Hexagon AB today reported an 18% increase in organic revenue but a 77% increase when including last year’s Intergraph acquisition — which led to a near-doubling of reported earnings before taxes. Hexagon is a complicated business that, in the last year alone, acquired Intergraph, moved business units around and changed its reporting currency, so its results take quite a bit of parsing. But here’s what we do know now:
• Total reported revenue was up 77% to €516 million. (This revenue total is a slight downward adjustment from “operating net sales” of €521 million because of the accounting treatment of Intergraph’s deferred revenue; in trying to keep to GAAP-like measures, we’ll refer only to reported results.)
• Operating income increased by 118% to €105 million (or 20% of revenue), largely due to the profitable Intergraph PP&M business. The company has declined to make forecasts in advance of its investor day in June, but this operating income figure was slightly ahead of analyst’s forecasts, and likely accounts for the 7% rise in Hexagon’s share price after the earnings announcement.
• Analysts on the earnings call, who are more familiar with Hexagon’s traditional businesses, calculated that Intergraph’s operating margin was stronger than expected, at 21%, which helped to calm some of their uncertainty about the profitability boost anticipated as a result of the acquisition.
• Intergraph accounted for 56% of growth in the quarter, or about €164 million. Contrast that to Q4, when Hexagon reported essentially 2 months of Intergraph at €110 million, and Intergraph seems to be on a steady course to revenue of €660 million for 2011 (or, just under $950 million at today’s exchange rate).
• Hexagon CEO Ola Rollen said that performance in Q1 was strong across all core markets and geographic regions. EMEA remains Hexagon’s largest region, as the company saw “continued improvement in the first quarter”. The organic (ie. excluding Intergraph) growth rate was 17% as demand grew for measurement solutions for infrastructural investments and for equipment for the automotive and aerospace sectors. Sales in the Americas were also up 17% in Q1, as the automotive, aerospace, general engineering and governmental sectors picked up momentum. Finally, revenue from Asia (Hexagon’s smallest region, at 26% of revenue) showed organic growth of 20% on strong demand from the Chinese and Indian automotive and aerospace industries.
• Trying to separate out Intergraph’s growth in this complex enterprise is not an exact science, since organic growth doesn’t include the effects of currency (about €11 million in Q1) and ERDAS (a prior Hexagon acquisition) was combined with Intergraph in the Technology business unit while Intergraph’s Z/I business was transferred to Geosystems … At any rate, it seems as though PP&M saw significant uptake in projects related to Canadian oil sands; mining and oil exploration in South America (especially Brazil); and the Chinese power and marine industries. From the comments made on the earnings call, Mr. Rollen indicated that PP&M had apparently come in ahead of plan, in terms of both revenue and profit; it was unclear to me if SG&I performed to plan or not. If I can parse out more details, I’ll update.
On the earnings call with analysts, Mr. Rollen said, ”Hexagon is clearly off to a good start in 2011 with record sales for a first quarter. Our revenue growth and the successful integration of Intergraph explain how Hexagon’s can post an operating margin slightly above 21% in what normally is a seasonally weak quarter. The integration of Intergraph will be concluded in the second quarter but we can already see its financial and strategic importance and value for the group.”
Hexagon is hosting an investor days on June 6-7, and we’l know more then.