Earnings Call: Hexagon Outlines Future Amid Q3 Challenges

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Earnings Call: Hexagon Outlines Future Amid Q3 Challenges

During the 2024 Q3 earnings call, Hexagon AB, a global leader in digital solutions, revealed its financial results and strategic plans, which include the potential separation of the Asset Life Cycle Intelligence (ALI) division. CEO Paolo Guglielmini announced the intention to create two separate publicly traded companies to enhance strategic focus and financial profiles. Despite a 2% decline in organic sales, bringing in €1.3 billion, Hexagon reported a 7% increase in recurring revenues and gross margins rising to 67%.

The company emphasized its innovation efforts with new product launches, such as the ATS800 laser tracker and the AICON 3D measuring device, expected to significantly contribute to future growth.

Key Highlights:

  • Potential separation of ALI, including ETQ, Bricsys, and public infrastructure services, into a new publicly traded company (NewCo).
  • Q3 2024 sales reached €1.3 billion, with a 2% organic decline while recurring revenues increased by 7%.
  • Gross margins rose to 67%, with strong operational margins at 29%.
  • The company anticipates the NewCo separation to take 12 to 18 months, subject to approvals.
  • Notable growth in US manufacturing and aerospace sectors despite weakness in China's construction market.
  • Segment performance varied, with ALI growing by 6%, while other segments declined.
  • Hexagon is undertaking a multi-year innovation drive with several key product launches planned for 2025.

Company Outlook:

  • Hexagon forecasts over €4 billion in revenues, driven by strong recurring sales.
  • 2025 is expected to be a strong year for product launches and customer engagement.
  • Sustainability initiatives progress with emission reduction targets approved by the Science Based Targets initiative.
  • The company explores strategic options to enhance focus and value creation within business segments.

Negative Highlights:

  • Q3 2024 sales showed a -4% growth due to exchange rate effects and structural changes.
  • Weakness in the construction market, notably in China.
  • A 12% decline in Autonomous Solutions (AS) performance.

Positive Highlights:

  • The OnCall suite saw significant growth, particularly in public safety.
  • ETQ is expected to grow by 10-15% in total revenue, with BricsCAD experiencing similar growth.
  • The utility and infrastructure segment is expected to see mid to high single-digit growth.
  • Operating earnings fell to €37.6 million, while cash flow increased by 5% to €264 million.

Misses:

  • Despite a 2% organic decline in sales, the company reported resilient performance.
  • Manufacturing Intelligence (MI) and Geosystems segments experienced revenue declines.

Q&A Highlights:

  • Analysts inquired about growth trajectories, order intake, and market conditions for 2025.
  • CEO Guglielmini expressed cautious optimism regarding segments like China and the construction market.
  • Mixed regional performance noted in the 2025 construction market outlook; Europe remains weak but stable, while the US shows strength.
  • The automotive business performs well in the US despite challenges in Europe and mixed results in China.

In summary, Hexagon AB is setting the stage for future growth and strategic restructuring while navigating a challenging economic landscape. The company's focus on innovation, customer engagement, and sustainability, combined with the potential formation of NewCo, positions Hexagon to capitalize on emerging market opportunities and enhance shareholder value.