Earnings call transcript: Profoto Holding AB sees Q1 2025 sales drop amid US demand slump

Profoto Holding AB reported a decline in sales for the first quarter of 2025, with net sales reaching 164 million Swedish crowns, a 4% decrease from the previous year. The company’s earnings before interest and taxes (EBIT) also fell significantly, attributed largely to a decline in demand from the United States. Despite this downturn, Profoto is making strategic moves to enter the LED product market and reduce costs, aiming to offset current market challenges. According to InvestingPro analysis, the company maintains impressive gross profit margins of 83%, suggesting strong pricing power despite market headwinds. The stock is currently trading below its Fair Value, presenting a potential opportunity for value investors.

Key Takeaways

• Profoto’s Q1 2025 net sales fell by 4% to 164 million Swedish crowns.
• EBIT decreased to 17 million Swedish crowns, compared to 34 million last year.
• The company is entering the LED market with new product launches.
• A 20% reduction in the cost base is planned, aiming for annual savings of 60-80 million Swedish crowns.
• The company faces significant market uncertainties, particularly in North America.

Company Performance

Profoto Holding AB’s performance in the first quarter of 2025 was marked by a decrease in net sales and EBIT, primarily due to weakened demand in the US market. This decline contrasts with more stable conditions in Europe and Asia. The company is proactively addressing these challenges by expanding its product offerings and implementing cost-reduction strategies. InvestingPro data shows the company operates with a moderate debt-to-equity ratio of 0.69, providing financial flexibility to execute its strategic initiatives. The company’s Altman Z-Score of 7.26 indicates strong financial health despite current market challenges.

Financial Highlights

• Net Sales: 164 million Swedish crowns, down 4% year-over-year.
• Organic Growth: -5%.
• EBIT: 17 million Swedish crowns, down from 34 million the previous year.
• EBIT Margin: 10%, with an underlying adjusted EBIT margin of around 15%.

Outlook & Guidance

Profoto is focusing on new product launches and enhancing its sales and marketing efforts. The company plans to implement price increases of 10-15% in the US market to counteract the impact of tariffs. Additionally, Profoto is working on reducing its research and development spending from 20% to a historical 10% of sales. The next earnings report is scheduled for July 18.

Executive Commentary

Linus Marmstadt, Acting CFO, emphasized the company’s strategic approach during uncertain times, stating, "We are acting in a world with great uncertainties, but we are really fighting and have a clear plan how to really manage these times." CEO Anders Schiederberg added, "We are not positive nor negative, we’re just adapting and trying to embrace what is happening."

Risks and Challenges

• US Demand Decline: The significant drop in US demand poses a major challenge for Profoto’s sales.
• Tariff Changes: Potential changes in tariffs could impact Profoto’s competitive position, especially against Chinese manufacturers.
• Market Uncertainties: Ongoing uncertainties in North America could affect future sales and profitability.
• Cost Reduction Implementation: Successfully implementing planned cost reductions without affecting operational efficiency is crucial.
• Product Launch Success: The success of new product launches, particularly in the LED segment, is vital for future growth.

Profoto Holding AB is navigating a challenging market environment with strategic initiatives aimed at mitigating risks and capitalizing on new opportunities in product innovation and market expansion.

Full transcript - Profoto Holding AB (PRFO) Q1 2025:

Amanda Wasturm, Moderator/Host, ProPhoto: Good morning, and welcome to ProPhoto q one report. Good morning, and welcome to Prophoto’s q one report. My name is Amanda Wasturm, and today I have with me our CEO, Anders Schiederberg, and our acting c f, CFO, Lindos Marmstadt. I will now hand over to Anders who will start off by giving you a summary for the quarter.

Anders Schiederberg, CEO, ProPhoto: Good morning, everyone. Sorry that we are late, but, now we’re on. So I’m very happy to speak to you all, And I hope that, you can hear good the voice of me. Otherwise, please send a a a in the group chat. Anyway, welcome.

First, the summary of the first quarter twenty twenty five is, we displayed the report April, and the q one results is in accordance with the preliminary figures that we that we published in April. Net sales decreased by 4% to 164,000,000 Swedish crowns. That is a negative organic growth with 5%. We see a significant decline in US demand and US sales, and that is the the most important explanation of the decrease in sales. Consequently, EBIT, was 17,000,000, that is compared with 34,000,000 last year and and an EBIT margin of 10%.

This is not a satisfying effect of of the sales, but it’s also affected by the negative currency effects. And Linus will explain more to that. So we will spend quite a lot of time on on explaining the report, and that’s why Linus will take the next slides. What is really happy for us is that we started our market entry into the product segment LED. So we start shipping all our l 1,600 d both into the cinema industry and into the existing distribution channel.

And we’re very happy for that, and it has been received very well. And we are shipping the first product to the law large production of of cinema or and or production for the TV series. And this is happening in The UK. But as a consequence of of of the challenging situation, especially in The US demand, the board of directors has withdraw withdrawn the dividend proposal of and we will instead focus on share buyback during the year, and that remains as earlier proposed. And with that, I will leave to you, Linus, to explain the figures in a much deeper sense, and I will come back in the end of the presentation for for questions.

Thank you very much. Linus, please. Okay. Thank you.

Linus Marmstadt, Acting CFO, ProPhoto: And as Anders started to mention, we had a negative organic growth of approximately 5%, which is a reflection of the fairly slow market that we have seen during quarter. And more importantly is the EBIT development, which was on the negative side with an EBIT margin of 10%, which is partly explained by two things. One is that the cost base is higher than what we want to have in relation to the anticipated sales. So actually we foresee a slightly higher sales and given the current development, the cost base is actually too high. I will revert to that a little bit later.

But also it’s a reflection of the currency translation effect that we saw in the end of the quarter, which is due to some internal asset related factors. So adjusted for that the underlying EBIT was around 15%. And if we look for a slightly longer perspective, we see a flat development for the last more or less flat for the last twelve months, which is also a reflection of that we see a slow market. So we see no big changes what compared to what we have seen during the last year. And also that the LTM is reflected by the weak first quarter of the year.

So what we need to solve is actually start to increase the growth in terms of product launches, but also cost reduction. That’s how we attack these two issues. And if we look at the geographical differences, this what we presented in the preliminary numbers is that we had an okay start of the year. But from February, we saw a fairly short decline in The US sales, which is a reflection of the uncertainties that we see in North America. And if we look at Europe and Asia, I mean it’s still a cautious market, but it’s stable.

So Europe and Asia is holding up pretty well. We say that that has continued also during the second quarter. That’s a clear pattern. If we then look, okay, what are we doing? We see that we have a clear plan for two things.

One is to increase the profitability and one is to increase the the top line. So as we communicated in the press release, we said that we will reduce the underlying cost base of approximately 20%. And that correspond given the current cost base that corresponds to approximately 60 80 million on an annual basis. And that’s the cash flow underlying cash flow effect. And as you know, we capitalize parts of the R and D.

So that means that the estimated annual effect on EBIT is approximately 30,000,000. So that’s very important initiative and step that we take on the cost base. And also I will come back to the tariffs a little bit later, but we see that we have effects from the tariffs and we take clear actions starting from mid May to mitigate the negative effects of the tariffs. And more importantly on the top line is that we really now are entering the lead market. So the clear internal focus is to on sales and marketing.

This is really, really important to keep that focus internally. And if we look at the R and D spend that will be affected on the relation to the cost reduction, but it will be optimized and focused on the LED product. And as I said, we will come back to the tariffs. And just to start off to say where do we actually have the production. As you know, we don’t have production in The U.

S. At the moment, but we have it in Thailand and in Poland. So I mean, we are not directly affected by Europe’s tariffs in terms of manufacturing. But we also say that we have approximately 10% of our production in China, which is as the world looks today, clearly affected by tariffs into The U. S.

And what kind of actions do we actually take them? From May 15, we will increase our prices on The US markets with approximately 10% to 15% to reflect the tariffs that has put on our direct products. And that accounts for approximately 60% of the total assortment. Let’s see what’s happening. So we will of course have a daily monitoring on this issue so that we really have the right market approach and also to really adjust for any other and potential future changes in tariffs.

And the last point on this one is of course, I mean we are living in a dynamic market. So let’s see how this plays out, because as you know several of our key competitors are actually Chinese. So that yeah, that might change the overall playfield. And this slide you have seen before, but I think it’s really important to to have this on top of your heads is because, I mean, we have as you know, we have invested heavily during the three three, four years to really have a full product range in the flash and also on the LED side. And what we feel now is that we have a clear and competitive product range within flash.

It’s more or less complete. We will see maybe or likely new product launches that will come here during the second quarter, but then we will have a complete product range on the flash side. So that means that we can focus not solely, but mainly on on LEDs. So if we ship ship to the next slide, this is how we foresee the R and D spend for the coming months and quarters. And this is what, as you can see, we have spent heavily and an approximate 20% of the total sales has been derived to R and D.

And that we will see now. Now we have the potential actually to reduce this quite substantially as we now have full product range in flash, but also that we are about to launch several new products within LEDs, which means that we can optimize and reduce the total R and D spend to reflect the slow market. And the underlying objective is actually to build back on historical level of around 10% of sales. And as Anders mentioned, the board has decided to withdraw their proposal regarding dividends. And this is, of course, just a matter of cautions caution us in terms of reflection of the uncertainties in the market.

But still, we have a very solid and healthy balance sheet. So this is more to keep up the flexibility and then flexibility in terms of both operational, but also financially that we can, if we want, and the board decides so to do buybacks. So now we have full flexibility to really drive the company forward. And just to summarize, I mean, are acting in a world with great uncertainties, but we are really fighting and have a clear plan how to really manage these these times. And we have a clear focus internally both in terms of how to grow the company, but also how to really reduce the cost base so we can increase profitability.

So short term focus is on product launches and sales and marketing to really drive top line. And also, as I mentioned, the R and D strategy is now optimized to really produce good product launches going forward, but in a more efficient way after a number of years with high investment levels. So we are really proud what we have in terms of R and D team and what we want have achieved and what we will achieve going forward. So that’s more or less in brief the first quarter and where we are and where we’re heading. So now we open up for questions.

Amanda Wasturm, Moderator/Host, ProPhoto: The next question comes from Jakob Soderblom from Carnegie Investment Bank. Please go ahead.

Jakob Soderblom, Analyst, Carnegie Investment Bank: Hello and good morning. Can you hear me?

Linus Marmstadt, Acting CFO, ProPhoto: Yes.

Jakob Soderblom, Analyst, Carnegie Investment Bank: Perfectly. I only have, I think, one short question. Regarding this aim then to get back to around 10% of R and D then compared to sales, How do you see this, what do you call it, path towards that? Do you say that’s kind of a straight line downwards for each quarter of twenty twenty five? Or can you give a bit more perhaps intel around this development?

Linus Marmstadt, Acting CFO, ProPhoto: I think we can be even faster than than so. But, of course, it takes some time actually to do the the reduction in a very smart and, yeah, balanced way because we don’t want to have it end up in a situation where we create too much of a turbulence internally and so on because there will be some people affected. So it’s important to keep good pace internally because we have a really several important really important product launches coming up. So so we will do it in a smart way, in a balanced way. But, of course, I mean, we need to act.

So it will take a couple of quarters. So it will be not a straight line. It will be I mean, more or less, everything should be done during this year.

Jakob Soderblom, Analyst, Carnegie Investment Bank: Perfect. Thank you on that. I think that this time was my only question. Perhaps if you could say something, do you feel any worries around the move you made into Cinema Lighting in recent time? Do you feel what’s going on right now?

Do you see any worries around that this could be postponed? Do you still feel confident that we will see a tangible effect from this coming the end of the year also 2025.

Anders Schiederberg, CEO, ProPhoto: But we have as you as I said, we have launched and started to ship the L1600D. We are working very hard in the market now to actually ensure that it is available in rental and driving the demand from gaffers and from director of photographers so that they are demanded us for the large set. We are focusing a lot on cinema, the high end part of the LED market. At the same time, we see a a big potential for LED sales into the existing channel to that we are all that we’re distributing our flash still flash products through. So we in addition to this, we have earlier communicated and that is in the plan, launch more products during the year.

So so there will be there should be an effect towards the end of the year of in in sales figures of those kind of products.

Jakob Soderblom, Analyst, Carnegie Investment Bank: Perfect. Thank you for those, Anton. Wish you a great day. Yep.

Anders Schiederberg, CEO, ProPhoto: Thank you,

Amanda Wasturm, Moderator/Host, ProPhoto: Question comes from Marcella Klaing from Handelsbanken. Please go ahead.

Marcella Klaing, Analyst, Handelsbanken: Good morning. Couple of questions from me as well. You mentioned the price increases by 10%, fifteen % to offset The U. S. Tariffs.

What effect on the volume do you expect from this? How confident are you that your customers will accept these price increases?

Anders Schiederberg, CEO, ProPhoto: So accept the of course, we will they will accept it because we will set we are setting the prices, but to our dealers. And the dealers will implement that accordingly, and and this will take place the fifteenth of of May. So we we will see an some sort of effect of people buying or dealers buying more prior to the price increase. I’m not sure you will see that in the figures, but we will see that in in our operations. After that, we the the problem is is the general thing in in the American market that that price is not only a pro photo product is going up.

We we know for a fact that most of the European players anyway are are increasing their prices in in The US. Some have already done it. Some are going to do it. And and this will, of course, have an effect on the possibility for investments in our target customer group. So the the fact is we do not know.

But on the other hand, this is the way it is, so we don’t have a choice. We will we we have to move the cost cost all the way to the end users, and that is what we’re doing. And we believe that we will be slightly lower sales in The US compared to if we would not have increased the the prices. However, to compare that with with historical quarters is very hard because we are also launching new products. The market is changing.

So so I can’t give you any forecast, of course, Marcela, on on on what this will mean in detail for for this quarter, the second quarter and and the coming quarters during the year.

Marcella Klaing, Analyst, Handelsbanken: Thank you. You mentioned possible prebuying ahead of now basically mid May. Can you give any other signals that you’re seeing from your customers in The U. S. Now in terms of second quarter trends compared to first quarter, has the uncertainty decreased any in The US compared to

Anders Schiederberg, CEO, ProPhoto: I think that you guys, you you know this. You speak to many companies. You see the the market uncertainty based on on what’s happening with the change ever changing tariff announcement of different sorts and also other worries that is happening around the world. So, obviously, that is putting a wet blanket over the market. However, we don’t in talking to customers, we do not see a market that’s neither better nor worse, I would say.

It it has been gloomy, and it is in the same state as it has been during the year, I would say.

Marcella Klaing, Analyst, Handelsbanken: And are you able to move focus more on on Europe and Asia now that The US is more hesitant? Or are you doing best you can in in the other markets anyway?

Anders Schiederberg, CEO, ProPhoto: No. But we we are continuing our efforts to to to market our brand and our products in the American market as well as in in in Europe and in in Asia. There is no real major change in the focus since we are having focus on on all all regions.

Marcella Klaing, Analyst, Handelsbanken: And then can you talk a little bit about the other launches that you made during 2024, the Pro b three, Pro d three, d 30? How have these developed? It’s been around a year now. Have they developed as planned? How big share of your total revenue do they represent?

Anders Schiederberg, CEO, ProPhoto: Right. I can’t I can’t give you details on the figures since we’re not talking about details on on each product. But they have been some of them have been really on top of our expectations, some have been on expectation. The so we are very happy with all the launches. However, the total demand is slower, and we have seen a decline in other products that we have not launched during the time.

And it is not based, I think, on that the the products are either older or younger. It’s just based on on on people love to buy new type new stuff, new products, and and that is really driving the the the focuses of the customers really on on new stuff. So that’s why we need to continue to activate and ensure that the the market knows about this. So I’m very hard, Marcella. It’s I cannot disclose anything about details on on on different products as you know.

Marcella Klaing, Analyst, Handelsbanken: I understand. Regarding the the cost cuts, you mentioned that it’s a delicate balance since you have important product launches coming out. And still, you plan to cap 20% of your cost base. Will we see and you’ve mentioned also previously effect towards the end of twenty twenty five. Will we see any cost gaps in second and third in the quarter?

Linus Marmstadt, Acting CFO, ProPhoto: Yes. I mean during the second quarter, you shouldn’t expect to see any major cost reductions. But from the second half of the year, there will be effects. And of course, a little bit hard to say the net effect as we’re doing capitalizations. But as I mentioned, SEK 30,000,000 on an annual basis, that will be issued by the end of the year.

So you will start to see effects after the summer.

Marcella Klaing, Analyst, Handelsbanken: Thank you. And then a final question from me. Given uncertain markets and so on, what is your best guess about competitors? Is anybody else taking market shares in these markets? Or is it the same pain for everyone?

Anders Schiederberg, CEO, ProPhoto: No. It is not the same pain for everyone because most of our competitors in flash and our future competitors in LED, they they are either Chinese companies or they are foreign entities manufacturing in China. So so the market dynamics has the potential to change slightly if depending on American decisions on tariffs from China. So and depending on the the Chinese company’s actions, how they import the goods to China, if they bypass the the toll fees or not. So we we are looking at this.

We are following this, and we are doing everything we can to sell our products. We’re focusing on marketing and ensuring that our dealers know that what we do and that they are able to sell our products. So so we are, the market dynamics are tough, but I don’t see them on the negative side, actually.

Marcella Klaing, Analyst, Handelsbanken: Sounds good. And then maybe another final question. The 10% production in China, is it components, or is it 10% of your product that you produce in China?

Anders Schiederberg, CEO, ProPhoto: No. It is we we buy some accessory products from Chinese manufacturers that that we sell to The US. And we have I don’t know if we say we we disclose the figures. It has very limited effect on on the cost of goods sold level in The US because we’re also adjusting our way of importing. So so we are we are following the situation.

We are adapting to the situation. We try to be very fast both steering away from the problems, but also taking advantage of the new situation. It is a changing environment, but it’s we are we are slightly hurt because of the overall demand in The US that are are affected by the the hopefully one time inflation due to the tariffs. However, we also try to take it we we look at in in a very positive positive way. We are just we’re not positive not negative nor positive.

We’re just adapting and trying to embrace what is happening.

Marcella Klaing, Analyst, Handelsbanken: And long term better position than than competitors. Thank you so much. That was all for me.

Linus Marmstadt, Acting CFO, ProPhoto: Okay. Thanks a lot.

Amanda Wasturm, Moderator/Host, ProPhoto: Thank you. And we have not received any written questions per email today. So I just wanted to say thank you for joining us today and a gentle reminder about our second quarter report, which will be published on July 18. Thank you.

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