Earnings call transcript: Orkla sees Q1 2025 profit rise by 28% amid growth

Orkla ASA, with a market capitalization of $10.8 billion, reported a strong performance in the first quarter of 2025, with a notable 28% increase in profit before tax, reaching 2.2 billion NOK. The company’s operating revenues grew by 2% to 17.2 billion NOK, driven by organic growth and strategic price increases. The stock has demonstrated impressive momentum, delivering a 44% return over the past year and 20.1% year-to-date, significantly outperforming broader market indices.

According to InvestingPro, Orkla maintains a "GREAT" financial health score of 3.26, suggesting robust operational efficiency and strong market positioning. Subscribers can access 12+ additional ProTips and comprehensive financial metrics for deeper analysis.

Key Takeaways

• Operating revenues increased by 2% to 17.2 billion NOK.
• Profit before tax surged 28% to 2.2 billion NOK.
• Adjusted earnings per share rose 19% to 1.68 NOK.
• Orkla launched new products and expanded production lines.
• The company divested non-core assets to streamline operations.

Company Performance

Orkla’s performance in Q1 2025 reflects its strategic focus on organic growth and operational efficiency. The company reported a 2% increase in operating revenues, primarily driven by a 1.2% organic growth rate. With an impressive gross margin of 48.9% and revenue growth of 4.22% over the last twelve months, the company has effectively managed its pricing strategy. This growth was largely attributed to price increases across its portfolio, which helped offset any volume declines. The strong financial results demonstrate Orkla’s resilience amid challenging market conditions, including geopolitical trade tensions and weak consumer sentiment in certain regions.

Financial Highlights

• Revenue: 17.2 billion NOK, up 2% year-over-year.
• Profit before tax: 2.2 billion NOK, up 28% year-over-year.
• Earnings per share: 1.68 NOK, up 19% year-over-year.
• Cash flow from operations improved by 400 million NOK.

Outlook & Guidance

Orkla remains optimistic about its future prospects, with expectations to maintain results on par with the previous year. The company’s remarkably low beta of 0.06 indicates strong stability relative to market volatility. The company anticipates a normalization of growth in the coming quarters and has secured cocoa volumes for the majority of 2025, mitigating potential input cost increases. Orkla is scheduled to provide further updates during its Capital Markets Update on May 28.

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Executive Commentary

CFO Olivier Reygland emphasized the benefits of Orkla’s diversified portfolio, stating, "We closed positive results overall, underlining the benefits of a diversified portfolio." He also noted the impact of cocoa prices on the Snacks segment, highlighting that they are expected to remain higher and more volatile than in the past.

Risks and Challenges

• Geopolitical trade tensions could indirectly affect operations.
• Weak consumer sentiment in the Netherlands and Finland may impact sales.
• Cocoa price volatility poses a risk to margin stability.
• Potential increases in marketing spend could pressure profitability.
• The company faces challenges in maintaining growth amid market saturation.

Q&A

During the earnings call, analysts inquired about the impact of cocoa prices on the Snacks segment and the transitory volume decline in the Foods segment. Orkla’s management addressed these concerns by outlining mitigating actions, including portfolio optimization, product harmonization, and cost savings across the value chain.

Full transcript - Orkla ASA (ORK) Q1 2025:

Annie Bursagel, Head of Investor Relations and Communications, Orkla: Good morning, and welcome to the presentation of Orkla’s first quarter results. My name is Annie Bursagel, and I’m the Head of Investor Relations and Communications. So due to previously travel, our president and CEO, Neil Seltzer, is unable to join us this morning. So instead, EVPN CFO, Olivier Reygland, will be holding the presentation today. So after his presentation, we’re gonna be holding a video q and a with our analyst community.

And after that, we’ll be opening up for questions from the web. So during the presentation, you are all welcome to send in questions via a web link, and this is open for everybody. And we’ll take those after the video q and a with the analysts. So with that underway, I’ll leave the floor to you now, Arve.

Olivier Reygland, EVPN CFO, Orkla: Thank you, Annie, and good morning to everyone. Weight Loss development for the quarter remained solid. Our portfolio companies continued to deliver according to the targets communicated at the Capital Markets Day in November 23. At the same time, isolated elements in the individual portfolio companies affected the comparison year over year, both positively and negatively, as I will outline later in the presentation. We closed positive results overall, underlying the benefits of a diversified portfolio.

Organic growth was 1.2% for the quarter, mainly from price increases for the consolidated portfolio companies. Underlying EBIT adjusted growth was 7.6%, with the margin improvements of 60 basis points year over year. Profit before tax increased 28% year over year to 2,200,000,000.0, and adjusted earnings per share improved by 19% to NOK1.68. We continued to simplify the portfolio and closed the divestment of Pierre Rubai Group in March and the hydropower portfolio in April. Lastly, given the current geopolitical situation, we have done a thorough study of the implications of the tariff conflict for our business.

Oritla’s import of direct material to The U. S. And sourcing from The U. S. Each represent less than 1% of sourcing.

Eurclast exports to The U. S. Represent less than 1% of operating revenues. While we want to be careful not to underestimate the repercussions of a prolonged trade standoff, the direct impact of tariffs is limited to Oatla as a whole. There is larger uncertainty related to the potential indirect impact.

The indirect consequences for input cost development, foreign exchange rates and consumer sentiment are too uncertain to quantify. Overall, our portfolio companies continued to improve profitability. In Q1, underlying EBIT adjusted growth was 7.6% versus the same quarter last year for the consolidated portfolio companies, including Oricla ASA. This growth was broad based, but with significant variations between the portfolio companies. We continue to make progress towards achieving our Capital Markets Day’s targets.

On a rolling twelve month basis, underlying EBIT adjusted growth was 15%. We achieved an EBIT adjusted margin of 10.3% and return on capital employed improved to 11.7%. Let me turn to some additional details for the financials for the quarter. Starting with the top line, operating revenues grew by 2% to 17,200,000,000.0. EBIT adjusted for the consolidated portfolio companies increased by 8%.

And we had an EBIT contribution of 30,000,000 from Oikla Real Estate related to delivery of 16 apartments during the quarter. Oikla ASA and the business services reported a flat EBIT adjusted development year over year despite good progress on initiatives we communicated at the Q3 presentations to streamline the Orkla ASA organization. This was due to extended bonus provisions from the increased Orkla share price. In total, group EBIT adjusted grew by 10% to 1,800,000,000.0. Profit from Jotun and other associates was $651,000,000.

The year over year increase was 57%, mainly due to significant currency losses in Jotun in the first quarter last year related to the devaluation of the Egyptian pound. The tax rate, excluding associated companies, for the first quarter was 26.8%. This extraordinary high tax rate was primarily due to the wind holding tax on dividend from Otila India to optimize the capital structure. Hydropower is reported as discontinued operations for the quarter. Both transactions were closed in April, and the gain will be booked in the second quarter.

First quarter adjusted earnings per share were NOK 1.68, an increase of 19% compared to the same period in 2024. The rolling twelve months EBIT adjusted margin for the consolidated portfolio companies was 10.3% in Q1, an increase of one percentage points over the last twelve months. Underlying EBIT adjusted margins improved in eight out of 10 portfolio companies. Organic growth was softer than expected in Q1, with 1.2% growth overall, of which minus 1.1% from volume mix. The aggregate numbers were primarily driven by broad based price increases for the consolidated portfolio companies, offset by volume declines in Oetla Foods and Oetla Snacks.

Cash flow from operations improved by 400,000,000.0 year over year to SEK 1,600,000,000.0, due primarily to EBIT adjusted growth and continued net working capital reductions. Cash flow before capital allocation declined by SEK 500,000,000.0 year over year, mainly related to two timing effects. First, Roetler receives dividends from Jotun in two installments, and the amounts will be the same in 2025 as in 2024. Last year, however, the first installment was paid in Q1, whereas it was paid in the April year. And second, negative cash flow from discontinued operations relates to hydropower and was mainly related to a timing difference on a significant tax payment in the quarter.

We ended Q1 with a net interest bearing debt level of 1.6x EBITDA. Note that the increased leverage ratio since Q4 is due to the exclusion of hydropower in the rolling twelve month EBITDA. At the end of Q2, including closing of the hydropower transactions and dividend to Orklaas shareholders, the leverage ratio is estimated to around 1.9x. Now let me move on to some more details on the portfolio companies, starting with Jotun. Jotun’s sales growth was 6.4% for the quarter, driven by growth across all segments and markets.

Earnings and profitability remained solid with an EBITA margin of 22% in Q1, supported by stable gross margins and relatively limited cost growth. EBITA for the same quarter last year included currency losses of $252,000,000, triggered by the devaluation of the Egyptian pound. Jotun remains confident in its long term strategy and prospects for continued profitable growth despite increased uncertainty due to tariffs and trade wars. Organic growth in Oiltla Foods was minus 2.9, driven by a 3.8% decline in volume mix growth, partially offset by positive contributions from price. The volume mix development during the quarter was impacted by several elements that we view as transitory.

These include campaign activities last year and destocking from certain customers to a more normalized inventory level. The out of home channel also had a weaker development. Underlying EBIT adjusted improved by 4.6% due to continued focus on category and product profitability. Input costs were in some relatively stable year over year, although this varied between categories and markets. Oykla Foods continued to show strong cash conversion, driven by working capital management.

Return on capital employed was 14.7%, well on track towards the CMD target of 15%. Organic growth in Oikla Snacks was 1.8% in the first quarter, driven primarily by pricing in the Chocolate segment following increased input cost prices. We reported in Q4 that volumes were negatively impacted by softening demand for chocolate following high cocoa prices. That development continued in Q1. The Snacks category contributed negatively to volume mix growth, partly due to phasing of campaign activity, while the Biscuits category contributed positively.

Despite headwinds from cocoa, adjusted EBIT growth was flat for the quarter due to significant cost savings across the entire value chain, supported by continued efficiency gains from the biscuit production. As I said at the Q4 presentation, we expect cocoa prices to remain higher and be more volatile than in the past, but expect prices to come down to more sustainable level over time as supply demand balances out. Volumes are now secured for the majority of 2025, marking a return to a more normalized hedging strategy. The impact of cocoa price increases on consumer chocolate prices and demand over the following quarters, nonetheless, remains uncertain. Over the longer term, Ortlal Snacks continues to reinvest in future growth and recently announced plans to invest in a new smash line in Nedar in Trondheim.

Ortlal Snacks is also investing in a new BUBS production line in Johan Sjaping, which will double the capacity and enable the brand to meet high and growing demand across the Nordic market. Just this week, Outlast Snacks also announced a partnership with The U. S.-based Mt. Franklin Foods to launch Bub’s in the world’s largest candy market, The United States, this fall. Organic growth in Ochlaf Food Ingredients was 4.6% for the quarter, with a combination of volume mix growth and price increases in response to increased raw material prices.

Sweet Ingredients and Plant Based experienced volume mix growth, offset by slight volume mix decline for Bakery. Underlying EBIT adjusted improved by 14.1%, fully driven by growth in sweet ingredients, along with cost savings from the sweet mitigation program implemented in Q3 last year. We announced in the Q4 presentation that we expect the program to deliver a high double digit million cost reduction in total. As of Q1, most of the initiatives have been implemented and are reflected in the results for the quarter. In terms of U.

S. Tariffs and any potential response from the EU, Orklaf Food Ingredients has some exposure through trade with The U. S. As well as a U. S.-based subsidiary, Denali.

Overall, we expect the EBIT impact to be relatively limited. Oiltla Food Ingredients continues to reinvest in the business for organic and structural growth, with two bolt on acquisitions completed since the beginning of the year. Organic growth in Oitla Health was 2.5% for the quarter with broad based contributions from price to mitigate the impact of higher input costs, including higher cod liver oil prices. The overall contribution from volume mix was negative, driven by a decline in Functional Personal Care. The underlying EBIT adjusted declined by 1.4%, driven by increases in advertising spend and organizational buildup.

As noted at the Capital Markets Day and the Q4 presentation, we continue to invest in the organization to support future growth. We announced in April that the Board of Orkla Health has appointed Mats Panquist as a new CEO, beginning in Q3. He has extensive international experience from the B2B and B2B sector across the value chain and is well placed to lead Orkla Health in delivering on this strategy. Organic revenues for Orkla India were flat for the quarter. Note that the reported figures include financial incentives provided by the Government of India of NOK26 million.

Excluding the government grant, Orkla India’s organic revenue growth was 3.7% in the first quarter with flat volume mix growth minus 3.7%, should that be. In the domestic markets, organic growth was slightly negative overall, driven by a decrease in prices on back of input cost reductions. This was partially offset by a recovery of volume mix growth in the domestic markets during the quarter. In the international business, organic revenues declined on account of phasing effects from the Ramadan season. Underlying EBIT adjusted growth, excluding government grants, was 11.3%, driven by continued cost discipline and an improved contribution margin, mainly from lower raw material prices.

Organic revenues declined by 1.6% for the European pizza company. We see a clear division in the development across geographies. Consumer sales continued to be pressured by weak consumer sentiment in The Netherlands and Finland, where is the strong momentum in terms of both growth and EBIT development continued at Dagrasso in Poland. Overall, EBIT adjusted development was flat, negatively impacted by the top line development as well as investments for future growth in the organization, technology and marketing. For Orkla Home and Personal Care, the organic growth of six was 6.8% and driven by both volume increases in Norway as well as continued growth in the contract manufacturing.

The company continues to take market share in the Nordic grocery sector and delivered another strong quarter with 12.8% EBIT growth. Reported return on capital employed was 22.8% on a rolling per month basis, driven by EBIT growth and a strong capital discipline. Both Oitla House Care and Health and Sports Nutrition Group showed strong improvements in profitability during the quarter. Before we turn to Q and A, I want to remind you that we are hosting a Capital Markets Update on May 28. We plan to give a more detailed update on Oikla’s progress towards our targets and provide the opportunity to hear directly from the CEOs of Oikla Foods, Oikla Snacks and Oikla Food Ingredients on their company’s strategic priorities forward.

We’re going to take a short break before we move to Q and A.

Annie Bursagel, Head of Investor Relations and Communications, Orkla: Welcome back. We will now begin our Q and A so please raise your hand to ask a question and I will introduce you. And of course, remember to unmute yourself and turn on your camera. So it looks like our first question is from Peter Nijstrom from Abegea.

Peter Nijstrom, Analyst, Abegea: Questions from me, I can take one at a time. Starting with Snacks, the contribution margin is down two percentage points year over year. Have we now seen the full effect of higher cocoa prices for Snacks in Q1? Or will your raw material prices continue to rise and take margins further down? Thank you.

Olivier Reygland, EVPN CFO, Orkla: Yes. We will not comment on the coming quarter in detail. But as we said, Petty, we obviously, the high cocoa prices affect this year’s EBIT. What we said now is that we have secured the volumes for cocoa prices, cocoa volumes for the majority of this year. But it’s quite obvious that the levels are will still impact the coming quarters as well when it comes to profitability.

Peter Nijstrom, Analyst, Abegea: Okay, understood. Then back on Foods, which was slightly below what we expected. Is it possible there to roughly quantify the sales impact from customers’ inventory reductions?

Olivier Reygland, EVPN CFO, Orkla: Yes. We said that the volume decline in Foods had several transitory effects, and that included also inventory reductions for some customers to more normalized levels. So we’re not going to quantify in details to the different effects, but we view the majority of these effects to be transitory for this quarter.

Peter Nijstrom, Analyst, Abegea: Perfect. I’ll jump back in the queue. Thank you.

Annie Bursagel, Head of Investor Relations and Communications, Orkla: Looks like our next question is from Hakon Nelson, Kepler.

Hakon Nelson, Analyst, Kepler: Hi, thank you for taking my question. You also delivered a strong Q1 significantly above consensus partly due to one off currency effect last year. Can you elaborate on how much of this of the outperformance was structural versus temporary and what we should expect in terms of margin sustainability going forward?

Olivier Reygland, EVPN CFO, Orkla: Yes. We mentioned because obviously the last first quarter last year was heavily impacted by this devaluation of digital pound, which we also quantified to be $252,000,000 on the EBITDA level. So a business like Jotun will always have various impacts of currency effects and various effects which we can view as one offs or temporary. But obviously, the effect last year was of a significant nature. So I think that you can look at this in the longer term in line with our guiding that we expect you to deliver this year’s results on par with last year.

That will be I think you can expect a normalization of the growth compared to last year in coming quarter. And this year’s growth was more of a special nature.

Hakon Nelson, Analyst, Kepler: Thank you so much. I have also one more on Orkla Inda, if that’s okay. Orkla Inda reported 26% EBIT beat partly driven by government grants. Can you clarify whether these grants are recurring or one off in nature and what the underlying volume and pricing dynamics were in the quarter?

Olivier Reygland, EVPN CFO, Orkla: Yes. So these government grants are this year on the same level as last year, but the timing effects between the quarters varies. So in last year, we received the same amount of this year approximately, but then in the second and third quarters, we have CHF 20,000,000 of PLI in the second quarter and CHF 6,400,000.0 in the third quarter last year, while this year we received the $26,000,000 in the first quarter. So this is only a timing effect. So in that sense, it’s of a quite sustainable nature given the business model.

And then if you take out these government grants, it obviously affects both the volume and EBIT. So if you adjust from the EBIT line, you will not you will have a normalized EBIT growth of around 11% for Airplane India for the quarter.

Hakon Nelson, Analyst, Kepler: Thank you so much. Looks

Annie Bursagel, Head of Investor Relations and Communications, Orkla: like our next question is from Ole Martin Vescor from DNB.

Ole Martin Vescor, Analyst, DNB: Hi, thanks for taking my question. First of all, on Orkla Foods and Orkla Snacks, you’re quite negative volume development. Can you comment on how you see your market share performance in those two segments in particular?

Olivier Reygland, EVPN CFO, Orkla: Yes. As I think, what we can comment is that we see the trend to be fairly similar to what we’ve seen in the previous quarter, meaning relatively flat development. It had some variations between categories and markets, but overall fairly flat for both companies.

Ole Martin Vescor, Analyst, DNB: And also, was there any significant Easter effect in Q1 that affects these figures?

Olivier Reygland, EVPN CFO, Orkla: I missed your question.

Ole Martin Vescor, Analyst, DNB: I was wondering about the Easter effect on Q1. How did

Olivier Reygland, EVPN CFO, Orkla: So relatively limited Easter effects this year, in particular for Foods, slightly negative Easter effects for Snacks. And it was due to we had one more sales day in Norway in the first quarter, while came quite late in April. So the sell in of Easter products was not as high as normal. So in that sense, flattish in Foods, slightly negative in Snacks.

Ole Martin Vescor, Analyst, DNB: And another question on me. On your marketing spend in this quarter, how was that relative to last year?

Olivier Reygland, EVPN CFO, Orkla: It’s overall slightly higher than last year.

Ole Martin Vescor, Analyst, DNB: Okay. I’ll join back in the queue. Thank you.

Annie Bursagel, Head of Investor Relations and Communications, Orkla: All right. It looks like we do not have any more questions from the analysts Teams per video. So we’re going to go over to questions from the web. So the first question from the web is from Marcella Klang from Handelsbanken. She writes, you mentioned in the report that Orkla has implemented mitigating actions to dampen the cost impact of high price levels for input factors such as cocoa.

What are these actions and what price development for cocoa do you expect for the rest of 2025?

Olivier Reygland, EVPN CFO, Orkla: Yes. So we have taken several initiatives to dampen this effect. This includes portfolio optimization. We have harmonization initiatives in the products. We obviously do price adjustments.

And lastly, quite a lot of cost savings through the value change to dampen the effect on the EBIT level. And when it comes to price development, we expect, as we said in the report, that we expect prices to come down to a more sustainable level over time and that we have secured now the volumes for the majority of 2025.

Annie Bursagel, Head of Investor Relations and Communications, Orkla: All right. And the next question from the web is from Hakon Fuglue from SEB. He writes, how much for two questions here. So we can just take them one by one. The first was how much was the negative impact from inventory reduction for Foods customers?

And what was the Easter effects year on year this quarter? I think we already answered that one. And the second question on retail prices for chocolate related snacks increased significantly during Q1. How is market demand react to this? We’ve addressed just addressed that as well.

Olivier Reygland, EVPN CFO, Orkla: Yes. So obviously the quite substantial price increases on chocolate products do have a negative impact on volumes and it’s also reflected I think quite clearly in the numbers we see on volume development for EclasanEX in this quarter.

Annie Bursagel, Head of Investor Relations and Communications, Orkla: So that seems to be the last question from the web. So just before we conclude, I want to remind you that we are holding our capital markets update on May 28. And also we report our second quarter results on July 14. So thank you very much and.

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