but much smaller than last year. Next slide, please. And on the net debt and net debt raised to EBITDA, we ended up on a net debt of $3,199,000,000 and leverage of SEK 2,500,000.0. That should be compared to SEK 2,800,000.0 last year.

In the quarter, we also had a dividend of SEK 199,000,000. That also had an impact on the leverage. Thank you.

Erik Lundin, President and CEO, BUFAB Group: Thanks, Per. I will then continue to take us through the performance in each of the regions. And I would like to start with the region Europe North And East. The total growth in the region was minus 14.9%, and organic growth was almost flat. The difference between the sales growth and organic growth is mainly explained by the divestment of Biffabland and Halborn that took place last year.

H Bendix in Denmark noted particularly weak development, while Bifab Poland and BU East saw improvement in their demand. The gross margin, in the region improved to 2.8 percentage points and reaching a high level of 31.2%. The strength in gross margin was a consequence of improved customer product mix and also good work with purchasing savings in the quarter. Also, the operating expenses decreased by 18,000,000, mainly due to the divestment from Land and Halborn, but also due to cost savings initiatives and efficiency. All in all, the wind end up on a solid operating margin that improved to 14% compared to 11.7%, Q2 last year.

If they continue with the region Europe West, total growth in the region amounted to 18.5%, and organic growth was minus 0.4%. Of the change in sales, 24.7% was attributed to the acquisition of Vital. Organic sales decline was attributed to lower activity levels in the automotive and construction industries, and the gross margin for the region was in line with last year. Operating expenses increased by NOK 16,000,000 year on year, mainly related to the acquisition of Vital. If they look at the adjusted operating margin, ended up at 11.8% compared to 12.4%.

The region had some negative impact in the quarter. We have moved our operations in France, and therefore, 2,000,000 in sales was put forward from June to July. And also that we have extra cost, moving cost on of 2,000,000 SEK 1 off cost, for the same move. We also had some impact negatively due to investments with a new customer, at Biffab Floss in Netherlands in the quarter. And finally, Vital contributed positively to the operating profit for the region in Q2.

If we then continue to Americas, the total growth amounted to minus 8.2% in the region, and organic growth was plus 1.7%. The demand was stable for the mobile home and trailer market, but still low demand in automotive industry for CSG. The gross margin was strong for Americas, increased by 4.7 percentage points, driven by general price increases and adjustments mainly for ABS and also effects of the tariffs that have taken place in the quarter. Operating expenses declined by 30,000,000 year on year due to good cost control and efficiency gains in Americas. And the adjusted operating margin reached a high level of 19.3 compared to 11.6 last year.

And I will later on come back with more details about Americas linked to the tariffs. And if we continue then with the region UK and Ireland, the total growth amounted to minus 8.5%, and organic growth was minus 4.1. The decline for the region was mainly driven by lower market prices, which impacted Apex, but also lower demand in the manufacturing industry impacting beef of UK and beef of Ireland that are all both trading business in, in the region. The gross margin declined by 0.7 percentage points, mainly driven by price pressure in the construction industry for Timco. Operating expenses increased by SEK 1,000,000 year on year, mainly due to onetime cost related to the consolidation of warehouses that we do for APEX.

This consolidation of warehouses will give a positive effect, this year with full effect in 2026. And to sum up then, the adjusted operating margin for the region end up at 10.8% compared to 12.7%, Q2 last year. Then finally, we have the region Asia Pacific. The total growth, amounted to minus 2.1%, but the organic growth was, 6.8%. So the positive trend continue for Asia Pacific.

Organic growth was mainly driven by good development for Bifab Shanghai, but also improvement for Bifab India. The gross margin in the region improved by 3.1 percentage point due to purchasing savings and active work with value based pricing in the region. Our operating expenses increased by SEK 2,000,000 year on year, primarily driven by negative currency effects. And all in all, we ended up on adjusted operating margin that improved to 30.7% in 4.6 in 2025 four, sorry. How our our business in US looks like, and then I’ll go through our mitigating actions and then also the impact we have seen so far due to the tariffs.

If we start with the our US business then, we have two niche companies in, in US. That is American Bolt and Screw, that are big in trailer and mobile homes industry, and then we have CSG in automotive. Our total sales, $12.12 percent is in US. And if you look from a sourcing point of view, ABS sourced 38% from China and CSG, 8% from China. What we have done, since the beginning when the tariffs was implemented, we’ve been working on passing on the the price increases to our customers.

Of course, prepared ourselves for different types of scenarios and helping our customers in the best possible way by finding alternative sources, when needed. US sourcing is generally not an option, in our industry. So what we’ve done is to reallocate sourcing from mainly China to to other countries to mitigate impact into tariffs for our customers. And what we do also, of course, is continue working closely with different stakeholders to optimize the flow and also minimize the cost for our customers. But also, of course, working with the officials when it comes to customs and border control.

When it comes to the impact so far for us, as we could see in our numbers for Americas, we had a positive development on our gross margin. That was linked to good work with pricing, but also linked to short term effects on our margins in U. S. Due to tariffs. As we have the stock levels, there is not tariffs prices on, and we have implemented our tariffs right away.

As we implement that, we have a positive effect that have a small impact on our margin in The U. S. But it’s also, of course, negative side of this. We see a lower demand as manufacturers are trying to navigate The U. S.

Tariffs, which are causing some customer plants to slow down their production and also then their demand on sea parts. Other aspects that’s impacting us is that the device market situation in China continues. We see low prices coming to Europe that helping us on from a pricing point of view. And we expect that to continue as situation seems to continue with tariffs also in the coming weeks. The main risk, as we see, is actually impact on the global economy.

As a company, we feel very confident with our position. We have good control in what we can impact, and we do our best for our customers and also, of course, for BUFFAB to manage disruptions in the best possible way. And as we are a big player compared to majority of our competitors, we have a positive scene on the future here and that we will also be able to handle those US tariffs and uncertainty in in a good way, also going forward. Then I will take us through a quick summary, talk a bit about outlook and our priorities going forward. If we then sum up the quarter, as I mentioned, I’m overall pleased with our performance in a quite challenging market.

We continue to strengthen our gross margin, and we also delivered a strong operating margin despite lower demand in the market. We have in the during the year had several measures to reduce our cost base, and that had given effect, and more to come. We expect to continue positive development on our cost base during 2025, but also in 2026. If you look at the future, despite the uncertainty in the market, we are optimistic. We focus on things we can control, and that is, of course, continuing to take market shares.

A lot of opportunities raises the market where our customers do the best to lower their cost base. And, of course, consolidation of c part is one way to go. So we do our utmost to continue taking market shares and be active in the market. We will also continue to improve our margin, of course, focus on strengthening our gross margin, but also then, as I mentioned, continuing working on our on cost efficiency and cost savings. And then finally, continuing to improve our net working capital and also continually secure a strong cash flow.

That was the the final slide for today. I will then leave the floor open for questions, please.

Moderator: So welcome to this q and a session. I would like to ask you to use the function raise your hand if you have a question, and don’t forget to unmute when it’s your turn. So we start with the first question from Henrik Hinze. Welcome to ask your question.

Henrik Hinze, Analyst, ABG: Thank you. Good morning, everyone. This is Henrik at ABG. So after four quarters of sequential improvement in the organic growth rate, we saw some stagnation here in Q2 around 0%. While yesterday, Fastenal reported quite strong Q2 growth in its fastener segment.

Now I know they operate largely in a different geography and that your Americas businesses differ in customer exposure. But given that they stated that their Q2 growth was driven not by market improvements, but by new customer signings, I kind of wanted to ask whether you see sort of a point in the near term where you think you will similarly get an above market level contribution to organic growth from new customer signings, which you have been talking about over the past year?

Erik Lundin, President and CEO, BUFAB Group: Yes. Hi, Henrik, and thanks for the question. Yes, as you mentioned here, we don’t really compare the Fosterville numbers in US with Buffab as our exposure in US are very different than Fosterville. They have a broad exposure in The US in trading. Well, we have two niche companies, that are strong in RV trailer and then automotive.

So it is as comparing Apple to peers. So we don’t draw that many conclusions out of Auto’s report. Having said that, as I mentioned also in the in the call here, we have a very good feeling when it comes to how we are addressing the market and how we also get new customers coming in. We have in the quarter and throughout 2025 signed good contracts, in industries and with customers that we want to be in the future where we see sustainable and profitable growth that we are convinced will, help us going forward. So for that point of view, I’m I’m satisfied with the work we have done.

And then gradually, I think that will be shown off in the in the numbers. But that’s more linked to our work and what we have done to continue with our work on showing our value to our customers and not that much related to what’s going on in in US, more or less our performance, so to say, globally. So I’m pleased with the performance when it comes to the market and the opportunities that we see out there.

Henrik Hinze, Analyst, ABG: Yeah. And and can you give any indication of when we should expect this to start coming through on the on the organic growth level, you know, with the the customer signings or such? Or because I I guess these contracts take some time to to ramp up, and you’ve talked about that previously. So how should we think about the timing there?

Erik Lundin, President and CEO, BUFAB Group: Yeah. It’s a difficult question, to answer because, in many of

Gustav Van Ableard, Analyst: them,

Erik Lundin, President and CEO, BUFAB Group: the contracts is, of course, linked to, the overall market situation and also when they decide to go in with new models and and so on, and how the macro situation is developing as well. Because even if we get new customers coming in, adding, more volumes, the others that’s holding back in some segments. So it’s a very much a mixed bag there. What we have said, before and still saying is that we are we have an optimistic view on the future, and that the trend will continue in the right direction from a growth point of view. But, of course, there are a lot of uncertainty out there, so it’s very difficult to predict when and how we will see market coming back as we hope it will we do.

So uncertainty with the tariffs and the global economy is not helping for many sectors right now. Very

Henrik Hinze, Analyst, ABG: good. I’ll take one more question, question, and I’ll pass it on. So your gross margin improved again here in Q2. And based on your commentary, it seems to me that you think this trend will continue. You mentioned a strong cost focus, which will gradually yield results through 2025 and 2026.

So firstly here, I was just wondering if you think this will mainly come in the form of gross margin improvements or if you see similar or smaller opportunities on the OpEx level as well. And secondly, I was wondering to what extent you think your 2026 EBITDA margin target of 14% is dependent, if at all, on a return to organic growth here in the coming quarters?

Erik Lundin, President and CEO, BUFAB Group: Yes. As I mentioned in the call, I mean, we will, continue working and, on cost efficiency. And, we have already taken measures actually starting already last year that’s now showing paying off, and that will continue. We’re not talking about huge impact, but a gradual improvement in terms of our cost base. That’s what we’re aiming for.

Because at the same time, as we’re taking measures on on decreasing our cost base for several companies, we’re doing the opposite and investing at the same time where we see strong potential for a good growth. But all in all, we expect the cost base to gradually go down. And of course, on the gross margin side, we have delivered, I think, good now in Q1 and Q2, but I expect that trend to continue. We still see potential to further capture the gap that we actually have today in the real value that we provide to our customers. And that should show off in the gross margin and combined, of course, with the bias market that we have in especially from Asia.

So I expect also the trend to be able to continue. So yes, did you have one more question there? Or was that it Yes. Actually

Henrik Hinze, Analyst, ABG: And on the EBITDA margin target, you know, to what extent do you think that is dependent on organic growth?

Erik Lundin, President and CEO, BUFAB Group: No. I mean, I think it’s possible to reach that level without a strong market out there, but but but, of course, it will help. What we do in Duyfab is that we focus completely on what we can control, and that is taking market share, improve our gross margin, keeping cost under control. And then I think we will put us in a very good position for 2026. And then how much tailwind we will get, from the market or not, time will tell.

But, of course, we will hope to get some, some support, but, full focus on making control and feel confident that we we are in a good position, to to deliver on our targets. So, the trend is good as I see it.

Henrik Hinze, Analyst, ABG: Okay. Very good. Thank you for that. I’ll pass the word on to the next person.

Moderator: So Gustav Van Ableard, welcome to ask your question.

Gustav Van Ableard, Analyst: Yes. Thank you. Can you hear me?

Moderator: Yes. Perfect.

Gustav Van Ableard, Analyst: Now it’s just, I think maybe to build on, on sort of your comments on the buyers’ market here in China. Can you just expand a little bit about the situation and how you view it? And also or sort of prices, I guess, to normalize, Do we need a normalization in the market? Or do we actually need a very strong market, so to say, if you understand my question?

Erik Lundin, President and CEO, BUFAB Group: No, I don’t understand your second question. Can you please repeat?

Gustav Van Ableard, Analyst: I guess it’s related to overcapacities, right? So or correct me if I’m wrong, but do we need just a normalization in the market? Or do we actually need sort of a very strong cyclical recovery in order for prices to normalize, I guess?

Erik Lundin, President and CEO, BUFAB Group: Okay. Yes. Let’s take your first part of the question then. Yes, we have seen the buyers market from China for quite some time. So the price level has been good from China and actually from Asia.

And that trend seems to continue. And I think what happened now in US and the with the tariffs and the whole situation in those discussion and high levels of tariffs that we’ve seen between China and US is actually making this to continue. So from one part of our business that, of course, positive, but then also, as you also mentioned in your second part here, we have a negative effect for some sister companies in the BFA Group due to the same, consequence, I would say, due to high volumes, especially on the, for example, stainless side that is pushing us for APEX, for example. So they are good and bad. But all in all, I would say that the buyer’s market duration is positive from a different point of view.

And, how quick this will change? That’s a million dollar question to answer. I don’t have the answer to that. That, I think, is how the macro development and political game will continue, and that will define when and how this will change in the coming quarters and years. So very difficult to tell, and I will not not guess on that one.

Gustav Van Ableard, Analyst: That’s fair. Thanks. And then just on The Americas, should we expect the margins there to normalize in Q3 already? Or would you expect there to be some sort of support also in Q3?

Erik Lundin, President and CEO, BUFAB Group: Yeah. That’s also a good question, but a difficult one to answer as, the the tariffs are changing, more or less, at least the discussion around how they will change is coming up new news every day, more or less. So it’s very difficult to predict how, actually q three and q four will look like. I mean, one guess is that some, sooner or later, we will see some negative impact, if we have a more stabilized situation, but it’s hard to tell if, that will come in in May I continue? Or later on.

So, difficult to say. So we are following the situation closely, of course, and try to mitigate the impact for our customers of this of investment that we weigh. We’re gonna be enough.

Moderator: $10. Yeah.

Gustav Van Ableard, Analyst: Okay. Perfect. Thank you. And then just the last one here. I mean, you you comment a lot on the cost situation.

What are sort of the key items or low hanging fruits you see here in the coming years to mitigate or sort of lower the cost base?

Erik Lundin, President and CEO, BUFAB Group: I don’t see any low hanging fruits. I think this is working with efficiency in the best possible way across the group. And then, of course, also that each of the sister companies that have have very solid plans in place on what they need to improve that execute well on those plans. So they differ quite a lot. And the companies that are going through a more, tougher time, maybe with lower demand and, don’t see a quick recovery, they have more work to do on the cost side.

Others that are facing, you know, a go to market and a strong situation, then we let invest to put put this in a good in a good situation in a longer perspective. So not one answer. It’s more to each of the sister companies’ clear plans on how they will drive efficiency and cost reduction, where it makes sense to say, rather than one size fits all.

Gustav Van Ableard, Analyst: That’s very clear. Alright. That was all for me. Thank you very much, and, have a nice summer.

Erik Lundin, President and CEO, BUFAB Group: Thank you. Likewise. Okay. That was all questions today. Thanks, everyone, for joining, and, wish you also a nice day and a nice summer ahead.

Thank you.

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