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Mekonomen AB, a leading player in the Northern European automotive aftermarket, reported a 6% increase in net sales to SEK 4,600 million for Q1 2025. According to InvestingPro data, the company maintains strong financial health with a "GOOD" overall score and has demonstrated consistent revenue growth with a 5-year CAGR of 9%. Despite the positive sales growth, the company experienced a slight decline in organic growth and a drop in stock price by 4.09% following the earnings call. The company continues to maintain its gross margins through strategic pricing and procurement improvements, with the latest gross profit margin at 44.7%.
Key Takeaways
- Net sales increased by 6% to SEK 4,600 million.
- Stock price fell by 4.09% following the earnings call.
- Organic growth was slightly negative at -1%.
- Mekonomen launched a new commercial vehicles division and expanded electric vehicle services.
Company Performance
Mekonomen demonstrated a robust performance with a 6% increase in net sales, reaching SEK 4,600 million. However, the company faced a slight decline in organic growth, registering at -1%. The company’s strategic initiatives, including the launch of a new commercial vehicles division and expansion of electric vehicle services, are aimed at bolstering its market position. Despite competitive pressures, particularly in Denmark and Finland, Mekonomen maintained its leadership in the Northern European automotive aftermarket.
Financial Highlights
- Revenue: SEK 4,600 million, up 6% from the previous period.
- Adjusted EBIT: SEK 231 million, showing an improvement.
- Gross margins were maintained through effective pricing strategies.
Market Reaction
Following the earnings announcement, Mekonomen’s stock price declined by 4.09%, closing at SEK 121.8, down from its last close value of SEK 127. Based on InvestingPro Fair Value analysis, the stock appears to be undervalued at current levels. The company has demonstrated resilience with a 6.85% total return over the past year, despite recent market volatility. This movement places the stock closer to its 52-week low of SEK 103.2. The decline reflects investor caution amid concerns over the economic environment and the company’s slight negative organic growth.
Outlook & Guidance
Looking forward, Mekonomen is focusing on optimizing warehouse operations and improving efficiency in Finland. The company anticipates potential pent-up demand in upcoming quarters. A Capital Markets Day is scheduled for September 10 in Odense, Denmark, where further strategic insights will be shared.
Executive Commentary
CEO Per Oskarsson emphasized the company’s commitment to becoming the most comprehensive partner for vehicle repair and maintenance in Northern Europe. He noted the increasing demand for high-quality tires due to heavier vehicles and electric cars, which wear out tires faster. CFO Kristo Johansson highlighted the company’s progress in meeting sustainability reporting requirements.
Risks and Challenges
- Economic downturn concerns could impact consumer spending on vehicle maintenance.
- Competitive pressures in key markets like Denmark and Finland.
- Potential supply chain disruptions affecting procurement and inventory management.
- The impact of weather conditions, such as a warm winter, on sales performance.
Q&A
Analysts inquired about the impact of the mild winter on sales, currency effects on procurement, and the rationale behind the commercial vehicles expansion. The company’s strategy to transition warehouses was also a topic of interest, reflecting investor focus on operational efficiency improvements.
Full transcript - Mekonomen AB (MEKO) Q1 2025:
Conference Moderator: The hand the conference over to the speakers’ President and CEO, Pera Oskarsson and CFO, Kristo Johansson. Please go ahead.
Per Oskarsson, President and CEO, MECO: Thank you. Good morning, everyone, and welcome to MECO’s presentation of our results for the first quarter twenty twenty five. As said, I’m here with the CFO, Kristi Johansson, and together, we’ll walk you through our performance and current position. Unlike many other industries, we see stable underlying demand driven by the constant need to service and repair vehicles. The car remains an essential part of the daily life for most people, and when car when repairs are needed, they tend to prioritize them.
MECO’s aim is to meet this need. We want to be the most comprehensive partner for all who drive, repair, and maintain wheel vehicles in Northern Europe. And today, we are the market leader. However, we’re not entirely unaffected by international turbulence. In q one, our markets was cautious with concerns about a prolonged economic downturn.
Total growth was 6% and the organic growth was slightly negative. Despite this, we managed to defend our gross margin through price adjustments and improved procurement. We also managed to improve our EBIT, although we saw a slight decrease in our adjusted EBIT margin. Importantly, we continued the implementation of our high-tech warehouses according to plan. And in response to the more cautious market environment, we also accelerated our cost control efforts within the Building a Stronger MECO initiative.
At the same time, we’re taking long term actions to drive growth. Several strategic initiatives are launched during this first quarter. Let me go through a few of them starting at the next slide. To start with, we’re accelerating our efforts within the tire segment, a key area for future growth. Tires are crucial component of the car today and will remain so in the future.
Vehicle are are getting heavier and electric cars wears out tire faster. This increases the demand for higher quality tires at higher prices. Our ambition is to increase tire sales with more than 30% within the next two years, and I’m pleased that we have established a strategic partnership with Godier in Q1, ’1 of the world’s leading tire manufacturers. Let’s move on to another long term growth initiatives on Slide four. Commercial vehicles are typically defined as the trucks, buses, pickups and similar.
These vehicles are heavily dependent on reliable spare part deliveries wherever they might be. With our extensive network, we are the ideal partner for those who repair, owns and operates these vehicles. In q one, we established a new division under the leadership of Niels Holman, an experienced leader in the commercial vehicle sector. Our long term ambition is clear. We want to achieve the same leading position in commercial vehicles as we already hold in passenger cars.
Let’s look at the similar growth initiatives on slide five. We not only have a vast network, we also have a leading expertise in electrical vehicles. This includes more than a thousand workshop certified for high voltage systems. This was a key reason why General Motors chose Meco as the strategic partner for all aftermarket needs for their new electrical vehicles in Sweden. We’re proud to collaborate with Cadillac, one of the world’s most iconic brands, and to add another manufacturer to our growing list of partners.
Let’s move on to Slide six, a significant step in strengthening Meco’s position for the future. Our high-tech warehouse projects are progressing according to plan. The construction phases are complete, and we are now moving in. We’re already live in Finland and currently testing the technology in Denmark and Norway, aiming to be fully operational across all sites in the autumn. In short, this will elevate our logistics to an entirely new level and open up for new growth opportunities.
I look forward to sharing more details at our Capital Markets Day on September 10 in Roarhap, which is outside Odense in Denmark. Now let’s turn to something else worth highlighting, our expanded annual sustainability report, and I will hand over to Kirsten.
Kristo Johansson, CFO, MECO: Thanks, Per. So as market leader, we set standards for the industry in our and not only for Kastr, also for other important areas. One such area is sustainability where we do a lot. We are glad to share an update on this work through our annual and sustainability report, which we published on March 27. And as I’m sure you know, reporting requirements have evolved, and we are well on track to meet them.
In fact, we believe that the industry as a whole will benefit from a greater transparency, and we are ready to lead the way. To give two examples of tangible progress in 2024, we increased the percentage of female managers from 15 to 17%, and we increased the proportion of renewable electricity from 11 to 80%. Turning to financials on Page eight. We did, as Pare mentioned, see a resilient performance in a slow market. Net sales increased to 6% by 6% to SEK 4,600,000,000.0, with organic growth being slightly negative at minus 1%.
The organic growth metric is after adjusting for FX and working days, both of which contributed negatively in the quarter. Nevertheless, with help from maintained gross margins and a controlled cost development, we were able to generate an adjusted EBIT of SEK231 million. This is an increase versus the comparison period both on the adjusted and the reported level. The difference between EBIT and adjusted EBIT referred to as items affecting comparability amounted to SEK70 million, of which half related to ERP product cost. The remaining half include SEK9 million of costs associated with the warehouse projects, and this is mostly double rents.
The overlap on lease contracts is between six and nine months. And for the full year, I expect items affecting comparability related to warehouse projects to amount to SEK 40,000,000. When it comes to cash flow from operating activities, Q1 is typically a weak quarter, although the comparison figure from 2024 was a bit of an exception. The level in Q1 twenty twenty five is a result of increases in the non inventory component of working capital, so payables, receivables. It’s not so that the payment terms or similar things have actually changed to any significant degree, so one should really read this as a fluctuation rather than a structural change.
I mentioned stable gross margins illustrated on Page nine, and there are no surprises on this front. We have already pointed out that growing in a lower margin market like Poland is dilutive to gross margin. And in the graph, this is included in the other category. I also wish to make a few comments on FX. So in a sense, the tide has turned.
Currency effects are now helping. In simple terms, our purchasing is mostly in euro, whereas sales are in a mix of currencies. So all else equal, margins will benefit from a weaker euro. At the same time, we also note that in many markets, and not least in the competitive market in Poland, such effects tend to be passed on to customers through negative price adjustments. Finally, we should note that growth in Denmark, Finland, Poland and The Baltics over the last few year mean that Meco’s FX mix is less one-sided than it used to be.
As usual, I will, in a minute, comment on key developments by market. But before going to that level of detail, we note that Sweden, Norway and Denmark form well. These markets represent 60% of our business. We have strong markets in all of those countries, and we do continue to invest to protect them. Our financial position, as illustrated on Page 11, remains strong.
Our leverage at 2,400,000,000 is well within our target range. Available funds amounted to SEK1.7 billion at the end of Q1. And we are tending to the maturity profile of debt with a first step in Q1 through the renewal and extension of our RCF. Next on our list is to look at the bond, which matures in 2026. Now with regards to the recent uptick in net debt, there are three comments worth making.
So firstly, I mentioned that operating cash flow in Q1 is often seasonally weak. That was the case also in 2025. Secondly, separate from operations, we are working our way through a phase with larger investments. CapEx in the quarter was almost twice the historic level, and this is mostly linked to the new warehouses. When those are completed later this year, we expect to stay there for at least ten, fifteen, maybe twenty years.
So hence, clearly, higher CapEx level is not a new normal. Looking beyond what is capitalized, we are, as you know, also investing into the ERP program at the pace of SEK 100,000,000 a year. And this program will continue throughout ’25 and ’26. Finally then, looking into q two and q three as well, we are undertaking three parallel warehouse moves. And in that, maintaining a good service level to customer is, of course, key.
We are taking actions to mitigate risks even if it in the short term goes against our longer term drive to rationalize inventory and working capital. So to sum up this page, we have a number of initiatives going, but we do operate from a position of strength. Moving into our business area by business area review, we start with Denmark on Page 12. So in Denmark, adjusted EBIT increased by 16% to SEK77 million despite a slow top line. And this strong development came about through a combination of pricing efforts and cost control.
Denmark is a very competitive market, and efficiency will continue to be in focus throughout 2025 as we ramp up and fine tune operations in the brand new and modern central warehouse in Odense. And as you heard Paris saying, this is also where we, on September 10, opened the door to show investors our capabilities up close. Turning to Finland on Page 13. The development is less satisfactory. So despite improving gross margins and cost coming down also in absolute terms, We are, in a sense, outpaced by a market, which has been slower than anticipated.
Like many of our business areas, a warm winter kept sales down. And in Finland, we’re also noticing less helpful macroeconomic development. As previously announced, we have taken actions to improve efficiency, and these are progressing. For example, the out of store automation is in early phase operation. Ultimately, this will enable staff reductions, and we are now in a six month phase to ramp up and complete changes in the related workflows.
In Poland and The Baltics, shown on Page 14, we see top line growth of 43%, both through the full year effect of earlier acquisitions, but also in terms of organic growth. And the difference in growth dynamics was and is one of the strategic reasons why we have invested in a larger footprint here. Considering that Elite was loss making at the time of acquisition in August 24, the year over year EBIT comparison is perhaps less meaningful. On the integration of Elite, we did pass a few milestones, one of them being that we exited the transition service agreement on IT, and the integration continues. Estimated total cost of SEK 70,000,000 to SEK 100,000,000 still stand, even though only limited amounts ended up being incurred in this particular quarter.
In Sweden, Norway on Slide 15, profit generation continues at a healthy level with adjusted EBIT increasing to SEK143 million, corresponding to an adjusted EBIT margin of SEK 8,300,000.0 in the quarter. So as noted before, this is a result of cost measures taken in 2023 and 2024. Market headwinds have not gone unnoticed as seen in the negative 2% organic growth, but this is also not changing our plans. And our current focus business area is simplification of the Swedish branch network in parallel to running capacity validations on the new Norwegian central warehouse. Finally then, Sonne and Balkan on Page 16.
We note a slight reduction in sales and adjusted EBIT following many consecutive quarters of solid development. So with sales coming in a bit below our expectations, we also saw lower adjusted EBIT margins compared to the very attractive levels seen in recent periods. And I I have to say that this operation is quite lean. So hence, our priority here is top line growth, be it through refining the assortment or smaller selective acquisitions. Looking beyond 2025, there should also be synergies to extract in logistics on the back of the investments that we are now doing in Norway.
So with that, I’d like to hand back to you, Paar. Thank you, Kristo.
Per Oskarsson, President and CEO, MECO: Yes. To summarize the first quarter, we delivered a solid EBIT and maintained our gross margin through price adjustments and better procurement. Total growth was 6% organically. The pace was slower. We took several long term actions to drive growth.
We launched a new division for commercial vehicles and then the new partnerships to accelerate our tire business. Importantly, we continued the implementation of our high-tech warehouses according to plan. These new facilities will will not only increase efficiency and customer service, they will also take our logistics to a completely new level. I’m really looking forward to our Capital Markets Day on September 10. We will talk more about this and showcase our brand new warehouse in Odense.
That day, we will also provide more information about our other growth initiatives and the efforts we are making to build a strong EMEACO. So you’re all very welcome. That’s all from me. Thank you for listening, and we’ll now open up for questions.
Conference Moderator: The next question comes from Mats Lisz from Kepler Cheuvreux. Please go ahead.
Mats Lisz, Analyst, Kepler Cheuvreux: Yeah. Hi. Thank you. A couple of questions. I guess, relating to the well, somewhat mild winter and so on.
Do do you see that I mean, is there sort of a pent up demand still regarding service, or is it more sort of winter conditions, 17 to mild and the the measures normally affecting during a harsh winter, it’s not going to be that. And and now we are more in for the normal, hopefully, second quarter with the pent up demand ahead of the driving season and so on.
Per Oskarsson, President and CEO, MECO: I I would say it’s a combination. A combination. I mean, we we compared to the quarter last year, a lot of effect from the very cold winter. But, then at least some of the markets, there is, let’s say, very cautious market and and the the demand is not fully up. And yes, it might be a pent up.
But when that occurs, I will pass on because that’s still unknown. For example, Finland is very slow market. And at some point, that will recover, but I can’t promise whether it will happen.
Mats Lisz, Analyst, Kepler Cheuvreux: The Finnish operation, as you mentioned, is a bit soft, I guess. But how much is sort of due to company specific reasons? I mean, you will make this integration of warehouse upgrading the logistical structure, and is it well, what what’s the bottom line there?
Per Oskarsson, President and CEO, MECO: Yeah. We’ve we are we are we do we did do a lot and during the the last year and during the quarter. But those also we have actually reduced cost and we have improved the efficiency and everything. But then there is a strong headwind due to the very low demand. So what the e n l can’t get.
The warehouse project is looking good. The automation is actually up and running. But that step one out to two, we also need to rebuild the manual warehouse. Full effect from that initiative, that would be in the second half of the year. So it’s still more to come from the initiative.
What we also have done quite late is that we are strengthening the sales organization in order to also get more market share.
Mats Lisz, Analyst, Kepler Cheuvreux: Thank you. And secondly, or just about the coming quarter now, I mean, the Easter was more of a first quarter event last year, the Easter holiday, I mean, and now it’s more a second quarter. Should we expect some extra impact there, especially in Norway, I guess? Or is it could you say something there? I mean, it’s probably something to get a feel for how things are developing in the second quarter also.
Per Oskarsson, President and CEO, MECO: It would be maybe it’s a bit we don’t guide in that way. But you’re right that Easter is in April this year. It has a little bit both positive and negative effects. It’s positive for Sergeant of Belgium because they have a lot of extra sales before Easter because of their accessories and that kind of things. But most of the markets has negative effect.
So one would expect that there will be an effect from that on the Q2. And then, of course, it’s the working days. Okay.
Kristo Johansson, CFO, MECO: Now maybe I can add good morning, Mats. So if you look for all the markets on a combined basis, there is one less working day in q two twenty five compared to q two twenty four. And that was also the case actually for q one. So q one was one working day short compared to the previous year.
Mats Lisz, Analyst, Kepler Cheuvreux: Okay. Yes. Thank you. And then, well, Krista mentioned the currency impact there and stronger krona towards the euro. You have some positives there on your procurement in euro.
Have you seen the full impact of that in the first quarter? Or is there sort of filter through more in the second? Could you say something about that?
Per Oskarsson, President and CEO, MECO: But you have the onetime effects, of course, one, which is in Sweden positive. They’re not talking about the balance sheet. But then the gross margin effect, that will be delayed, let’s say, four to six months before we have sold out what we buy for cheaper. Unfortunately, the Norwegian kroner is didn’t follow the Swedish kroner this time. So we what we win in in Sweden, we kind of lost in Norway.
So it’s a it’s it’s it’s it’s not that big effect any longer as it was some years ago.
Mats Lisz, Analyst, Kepler Cheuvreux: Okay. Yeah. I understand. Great. Okay.
I well, thank you. That that’s all for now.
Kristo Johansson, CFO, MECO: Okay. Thank you. Thank you, Mats.
Conference Moderator: The next question comes from Andreas Lundberg from SEB. Please go ahead.
Andreas Lundberg, Analyst, SEB: Yeah. Good morning. Andreas with SEB. On the heavy truck initiative, I suppose, why you’re doing this? And then what’s your edge?
And how will you utilize your strength in passenger cars on the heavy truck side? If can talk about the strategic reasons and so forth. Yeah.
Per Oskarsson, President and CEO, MECO: Yeah. But it it it it’s a big target. The point where it’s very depending on fast logistics because it’s like a specific number.
Kristo Johansson, CFO, MECO: It’s been
Per Oskarsson, President and CEO, MECO: so to say. It’s the the reason why we want to enter it. We think that with our network, we can utilize all that. We also have some some customers who already are for the person because there’s synergies in in all aspects. We did talk with already couple of years ago in Sweden and Norway where we’re ramping up, but the new area for the other countries.
Andreas Lundberg, Analyst, SEB: I think I lost you a little bit, but did you say that you are some synergies when it comes to purchasing and and distribution? Or or
Per Oskarsson, President and CEO, MECO: The logistic and distribution. When it comes to the the customer, some of our customers are doing both. So we we can add the product to the same customer. Then, of course, the the the works for for heavyweight because we usually also have some some passenger parts, whether it’s in
Kristo Johansson, CFO, MECO: the area.
Per Oskarsson, President and CEO, MECO: We did a supplier, a lot of new suppliers, and that’s why we need to get the volume, to get the the right of the bolt to suppliers where we already are big customers because they have a sort of a boat. There’s opportunity, you know, in many places. Okay.
Andreas Lundberg, Analyst, SEB: Yeah. I think I I got you. And perhaps, Kristi, can you can you help me understand the financial net and how how should see it in in 02/2025? Thank you. Yes.
Kristo Johansson, CFO, MECO: Good morning. So on the financial net, we elaborated a little bit on in Q1. You, of course, have expense on the financing, but you also have a component related to the LEAP contract. Now in Q1, we entered into we took leap to the properties in Denmark and Norway. It means that we are now starting to recognize these lease liabilities on the balance sheet.
You see it’s SEK 1,200,000,000.0. That also has the interest component, which is contributing to a little bit of an increase on the financial net. I believe on the last call, I gave a range of SEK 60,000,000 on an annual basis related to this interest component of the lease liability. Other than that, there are no big kind of movements on the financial net. And as I as I mentioned on the call earlier here, we are we have long So that’s all good.
We are now looking at the bond.
Andreas Lundberg, Analyst, SEB: Right. And then when you’re fully up and running in the new warehouses, Will it be reduced, you know, leasing that from from units you potentially will close? Or how will that be? Correct.
Kristo Johansson, CFO, MECO: So we are currently, you could say, we are operating the central warehouses in to service the three markets with the reason being that the shift, of course, overnight. So there is an overlap, call it, six to nine months during which we move the inventory and get all of the operations up and running. So currently, we are incurring rent for the CapEx of warehouses, The impact on Q1 of 9,000,000,000 there. And that will continue then in Q2 and Q3. I guess, early Q4, we should be out of all the all terms within this temporary invite.
That make I got you. I got you. Yep. For license.
Andreas Lundberg, Analyst, SEB: And, last one, you mentioned a little a little bit about working cap q ’1 seasonality. But given that you are doing these warehouses this year, how do you see working capital in 02/2025? I
Kristo Johansson, CFO, MECO: I think if you look at the end point of ’25, there should be no big, unexpected. What I did, to upgrade as we go through moving the inventory, we are primarily to make sure that there are no risks that we know and not being able to curb. In the short term, we would be willing to absorb a little.
Andreas Lundberg, Analyst, SEB: Okay. I think I got you. Thank you. It’s a little bit difficult to hear your line. You you are aware of that.
Thanks for me for now.
Kristo Johansson, CFO, MECO: Thank you. Thank you.
Conference Moderator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Per Oskarsson, President and CEO, MECO: Well, thank you and thank you all for listening. And again, put in the calendar September 10 when we have a capital markets update, and you’re welcome to to Denmark, Odense. And with that, yeah, thank you for listening, and have a great day.
Kristo Johansson, CFO, MECO: Thank you.
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