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Mekonomen AB’s Q2 2025 earnings call revealed a challenging quarter with revenue characterized by a negative organic growth of 5%. The company’s adjusted EBIT fell to SEK 175 million, while cash flow from operations reached nearly SEK 500 million. Following the earnings release, Mekonomen’s stock price dropped significantly by 22.11%, reflecting investor concerns over the financial performance and market conditions. According to InvestingPro data, the company maintains a market capitalization of $513 million and holds a "GOOD" overall financial health score of 2.55 out of 5, suggesting resilience despite current headwinds.
Key Takeaways
- Mekonomen reported a 5% decline in organic revenue growth for Q2 2025.
- Adjusted EBIT decreased, while cash flow from operations remained strong.
- Stock price plummeted by 22.11% following the earnings announcement.
- The company launched a new cost reduction program aiming for SEK 100 million in annual savings.
- Macroeconomic uncertainties and increased competition are impacting market performance.
Company Performance
Mekonomen’s performance in Q2 2025 highlights significant challenges, with a notable decline in organic revenue growth. The company is facing soft demand across its markets, with increased competition particularly in Denmark and Poland. Despite these challenges, Mekonomen’s cash flow from operations remained robust, and its leverage is within its target range, demonstrating some financial stability.
Financial Highlights
- Revenue: Negative organic growth of 5% compared to previous periods.
- Adjusted EBIT: SEK 175 million, showing a decline.
- Cash flow from operations: Nearly SEK 500 million, indicating strong liquidity.
Market Reaction
Mekonomen’s stock reacted negatively to the earnings release, with a 22.11% drop in price. The stock’s decline reflects investor apprehension regarding the company’s financial results and market conditions. The stock is trading near its 52-week low, indicating significant pressure in the current market environment.
Outlook & Guidance
Mekonomen is focusing on cost reduction and operational efficiency, with no immediate plans for mergers and acquisitions. The company aims to complete warehouse and ERP system upgrades and prioritize debt reduction. No specific guidance was provided for Q3, highlighting continued caution in the face of economic uncertainties.
Executive Commentary
CEO Per Ocharsson stated, "We continue to see a slower market affected by international turbulence and economic uncertainty." This sentiment was echoed by CFO Christer Johansson, who remarked, "We are not expecting to see a big net benefit this year," indicating cautious expectations for the near term.
Risks and Challenges
- Macroeconomic uncertainty: International turbulence is affecting customer confidence and market stability.
- Increased competition: Particularly intense in Denmark and Poland, impacting market share.
- Soft demand: Repairs and services are being delayed or migrated to lower-cost options.
- Strategic execution: Implementing cost reduction and operational improvements amid challenging conditions.
Q&A
During the Q&A session, analysts inquired about the cost reduction program, which is spread across eight countries. Executives emphasized that the full benefits of these savings are expected to be realized by 2026. The company also addressed ongoing efforts to improve performance in challenging markets, though no specific guidance was offered for the upcoming quarter.
Full transcript - Mekonomen AB (MEKO) Q2 2025:
Conference Moderator: I now hand the conference over to the speakers’ President and CEO, Per Ocharsson and CFO, Christer Johansson. Please go ahead.
Per Ocharsson, President and CEO, MECO: Thank you. Good morning, and welcome to MECO’s presentation of our results for the second quarter twenty twenty five. I’m here with our CFO, Kristor Johansson, and together, we will walk you through our performance and current position. Already in the first quarter, the market slowed somewhat affected by international turbulence and uncertainty about the economy. This situation continued into the second quarter with lower demand.
This also intensified competition, particularly in Denmark and Poland. All in all, this impacted our Q2 sales and our organic growth decline compared to the same quarter last year, which actually was the strongest in our history. For some time now, we have stepped up our efforts to build a stronger and more profitable Mieko. This has included extensive savings and optimization initiatives, which have shown clear effect. But the slower market have affected both our sales and results in q two despite our focus on efficiency.
And we are responding to this immediately. So we’re now launching a new cost reduction program that will lower our costs with, by SEK 100,000,000 annually with full effect going into ’26. Beyond reducing costs, we’re also working with more focus to increase our sales. Several activities are underway both locally and at group level. We are renewing our focus on exclusive brands and have continued to bring our upgraded central warehouses into operation in q two.
In addition, we’ll, launch our new ERP in Poland as the first market. So let me show you a brief status on the efficiency improvements, and let’s turn to next slide. We launched, the initiative, Building Merco, in late twenty twenty three. The aim is clear, to improve profitability and long term growth. In short, Building Stronger Merco focuses on these three areas.
First, cost reductions and increased efficiency through consolidating our branch network, cutting costs, and leveraging our on our new warehouses. Second, supplier optimization, making sure we work with more effect effectively with our suppliers. And third, our new business system, for enabling a greater synergies across the group. And as of today, we are approaching the final stages of consolidation of branch network and driving down costs. We have also seen significant benefits from these efforts.
We have almost completed the implementation of our new upgraded warehouses. However, the benefit is still ahead of us. Right now, we’re still burdened by costs from the old manual solutions and paying double rent. This will no longer be the case in 2026. We are also about halfway through the implementation and realization of benefits from our supplier optimizations.
And as for the ERP, we have already taken significant implementation costs while the benefits are still to come. All in all, we have already achieved EBIT improvements of SEK 200,000,000 thanks to these initiatives, and there are substantial gains to still to be realized. And now to address the weaker market, we’re launching a new cost reduction, adding another SEK 100,000,000 in savings. So let’s take a look where we stand with our warehouse projects and go to the next slide. All our high-tech warehouses in Denmark, Finland and Norway were completed on time.
And in q two, we were able to go live in Norway as well. We still expect all warehouses to be fully operational during the autumn. These projects has demanded a lot of focus from us, and we have been careful to minimize the operational risks. The project has not been without their challenges, but we are now very close to completing an important strategic upgrade of Mercos Logistics. This will be key in our efforts to drive long term growth.
So let’s take a look at another of our growth initiatives on slide five. During the quarter, we announced accelerated efforts within exclusive brands. This has been priority for us some time, but we see clear demand for more affordable products alongside our premium range under the Proveneister brand. To meet this need, we are creating a new division led by Henrik Pettersson. He will take full responsibility for our exclusive brands portfolio across the group.
This will provide us with a sharper focus, allowing us to expand the product offering and create tailored solutions for every situation our customers face. So let’s move to slide six. Sustainability is a core part of everything we do at MECO. And in that area, our key priority is reducing our climate footprint. That’s why we’re pleased to say that in May, our science based climate targets were approved.
Our long term ambition is net zero emissions by 2050, and we now have clear milestones on the way there. This approval is an endorsement of our strategy, and we’re proud to be among the first in our industry to reach this point. You can find a detailed description of our near term and long term targets at meco.com. Now let’s turn to our successful bond issue in June. So I’ll hand over to Christa.
Christer Johansson, CFO, MECO: Thanks, Per, and good morning to those of you who are on the call. So to put the transaction into context, we did refinance our revolving credit facility in Q1 of this year. And we mentioned then that we would also explore a refinancing of the SEK 1,250,000,000.00 bond maturing over in early twenty six. So sticking to our proactive approach in managing the maturity profile, we opened books on June 4, and we were pleased to see strong demand, especially for a five year tenure. Pricing closed at three month plus 215 basis points with books being 1.4 times oversubscribed.
So the the proceeds are used to repurchase the equally sized existing bond, and we saw a 60% participation in the tender offer with the remaining 40% being called here later in q three. The transaction also came with SEK 5,000,000 in financial cost in the quarter, but we are, of course, very pleased both with securing a 35% 35 basis point rate improvement and with the next majority now being over in July 2027. Turning to financials for the quarter as a whole on page eight. Q two did indeed turn out to be a challenging quarter, especially when comparing to q two twenty four, which is the all time high. To start, we have a revenue development characterized by negative organic growth amounting to minus 5%.
This is after adjusting for FX variation in working days, both of which also contributed negatively in the quarter. This negative organic growth was driven primarily by lower volumes. And despite the geographical diversification, this trend was largely uniform across business areas. We identify end customer confidence and behavior as one factor with repairs and service being delayed and, in some cases, migrating towards lower cost offerings products. With regards to margins, we see how the lack of underlying market growth contributed to a sharpening of the competitive dynamics.
I will come back with more details on the following pages, but as is evident, we were not able to offset this shortfall in gross profit. Consequently, it translated into a steep decline in adjusted EBIT, which came in at SEK 175,000,000. The shortfall in gross profit also contributed to a lower cash flow from operations, which nevertheless amounted to almost 500,000,000 SEK. And in those 500, we have absorbed an initial stocking up of the new warehouse in Norway, which amounted to a bit more than a 100,000,000 SEK in additional inventory. Separate from operations, q two was, as expected, an intense quarter in terms of investment, and this is reflected also in the items affecting comparability, which include SEK 33,000,000 of cost linked to our ERP program and 22,000,000 SEK of cost linked to temporary double rents in connection with the large warehouse projects.
And while some of those will fall away fairly soon, the underlying development is certainly not one which we can accept. And we are, as Per mentioned, taking firm actions. Moving to page nine, I mentioned sharpening competitive dynamics, and this was especially evident in Denmark and Poland where we directed significant attention to monitor and mitigate movements in the market. On a slightly more technical note, it’s also so that product margin is affected by the level of supplier bonuses. These are typically annual, but our accruals and the projections that underpin them are updated quarterly.
With volumes being lower than earlier trend, this explained about a third of the year over year compression in margin. As a final remark, similar to the last three quarters, the fact that we have grown in a low margin market like Poland will in itself dilute margins, and this alone represent about a percentage point reduction here included in other. On page 10, I mentioned already that many of the underlying factors were actually common across markets in Q2, and this included soft demand and margin pressure. Another common factor in Q2 was far reaching changes in our internal logistics, which applied to Denmark, Norway, Poland, and Finland. It did involve some challenge, as Per mentioned, and I guess it often does.
And thanks to the dedication of our respective teams, much of this is now behind us. Consequently, it is with confidence that we now continue the ramp up towards full efficiency and the ramp down towards new staffing levels, and that activity will extend throughout q three and q four. Before we look at the individual markets, I wish to comment briefly on our financial position on page 11. So the development in leverage, which increased in q two to 2.7 x, is the net result of two opposing factors. On the one hand, we have in the quarter reduced net debt by SEK 150,000,000.
On the other hand, we’ve seen a larger reduction in EBITDA. That said, SEK 2,500,000,000.0 is still well within our two to three target range. And for the sake of clarity, I want to repeat that we define leverage excluding IFRS 16. And I also want to mention that EBITDA is measured on a rolling twelve month basis, where the strong Q3 last year will work against us in the short term. With regards to outlook, there are, however, two more fundamental things to highlight.
Firstly, one should note that CapEx investment has been exceptionally high in recent quarters. This is, of course, due to the ongoing projects. It’s not a new normal, and it will revert to normalized levels now that we are approaching completion. Secondly, we do, from time to time, get questions around m and a. And as I’m sure you will understand, our focus now is on completing all the things we have going and on reducing debt, and we don’t see that changing anytime soon.
Leaving the topic of leverage and turning to liquidity, we note that Meco’s available cash and unutilized credit facilities exceed 2,000,000,000. And in combination with an improved maturity profile, our financial position remains strong. On page 12, briefly on Denmark. So I’ve already mentioned that this is one of the markets where competition is tangible. Fewer working days and a stronger SEK also added to the organic growth of negative 7%.
As one part of mitigating this, we have been tuning our pricing with promising initial signs, and this goes down to specific customers, specific products with adaptation being surgical rather than broad based. On the warehouse project in Denmark, just to give you a sense, I can mention that at the June, we had moved Seika 85% of the inventory. We’re approaching a 100% fast because we are handing back the keys to the old premises here in August. Moving on to Finland. The macroeconomic backdrop remains unhelpful, probably more so than in our other markets.
Cost efficiency has been in focus for some time, but will remain so. In q two, we have, however, added resources on the sales side, and we have also opened a new regional distribution center in Oulu. Similar to the warehouse automation, this is about positioning ourselves for the long term in Finland. Looking at Poland on page 14, there are quite a few moving parts. As in recent quarters, the year over year comparison is affected by the acquisition of Elite in Q3 twenty twenty four.
Stripping out that together with FX and variations in working days, this business area is exhibiting better organic growth than our other markets. The bigger challenge in the short term is, however, the combination of salary inflation and price pressure, and that applies, of course, both to MECO’s preexisting Polish business and to Elite. So consequently, the year over year reduction in EBIT is coming partly from the consolidation of Elite, but also partly from tougher conditions in our preexisting business where, not least, the export business has suffered in 2025. As Per mentioned, the quarter also included moving the regional warehouse in Warsaw and going live with the first parts of our new ERP. So quite an impressive effort by the Polish team well beyond what the q two numbers themselves suggest.
With regards to integration of Elite, we said in ’24 that this would be an ongoing activity up to the end of twenty five. That still seems about right, and we’re making good progress. To give a few examples, we had, by the end of q two, eliminated half of the overlap in branch networks with the outcome so far lining up well to the business case. Other examples of progress from this quarter include unifying the fleet offer and optimizing parts of logistics. So in getting the first half of the integration done, we’ve actually spent less than expected.
But then again, we are obviously not done until this is a fully integrated and profitable part of the business area. Sweden, Norway on page 15 has been performing well in recent years but did not escape the market slowdown. We saw organic growth coming in at negative 6%. What is encouraging is the extent to which our previous cost cutting efforts are coming through. And these are actions that we took in ’24, and they explain why adjusted EBIT margin is still close to 10% despite the weak top line.
Also here, the quarter includes certain level of project cost and duplication related to the central warehouse in Norway. Within Sarasen and Balkhren on page 16, both volumes and margins were holding up relatively well. Adjusted EBIT margin is still north of 18%. On the operational side here, the new warehouse in Norway is designed to support all our business in the country, including that of and as we come back here after summer, we would pick up pace ahead of that move, which will take place late twenty twenty five. And I can just mention that the related lease agreements have been canceled, and hence, also here, it’s only a matter of time until this duplication comes to an end.
So with that, I would like to hand back to you, Pai.
Per Ocharsson, President and CEO, MECO: Okay. Thanks. Well, to summarize, we continue to see a slower market affected by international turbulence and economic uncertainty. This impacted our Q2 organic growth and results. We are acting immediately and have launched a forceful cost reduction program, adding to the Building Stronger MECO initiative.
And as we have seen, we are near completion in several of the key areas in these initiatives and are burdened by implementation costs. However, many of the benefits are still to come. This is also true for the strategic upgrade of our of our logistics. It has demanded a lot of focus from us so far in ’25, but we are now very close to the finish line. This will strengthen us over time and enable future growth, just like the other initiatives we are undertaking to continue building a stronger company even in the challenging market.
So that will be all for me. So thank you for listening, and we are now open up for questions.
Conference Moderator: Next question comes from Mats Lisz from Kepler Cheuvreux. Please go ahead.
Mats Lisz, Analyst, Kepler Cheuvreux: Hi, thank you. A couple of questions. First, I mean, you have this cost well, the savings program implemented or about to be implemented of 100,000,000. Could you give some more color there in in what geographical areas and and where you are sort of implementing these measures?
Per Ocharsson, President and CEO, MECO: Well, I can’t give you details, and that is respect to to, the different processes in different countries and, firstly thinking about the negotiations with the unions and so on. But it is spread all over all eight countries, little bit in in in different, places, of course, and it is mostly related to, personal costs. Little part of it is, other operating costs also, but the the the main part is is safety. But it’s it’s in all levels and in all countries.
Mats Lisz, Analyst, Kepler Cheuvreux: And should we expect these measures to be implemented by the end of the year by and large? Or is it?
Per Ocharsson, President and CEO, MECO: Yeah. Starting from, next year, this cost will be out.
Mats Lisz, Analyst, Kepler Cheuvreux: And the extra costs, you you will sort of what’s the payback, I guess?
Christer Johansson, CFO, MECO: This is good morning, Matsy. Kirstjer here as well. We have not yet disclosed that, and we’re kind of working out some of the details in those plans. So it would be a little bit too early to say. But I would say, typically, I mean, we’re not expecting to see a big net benefit in this year, of course, because even though some of the cost savings will start, there’s also a cost associated, as you alluded to.
But going into next year, we should see the full benefits.
Mats Lisz, Analyst, Kepler Cheuvreux: Thank you. And then sort of well, starting with Finland there. I mean, it’s it’s a tough market conditions as it sounds. And have you sort of well, you have made some measures already integrating your previous operation in Finland with Koevanan, and it seems to be insufficient. What can you do to sort of adapt to these weaker market conditions if they sort of remain?
I mean, it’s still a loss there.
Per Ocharsson, President and CEO, MECO: Yes. But it’s Finland is also, of course, including in the cost saving programs. So there will be low costs and by that higher efficiency in Finland. And they have done a lot of things already. There is still effects to gain with the new warehouse because that is not completed.
So we are a little bit overstuffed in the warehouse with people that will be released in the autumn. So there’s a lot on the cost side. But we also, as Christian mentioned, we also sorted out regional warehouse to increase the availability. We’re working on the assortment to make sure that we have the right products for that kind of market and also actually doing some sales initiatives to actually have strengthened the sales organization just the last couple of months. We’re there is a lot of activities ongoing.
Mats Lisz, Analyst, Kepler Cheuvreux: Great. Moving to Denmark there, I mean, it seems that you have met some tougher competition there. Are these sort of well and then you also mentioned that you are into that some some price and and about customer changes or or or address. Could this new competition, is it sort of something that will remain? Sorry.
Is it sort of temporary that competitors try to reduce inventories or on the back of softer demand? Or could you could you say something
Christer Johansson, CFO, MECO: more about that?
Per Ocharsson, President and CEO, MECO: I I don’t I don’t think it is very temporary. So I think it’s it’s I mean, Denmark has always been a competitive market. It goes in waves, and it’s probably due to that competitors want to try to gain some market shares, different efforts. And and to be very honest, I I would suspect that we have people listening to this call. Exactly what we are doing to mitigate this is more of a competition secret.
Mats Lisz, Analyst, Kepler Cheuvreux: Okay. Great. In Denmark, you also have this new barrel structure implemented, and you mentioned that 85% of the inventory have been moved. So will there be sort of due to this, I mean, you do this in other markets as well. You release some working capital supporting cash flow going forward also besides the 200,000,000 cost savings?
I mean
Christer Johansson, CFO, MECO: Yeah. Now let me me give you a little bit of color to that. So I I think in the quarter, as I mentioned, we did see an impact on working capital, and this is specifically in Norway where we did not have the central warehouse. So we’ve been stocking up. On the other hand, as we approach the end of twenty five, then we will merge the operations of Sanderson and Bakken into this new warehouse.
So I think by that time, we will sort of be able to get some of that back in terms of efficiency. But overall, we are not expecting a big benefit or a big negative effect in working capital from these initiatives. On the other hand, when it comes to staffing, of course, there’s a different there’s a totally different level of staffing required in an automated setup. So that’s the main sort of angle to these business cases.
Mats Lisz, Analyst, Kepler Cheuvreux: Great. Okay. Yeah. And then finally, I mean, it seems that about this rather subdued market conditions have continued in the third quarter. Is is that to be expected?
I mean, you’re moving here into to to this third quarter, and it’s sort of no no big difference. I mean, the year over year comparison is still quite tough.
Per Ocharsson, President and CEO, MECO: We don’t guide in the future, but we we do these measures with the cost savings because we we can’t we can’t hope that it will suddenly change. So we we the uncertainty around us is probably more than I can control, and we we need to do what we can do simply to to improve
Mats Lisz, Analyst, Kepler Cheuvreux: our
Christer Johansson, CFO, MECO: And if I can add there. So I think in the factors that we can influence, for example, the progress in our projects, we are confident. As we’ve said on this call, a lot of the challenges are actually behind us. So we’re moving forward with good pace on that front. At the same time, of course, there are external factors which we may not be able to influence.
Mats Lisz, Analyst, Kepler Cheuvreux: Okay, great. Thank you very much. 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 Ocharsson, President and CEO, MECO: Well, yes, thank you very much for listening, and I hope you will continue to have a great summer. Thanks.
Christer Johansson, CFO, MECO: Thank
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