Earnings call transcript: Hella KGaA Hueck & Co Q2 2025 reveals stable performance

Hella KGaA Hueck & Co reported its earnings for the second quarter of 2025, showing stable financial performance amidst challenging market conditions. The company’s total sales reached 4.03 billion euros, a slight decline of 1.3% year-over-year, with an organic sales decline of 2.4%. Despite this, the operating income margin remained steady at 6%, and net cash flow increased by 34% to 114 million euros. The stock price experienced a decrease of 1.1%, closing at 81.6 euros.

Key Takeaways

• Hella’s sales fell by 1.3% year-over-year, with organic sales down 2.4%.
• Operating income margin held steady at 6%.
• Net cash flow increased significantly by 34%.
• Stock price decreased by 1.1% following the earnings release.

Company Performance

Hella KGaA Hueck & Co demonstrated resilience in the face of a challenging automotive market. While total sales saw a slight decline, the company managed to maintain its operating income margin at 6%, indicating effective cost management. The company also reported a significant increase in net cash flow, highlighting its strong cash generation capabilities. Despite a slight decrease in gross profit margin, Hella’s focus on innovative products and regional diversification positions it well for future growth.

Financial Highlights

• Revenue: 4.03 billion euros, down 1.3% year-over-year
• Operating income margin: 6%, unchanged from the previous year
• Net cash flow: 114 million euros, up 34% from last year
• Gross profit margin: 23.1%, down from 24.1% last year

Outlook & Guidance

Hella provided a sales forecast in the range of 7.6 to 8.0 billion euros, with an operating income margin between 5.3% and 6%. The company aims to achieve at least 200 million euros in net cash flow. In terms of future growth, Hella remains confident in its ability to continue its positive sales trend, driven by strong order intake in electronics and new lighting projects in North America and China.

Executive Commentary

CEO Bernard Schäferbarthold emphasized the company’s focus on structural and performance measures, stating, "We are working very focused on continuing our structural and performance measures." He also highlighted the company’s cost-saving initiatives, noting, "We anticipate a saving of around EUR 80 million until 2028." Schäferbarthold acknowledged the market challenges, saying, "The market was demanding with a lot of uncertainties."

Risks and Challenges

• Potential supply chain disruptions affecting production and delivery timelines.
• Economic uncertainties in key markets, particularly in Europe and the Americas.
• Competitive pressures in the automotive sector, especially in the Asia-Pacific region.
• Fluctuations in raw material costs impacting profit margins.
• Regulatory changes affecting automotive industry standards and compliance costs.

Q&A

During the earnings call, analysts raised questions about the company’s ability to achieve the upper end of its guidance, challenges in the electronics gross margin, and expectations for Q3 margins. Management expressed cautious optimism, citing market uncertainties but remained confident in their strategic initiatives and cost management efforts.

Full transcript - Hella KGaA Hueck & Co (HLE) Q2 2025:

Moderator/Operator: Good morning, ladies and gentlemen, and welcome to the HELLA Investor Call on the results for the first half year of fiscal year 2025. This call will be hosted by Bernard Schäferbarthold, the CEO, and Philippe Vienney, the CFO of HELLA. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Bernard Schäferbarthold.

Bernard Schäferbarthold, CEO, HELLA: Very warm welcome to our earnings call for the first half 2025. I’m here together with Philippe, CFO at HELLA, and Kerstin Dodel, who is heading investor relations. Starting immediately on page four of our presentation, if we look at the key figures and the key achievements in the first half. Looking first on the sales side, our organic sales are at EUR 4 billion, largely at previous year level, minus 2.4% year on year. Reported sales are at minus 1.3%, with some headwinds specifically in the second quarter. If we look specifically on our business groups, lighting was down in the first half, 7.4%. Specifically, the end of larger volume projects were the reason on that sales trend. Electronics is with a continuous good momentum, a growth of 6.6%, and now at EUR 1.6 billion on the first half.

Specifically, our radar business, but as well business related to our energy management division, is growing quite decent. Life cycle solution was impacted by weak demand on commercial vehicles. Overall, on the first half, year on year, down 6.6%. On a positive note, specifically on our special application business, we are now seeing that the negative trend is now ending, and we are more optimistic in terms of the development on the second half. If we look at our operating income margin, we are largely stable to last year. We are at 6%. Our gross profit is slightly down in comparison to last year, with, on one hand side, some negative mix, but in comparison also to last year, where a part of the positive within our gross profit was also related to the sale of our people sensing business, where we recognize EUR 17 million.

The comparable, we need to remind on that one as well. We’re working intensively on our costs. We see, with a strict cost discipline and cost reduction, a continuous improvement. Our competitiveness program, which we as well accelerated, is showing step-by-step strong cost improvements in all areas, but specifically also within our R&D. We reduced in the first six months headcounts by around 3.4% overall. This will now continuously lead also to further cost reductions in the upcoming months. We also said that within R&D, we were targeting to be below 10%, and we already see that now for the first half of the year that we reached that number. On the net cash flow, we are turning from a negative in Q1 to a good positive momentum now within the second quarter.

We ended the first half year with a positive number of EUR 114 million, which is an increase of around 34% in comparison to last year. We have higher funds from operations. We are contingency managing to improve in our CapEx spending, and as well, the factoring, which is within that net cash flow, is at EUR 23 million and is a lower amount in comparison to prior year. In terms of our guidance, we are confirming the guidance to the end of the year. We see sales between around EUR 7.6 billion-EUR 8 billion. Our operating income will remain or will be between around 5.3%-6%, and we assume to be at least at EUR 200 million of net cash flow to the end of the year. If we move to the next page, on page five, we are quite pleased about the development in our order intake.

We were able to win in lighting important new projects, specifically also in North America, but as well in China with the Chinese OEM, and this should support our growth specifically in these two regions. Even more pleased, I am with a strong development within our electronics business. We won very important acquisitions on a lot of our new product offerings, specifically if it comes to our sonar module business and the Intelligent Power Distribution Module which we offer. We were able to win another order, and the same also on Smart Car Access. To highlight as well, here on the high voltage side, we were able to win another big business and as well another one on the sonar control modules with an SOP in 2028.

Important acquisitions in terms of new products we have established into the market, and as well important the regional distribution, which we are also targeting, as you know, so that we are more balancing out and getting more resilience also going forward. Life cycle solution is also showing a good trend in terms of order intake. Especially in the important area of trucks, but also buses, we were able to further win businesses and as well outside of Europe, which will also support that trend. Coming to the next topic on page six, we started with our competitiveness program specifically on Europe early 2024, which we announced, and I made the comment that we also accelerate on the measures and add additional measures. What we have, in addition, now launched is the project Simplify.

Simplify is a global program. It is a program where we also leverage and work together with FORVIA, and the target is really to streamline specifically in all functions and as well the administrative functions, our processes and our organizations, and to get leaner, more efficient, and less complex. This program should lead to gross savings of around EUR 80 million until the year 2028, and we will have investments and as well restructuring costs, which will be up to around EUR 100 million. We believe that this program will bring us into a best-in-class organizational setup in the upcoming years. We did an intensive benchmark to leverage really on the opportunities we still have. We already have started on that program, and we believe that the combination of the competitiveness program for Europe and the activities in Simplify will significantly improve our competitiveness going forward.

Having said that, I would hand over to Philippe to. Give more details on the financial results.

Philippe Vienney, CFO, HELLA: Thank you, Bernard. Good morning to all. Yeah, looking at the sales, we reported sales of EUR 4.030 billion, which is 1.3% below last year. In this number, we have a negative impact of EUR 36 million due to exchange rate negative trend versus last year. We have a volume reduction of EUR 15 million, so 0.4% in terms of organic decrease. If we look by BG, lighting, we posted sales of EUR 1.8 billion versus more or less EUR 2 billion last year. It is a 6.8% year-on-year organic decrease. Here we have some difficult situation in Asia, and China mostly, where we have the Tesla Model Y, which is ending in Q1 2025 and which is replaced by the new model, but the ramp-up is only starting. We have not the same content either in China, which is also impacting the sales in China.

We have some good ramp-up in Europe, especially with headlamps and rear combination lamps with Volkswagen, for example, and Audi, but not enough to offset the decrease we have observed in Asia. The operating income is at 3.4% versus 3.3% last year. Here we have a relatively good adoption of our fixed cost and our material ratio. The gross margin has been kept at a decent level versus last year. We are also reducing our R&D cost and fixed cost and SG&A, which is also linked to the program which have already been announced, leading us to be slightly better than last year in operating income by 10 basis points. For electronics, we posted sales of EUR 1.7 billion versus EUR 1.6 billion last year. It is an organic growth of 7.2%.

Here, as said, we are helped a lot by our radar business, especially in Americas, where we have a decent growth, which is above the double-digit growth. We also have some growth in Europe with new programs, but which are, let’s say, offset by lower electrification in Europe. We have also a very strong growth in Asia thanks to the battery management system and car access, which have been taking off in Asia. Here, the gross margin is still impacted by some write-offs that have been booked linked to the slow electrification in Europe, but we are offsetting part of it by lower R&D expenses with less use of external resources and also some impact from the cost-cutting plan, which has been announced, which is already visible. Life cycle, we posted EUR 500 million of sales versus EUR 537 million last year and operating income at 10.6% versus 11.7%.

Here, for life cycle, we are very much impacted in terms of volume on the special application side with a reduction of the market on the commercial vehicle business and the trailer and construction. On the other side, the aftermarket is relatively stable versus last year after a fixed restatement. Yeah, we are really suffering from the special application domain. Which has also led to a lower gross margin. Because we are not completely able to offset this volume drop. But still, we are also decreasing our R&D expenses and SG&A, which is favorably impacting life cycle. Looking at the sales per region. Europe, so Europe, our sales are more or less stable, which means an outperformance versus the market of 330 basis points.

Here, again, we have the nice development on the radar business on the electronic, but partially offset by lighting, again, here with the Tesla Model Y, which is impacting the three continents, the ramp-down and the end of production of the Model Y. We have also some decrease with some German OEM in lighting. For Americas, we are at plus 1.9%, which means an outperformance versus market of 430 basis points. Here, we have also, again, the electronic radar, which is a business which is helping us. We have also some ramp-up in North America with lighting, especially with General Motors, partially offsetting, again, the decline we have with Tesla. Asia-Pacific, here we have a decrease of 7.6%. That is underperformance versus the market. Here, again, we are very much suffering from the Tesla business in lighting, which is going down.

On the other side, we have some growing sales with the Battery Management System in electronic. Looking at the P&L, again, sales going down by 1.4%. The gross profit is at 23.1% versus 24.1% last year. Here we have the lower gross profit, which is also linked to, as I said, to electronic with some lower R&D margin and also some write-offs which have been booked in electronic. Lighting and life cycle are showing slight improvement on the gross margin level. The R&D, we are at 9.6% versus 10.4% last year in H1. We are below the 10% we wanted to reach. On the SG&A, we are also seeing some reduction, which is in line with the sales at 1.5%. If I take only the administration cost, we are down by 6%, so EUR 10 million less than last year.

Here on R&D and SG&A, we again see the benefit of the gross cutting program which has been launched, leading us to an operating income of 6% versus 6.2% last year. On the EBIT, we are at EUR 138 million versus EUR 317 million last year. Here we have on the non-recurring OI, minus EUR 95 million booked, which is mostly represented by the restructuring costs which have been booked in H1 2025. For last year in H1 2024, I need to remind that we had the benefit of the capital gain on the Behr-Hella Thermocontrol sales, which was booked in H1 last year. On the net cash flow, we have posted EUR 114 million of net cash flow versus EUR 86 million last year. It is an increase of EUR 29 million. Here again, we have an increase of the EBITDA versus last year, which is helping us.

We have also good momentum on the CapEx, which have been reduced. You can see the CapEx has been reduced by 15% versus last year. We are starting to see the monitoring and the control on the CapEx we want to have, which is benefiting to our net cash flow. With that, I would end the financial presentation and hand over to Bernard again for the outlook.

Bernard Schäferbarthold, CEO, HELLA: Yeah, thank you, Philippe. If we come to the outlook, then on page 16. The view on the market. We assume, similar to IHS, that the market should be around 90 million cars this year, which is very comparable to last year, a slight increase with a continuous downward trend in Europe and as well in the Americas, and still a positive growth for Asia-Pacific coming, especially also out of China. On page 17, again, our outlook. We still see, as I said, sales around EUR 7.6 billion-EUR 8 billion. We had EUR 4 billion at the first half. We are quite confident really on that range as of today, also looking at the current trading. The operating income margin between 5.3%-6%, having been at 6%, we are well on track on this as well. As I said, net cash flow of at least EUR 200 million.

To sum it up on page 19. First, we look at H1. Overall, in our view, a solid performance. We are on track also to our own expectations. The market was demanding with a lot of uncertainties. We are working very focused on continuing on our structural and performance measures, where basically we already see, as I said, that step by step, it pays off, and we see our cost structure going down. On the order intake side, especially on the electronic side, we were able to win very strong businesses, which should support our growth path also in the upcoming years. We, as I said, confirm our outlook. Still, we see that H2 will remain very dynamic and with a lot of uncertainties.

As of today, we see that the positive trend in terms of our sales evolution is continuing, so that we feel confident in terms of the outlook we have given. Lastly, as I said, on the competitiveness program, we are well on track. We are accelerating on the measures. We are adding measures also to further streamline our structures. We added and started the new project Simplify to improve the processes and the organizational structure specifically on all corporate functions, supporting functions overall. As I said, it is a global program, and we anticipate a saving of around EUR 80 million until 2028. Having said that, we are happy to take your questions.

Moderator/Operator: Thank you very much. Ladies and gentlemen, we will now move on to your questions. Questions can only be placed via telephone keypad. If you would like to ask a question, please press 9, followed by the star key on your telephone. If you wish to cancel your question, please press 3, followed by the star key, also on your telephone. At first, questions are limited to three per person. You can now press 9 and star to state your question. The first questions come from Sanjay Bagwani. I’m sorry. Please go ahead.

Sanjay Bagwani, Analyst: Hi. Thank you very much for taking my question. My first one is on the FI guidance. When I look at the first half, and if I just bake into your commentary that you are still seeing the positive evolution in sales is continuing, then it seems like you normally are trending towards the upper end of the guidance range for both sales and margins. Usually, H2 margins tend to be higher because of the R&D reimbursements and stuff like that. Are you able to provide some color? How do you feel about H2 margins? In that context, do you think the guidance probably more towards the upper end of the range is achievable or not? What could be the other factors which you think could be the headwinds? That’s my first question. Thank you.

Bernard Schäferbarthold, CEO, HELLA: Yeah. Good morning, Sanjay. You’re right. Normally, on the sales, at least if I look also at HELLA in the last years, it’s very comparable in the second half of the year to the first half. If you take basically history, then it brings us automatically to the upper end. With that, we would also be confident to be in the upper range of our OI margin. This, I think, is a fair view on it. It remains, let’s say, what is basically the risk for us. Still, it remains uncertain how demand will continue. With all uncertainties we have in the market, specifically also on the tariff side, I think we remain somehow a little cautious. Still, I would say we do not see that in the demands of our customers, that there is—as I said, we see still the demand quite good, no big changes.

Also, we want to see how now when it is after the summer break, do we then see some changes also on the OEM side? We are not anticipating that, but we know how dynamic the market actually is. This is why we are a little more cautious in our tone. It’s a fair view you have.

Sanjay Bagwani, Analyst: Thank you very much. My second one is on the electronics. The gross margin decline in H1, I think you mentioned it’s partially because of the electronics. I think you mentioned some write-offs. Could you please maybe provide some more color on that? Yesterday, one of your peers reported, and their gross margin increase was driven by material cost improvement and electronic costs. Just trying to reconcile what this write-off pertained to and if you are also seeing any tailwinds from the electronic cost deflation.

Bernard Schäferbarthold, CEO, HELLA: Yeah. If you do the year-on-year comparison, first, the comment I did last year, we sold a small business. It was an asset deal. Our people sent our business. This was a EUR 17 million gain, which was in the gross profit last year. This is the first element if you really compare both. Secondly, we had one program, which was where we had significantly lower volumes. Because of these volumes, we have written off the equipment related to that with an extraordinary write-off, which Philippe mentioned. This was in the first quarter where we took EUR 10 million into the gross profit as a negative. This is basically the main change. If we look, other than that, on our target, if it comes really to material cost reduction, I said that we are looking at around 4% of material cost reduction overall we are targeting.

We are well on track on that number now. We also assume now for the second half that this will continue.

Sanjay Bagwani, Analyst: Thank you. And then just a final one. I know it’s probably a bit early for the Q3, but are you seeing the Q3 margin holding up same level as the Q2 or improving? Any indication there will be very helpful.

Bernard Schäferbarthold, CEO, HELLA: As you said, it’s a little early. It depends a little bit. Normally, from a sales perspective, because of the summer break, it is slightly lower sales overall. The third quarter is normally one of our weakest, also if we look at the previous years. We do not anticipate that we should be, also in comparable of last year, there should be a significant deviation to last year. It should be around that area.

Sanjay Bagwani, Analyst: Thank you. Is it the same for the margins?

Bernard Schäferbarthold, CEO, HELLA: Yes. Yes.

Sanjay Bagwani, Analyst: Thank you. Very, very helpful, as always.

Moderator/Operator: Thank you very much. At the moment, there seem to be no further questions. Once again, this is your chance to ask your questions if you would like to do so. Please press 9 and star on your telephone. We’re going to give you a couple more seconds to state your question if you want to. That seems not to be the case, which is fine. I would like to hand over once again to the management for some final words.

Bernard Schäferbarthold, CEO, HELLA: Yeah. Thank you very much to show interest in HELLA and in our earnings call. Thank you for joining. I wish you a very pleasant day and hope to hear you or see you soon. Bye-bye.

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