Q1 2024 Results Lifco AB
Earnings discussion and conference call
Today, Lifco AB reported its Q1 2024 financial results. Let’s review them in great detail to see whether our investment case has changed meaningfully. At the time of writing, the stock is down by close to 2.5% (after being down as much as 9.6% at market open). Clearly, there is significant volatility in today’s price action.
Summary
The below headlines could serve as a good starting point for further discussion:
Reported net sales up 0.8%, of which organic growth was -7.8%
Some negative impact from early Easter in the Dental area (in 2024, Easter fell in the second quarter)
EBITA margin -100 bps, driven by negative segment mix effect, partly offset by positive acquisition mix effect. Considering the organic revenue drop, the margin decline could be viewed as “reasonable”. Total EBITA declined by 4%. On an EBITA margin level, we should see some stabilization in the back half.
Demolition & Tools’ EBITA shrunk 31.6% (last year’s Q1 saw 39.8% growth)
Cash-tax timing impact on OCF, cash from ops equaled 631m SEK.
Net debt at 1.6x EBITDA, which gives Lifco sufficient scope for completing new acquisitions
On a two-year stack, Lifco hasn’t grown revenues organically due to post-COVID normalizations in D&T after a period of unusually high order-intake. This situation isn’t uncommon, it’s also happened to ASSA ABLOY and other various companies that have exposure to the construction market or saw a strong backlog growth following the pandemic (e.g. Atlas Copco).
Nonetheless, the above results came in below our expectations, which we outlined in last week’s preview. However, as long-term investors should always do, it’s good to take a step back and contextualize the last 5 years’ total performance.
Long story short, we believe Lifco’s growth weakness to be temporary. For industrial serial acquirers, tough comparators are part of the game: nobody knows how fast recoveries and recessions come and go. And the recent past years have been very “unique”…
Conference call remarks
Just to stress this reminder: the weakness in “Demolition & Tools” has been going since spring/summer of 2023 and that’s what’s driving the tough comparators and margin contraction for the total Lifco group. We have many companies that enjoyed a good pandemic and post-pandemic performance (luxury, serial acquirers, industrials). Some of them are now showing more stable organic growth, while making sure their model is resilient to weather future shocks. You could call it “stabilizing at solid levels and then growing from that higher base”.