Earnings call transcript: Hella KGaA Hueck & Co reports Q2 2025 results

Hella KGaA Hueck & Co reported its second-quarter 2025 earnings, revealing stable financial performance despite a challenging market environment. The company achieved an earnings per share (EPS) of €0.4, with revenues reaching €1.98 billion. The stock saw a modest pre-market increase of 1.15% following the announcement, closing at €88.

Key Takeaways

• Hella’s revenues slightly declined year-on-year, reflecting a 1.3% decrease.
• The company maintained a stable operating income margin of 6%.
• Strong performance in electronics, with a 7.2% growth.
• Launch of the "SIMPLIFY" efficiency program targeting €80 million in savings by 2028.
• Continued focus on regional distribution and resilience, with new projects in North America and China.

Company Performance

Hella KGaA Hueck & Co demonstrated resilience in the face of declining global demand, particularly in Europe and the Americas. The company’s strategic focus on electronics and regional distribution paid off, with significant growth in the electronics sector and new project wins in key markets such as North America and China. Despite a 1.3% drop in total sales to €4.3 billion, the company outperformed the market in both Europe and the Americas.

Financial Highlights

• Revenue: €4.3 billion, down 1.3% year-on-year
• Organic sales decline: 2.4%
• Operating income margin: 6%, stable compared to last year
• Net cash flow: €114 million, a 34% increase from the previous year
• Gross profit margin: 23.1%, down from 24.1% last year

Earnings vs. Forecast

Hella’s EPS of €0.4 met market expectations, while revenue slightly exceeded analyst forecasts of €1.95 billion. The pre-market stock price increased by 1.15%, reflecting investor confidence in the company’s performance despite market challenges.

Market Reaction

Following the earnings announcement, Hella’s stock experienced a modest pre-market gain of 1.15%, with shares trading at €88. This movement aligns with the company’s stable performance and strategic initiatives. The stock’s performance remains within its 52-week range, with a high of €94.4 and a low of €80.4. Based on InvestingPro Fair Value calculations, the stock appears slightly overvalued at current levels. The company offers a dividend yield of 1.08% and has demonstrated strong dividend growth of 33.8% over the last twelve months.

Outlook & Guidance

Looking ahead, Hella projects full-year sales between €7.6 billion and €8.0 billion, with an operating income margin target of 5.3% to 6%. The company aims to achieve a net cash flow of at least €200 million, driven by continued growth in electronics and strategic regional initiatives.

Executive Commentary

Bernard Schaeffer Bartol, CEO of Hella, 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 anticipated savings of €80 million from the "SIMPLIFY" program by 2028, underscoring the company’s commitment to efficiency.

Risks and Challenges

• Declining demand in Europe and the Americas could impact future sales.
• Market uncertainties, particularly in the automotive sector, pose a risk to growth.
• Restructuring costs, projected to reach up to €100 million, may affect profitability.
• Maintaining gross profit margins amid competitive pressures remains a challenge.

Q&A

During the earnings call, analysts inquired about the potential to achieve upper-end guidance, challenges in maintaining gross margins in electronics, and expectations for Q3 margins. Management expressed cautious optimism, acknowledging market uncertainties while focusing on strategic initiatives to drive growth.

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

Moderator: Good morning, ladies and gentlemen, and welcome to the Heller Investor Call on the results for the first half year of fiscal year twenty twenty five. This call will be hosted by Bernard Schaeffer Bartol, the CEO and Philippe Vignet, the CFO of Heller. At this time, all participants have been placed on a listen only mode. The floor will be opened for questions following the presentation. Let me now turn the floor over to your host, Bernard Schafer Bartholt.

Bernard Schaeffer Bartol, CEO, Heller: Very warm welcome to our earnings call for the first half twenty twenty five. I’m here together with Philippe, CFO at Heller, and Kathleen Dorde, who is heading investor relations. So starting immediately on on page four of our presentation, if we look at the key figures and the key achievements in the first half. So looking first on the sales side, so our organic sales are at 4,000,000,000, 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 the reason on that sales trend. Electronics is with a continuous good momentum, a growth of 6.6%, and now at 1,600,000,000 on the on the first half. Specifically, our radar business, but as well business related to our energy management division is growing growing quite decent. Life cycle solution was impacted by a weak demand on commercial vehicles.

So overall, on the first half year on year, 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 on the second half. If we look at our operating income margin, we are largely stable to to last year. We are at 6%. Our gross profit is is is slightly down in comparison to 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 17,000,000. So the the comparable we need to to remind on on that one as well. We’re working intensively on our on our costs. So we see with a strict cost discipline and and cost reduction, we see 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 and d.

So we reduced in the first six months headcount by around 3.4% overall. So this will now continuously lead also to further, cost reductions in the in the upcoming month. We also said that within r and 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 q one to a good positive momentum now within the second quarter. We ended the first half year with a positive number of €114,000,000, which is an increase of around 34% in comparison to last year.

We have higher funds from operations. We are continuously managing to improve in our CapEx spending, and as well the factoring, which is within that net cash flow, is at 23,000,000 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 7.6 to 8,000,000,000. Our operating income will remain, or will be between around 5.3 to 6%, and we assume to be at least at 200,000,000 of net cash flow to the end of the year.

If we move to, to the next page on page five, we are quite pleased about the development in in our order intake. We were able to win in lighting important new projects, specifically also in in in North America, but as well in China, with Chinese OEM, and this should support our growth specifically in these, two regions. Even more pleased, I’m with a strong development within our electronics business. We won very important acquisitions on on on a lot of our new product offerings, specifically, if it comes to our sonal module business and and the intelligent power distribution module, which we we offer, we were able to win another another order, the same also on on the smart car access. And to highlight as well, here on the on the high voltage side, we were able to win another big business and and as well another one on the sonar control modules with an SOP in 2028.

So important acquisitions in terms of new products, we have we have established into 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 resilient, also going forward. Lifecycle solution is also showing a good trend in terms of order intake. So, especially in the important area of tracks, but also, buses, we were able to further win businesses and as well outside of of Europe, which will also support that that trend. Coming to coming to the next topic on on page six. So we we started with our competitiveness program specifically on Europe early twenty twenty four, 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 focusing is a global program, is a program where we also leverage and work together with FOREVIA, and the target is really to streamline specifically all functions and as well the administrative functions, our processes and our organizations and and to get leaner, more efficient, and less complex. This program should should lead to gross savings of around €80,000,000 until the year 2028, and we will have investments and as well restructuring costs, which will be up to around €100,000,000. So we we believe that this this program will bring us into a best in class, organizational setup in the in the upcoming years. We did an intensive benchmark to leverage really on the on the opportunities, we we still have.

We already, have have started on 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 going forward. Having said that, I would hand over to Philippe to give more details on the financial results.

Philippe Vignet, CFO, Heller: Thank you, Bernard, and good morning to all. So yes, looking at the sales, so we reported sales of EUR 4.3 which is 1.3% below last year. In this number, we have a negative impact of EUR 36,000,000 due to exchange rate negative trend versus last year. And we have a volume reduction of 50,000,000, so 0.4% in terms of organic decrease. So if we look my BG, so lighting, we posted sales of 1,800,000,000.0 versus more more or 2,000,000,000 last year.

So it’s a 6.8% year on year organic decrease. So here, we have some difficult situation in in Asia and China mostly, where we have the Tesla Model Y, which is ending in q one twenty five and which is replaced by the new model, but the ramp up is only starting. And we have not the the full the same content either in in China, which is also impacting the sales in China. We have some good ramp up in in Europe, especially on with that lumps and we have combination lumps with Volkswagen, for example, in Audi, but not enough to offset the the decrease we have observed in in Asia. The operating income is at 3.4 percent versus 3.3 last year.

So here, we have a relatively good adoption of our fixed cost and and our material ratio. So the gross margin has been kept at a decent level versus last year. And we are also reducing our r and d cost and fixed cost and SG and A, which is also linked to the program, which have already been announced, so leading us to be slightly better than last year in operating income by 10 basis points. For electronics, so we posted sales of EUR 1,700,000,000.0 versus EUR 1,600,000,000.0 last year. So it’s an organic growth of 7.2%.

So here, I said we are helped a lot by our radar business, especially in Americas where we have a decent growth, which is above double digit growth. We also have some growth in Europe with new programs, which but which are not which are, let’s say, offset by a lower electrification in Europe. And we have also a very strong growth in Asia, thanks to the battery management system and car access, which have been taking off in in Asia. Here, the gross margin is still impacted by some write off that has been have been booked into the slow electrification in Europe, But we are offsetting part of it by lower R and D expenses with less use of external resources and also some impact from the cost cutting plan, which have been announced, which is already visible. Life cycle.

So we posted 500,000,000 of sales versus 537 last year, and operating income at 10.6 versus 11.7. So here, for life cycle, we are very much impacted in terms of volume on the special application side with a reduction of the 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. So, yeah, we are really suffering from the special application domain, which has also led to a lower operate gross margin because we are not completely able to offset this volume drop. But still, we are also decreasing our R and D expenses and SG and 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. So here we are again, we have the the nice development on the radar business on the electronics and but partially offset by lighting, again, here with the Tesla model, which is impacting the three continents, the ramp down and the end of production of the model y. And 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 the electronic radar, which is Venus, which is helping us. And we have also some ramp up in North America with lighting, especially with with GM, partially offsetting again the decline we have with Tesla. Asia Pacific, here we have a decrease of 7.6. So that’s underperformance versus the market. Here, again, we are very much suffering from the Tesla business in in lighting, which is going down.

And on the other side, we have some growing sales with the battery management system in electronic. So looking at the p and l. So again, sales going down by 1.4%. The gross profit is at 23.1% versus 24.1 last year. So here we here we have the lower gross profit, which is also linked to, as I said, to electronic with some lower r and d margin and also some write off which have been booked in electronic.

Lighting and life cycle are showing slight improvement on the gross margin level. The R and D, we are at 9.6% versus 10.4% last year in H1. So yes, we are below the 10% we wanted reach. On the SG and 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 10,000,000 were less than last year. So here on R and D and SG and A, we all again see the benefit of the cost cutting program which have been launched, leading us to an operating income of 6% versus EUR 6.2 last year. On the EBIT, we are at 138,000,000 versus EUR $317,000,000 last year. So here, we have on the nonrecurring OI minus EUR 95,000,000 booked, which is mostly represented by the restructuring costs, have been booked in h one twenty five. And for last year, in h one twenty four, I I need to remind that we had the benefit of the capital gain on the BHTC sales, which were which was booked in H1 last year.

On the net cash flow, so we have posted EUR 114,000,000 of net cash flow versus 86,000,000 last year. So it’s an increase of 29,000,000. And so here again, we have an increase of the EBITDA versus last year, which is helping us. And we have also good momentum on the CapEx, which have been reduced. You can see the CapEx have been reduced by 15% versus last year.

So we are starting to see the 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 Schaeffer Bartol, CEO, Heller: Yes. Thank you, Philippe. And if we come to the outlook, then on Page 16, the view on the market. So we assume similar to to IHS that the market should be around 90,000,000 cars this year, which is very comparable to last year, a slight increase with a continuous downwards 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, our outlook.

So we we still see, as I said, sales around 7.68. We had 4,000,000,000 at the at the the first half, so we are quite confident really on that range as of today, looking at the current trading. The operating income margin between 5.36, having been at 6%, we are well on track on this as well, and as I said, cash flow of at least 200,000,000. So to to sum it up on on page 19, so first, we we look at h one overall, in our view, a solid performance. We are on track also to our, own expectations.

The market was was was demanding with a lot of uncertainties. So we are working very focused on on continuing on our structural and performance measures where, basically we already see, as I said, that step by step, we are we are it pays off, and we see our cost structure going down. And on the order intake side, especially on the electronics side, we were able to win very strong businesses, which should support our growth path also in the in the upcoming years. We, as I said, confirm our outlook, and still we we see that h two will remain very dynamic and with a lot of uncertainties. But as of today, we see that the the the positive trend in terms of our sales evolution is is is continuing so that we feel confident in terms of the the outlook we have given.

And lastly, as I 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. And as I said, it’s a it’s a global program, and we anticipate a saving of around 80,000,000 until 2028.

So having said that, we are happy to take your questions.

Moderator: 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 3 per person. You can now press 9 and star to state your question. The first questions come from Sanjay Bhagwani. I’m sorry. Please go ahead.

Sanjay Bhagwani, Analyst: Hi. Thank you very much for taking my question. My first one is on the f y guidance. When I look at the first half, and and if I just bake into your commentary that you are still seeing the positive evaluation in in sales is continuing, then you are it it seems like you normally are trending towards the upper end of the guidance range for both sales and margins. And usually, h two margins tend to be higher because of the r and d reimbursements and stuff like that.

So are you able to provide some color? How you feel about h two margins? And in that context, do you think the guidance probably more towards the upper end of the range is achievable or not? Or what could be the other factors which could which you think could be the headwinds? That’s my first question.

Thank you.

Bernard Schaeffer Bartol, CEO, Heller: Yeah. Good morning, Sanjay. So you’re right. Normally, on the the sales, at least if I look also at Hella in the last years, it’s it’s very comparable in in the second half of the year to the first half. So if you take basically history, then it brings us automatically to the to the upper end.

And with that, we would also be confident to be to be in the upper range of of ROI margin. So this this, I think, is a is a is a fair view on it. It remains, let’s say, what what is what is basically the the risk, for us, still, it remains uncertain, how demand will continue and, with all uncertainties we have in the market, specifically also with on the tariff side, I think we remain somehow a little cautious. So still, I would say, we do not see that in the the demands of our customers that there is, as I said, we see still the demand quite good, no big changes. But also, we want to see how now when it is after the summer break.

We then see some changes also on the OEM side? We are not anticipating that, but we know how dynamic the market actually is. And this is why we are a little more cautious in our tone. But it’s a fair view you have.

Sanjay Bhagwani, Analyst: Thank you very much. And and so my second one is on the electronics. I so so so so the gross margin decline in in h one, I think you mentioned it’s it’s partially because of the electronics, and I think you mentioned some write off. Could you could you please please maybe provide some more color on that? Because yesterday, like, one of your peers reported, and their gross margin increase was driven by material cost improvement and electronic cost.

So just trying to reconcile what what this side write off pertain to and and if you if you are also seeing any tailwinds from the electronic cost deflation.

Bernard Schaeffer Bartol, CEO, Heller: Yes. So so if you do the the year on year comparison, the first the comment I did last year, we sold a small business. It was an asset deal, so our people send for business. And this was a 17,000,000 gain, which was in the in the gross profit last year. So this this this is the first element if we really com if you really compare both.

And secondly is, we had one program, which was which where where we had significantly lower lower volumes. And there, because of of of these volumes, we have written off the the equipment related to that with an extraordinary write off, which Philippe mentioned. And this was in the first quarter where we took 10,000,000 into the gross profit as a negative. So 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.

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

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

Bernard Schaeffer Bartol, CEO, Heller: So it’s as you said, no, it’s it’s a little early. It depends a little bit. So normally, from a sales perspective, because of the summer break, slightly lower sales overall. So the third quarter is normally one of our weakest. Also, if we look at the previous years, but we do not anticipate that we should be also incomparable of last year, there should be significant deviation to last year.

So it should be around that that area.

Sanjay Bhagwani, Analyst: Thank you. And and is it the same for the margins? Yes.

Moderator: Yes.

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

Moderator: 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 gonna give you a couple of 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 Schaeffer Bartol, CEO, Heller: Yeah. Thank you very much, to show interest in Heller and in our earnings call, and thank you for for joining. And, I wish you a very pleasant, day, and hope to hear you or see Bye bye.

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