Hexagon reports OK Q1 with signs of improvement; pleased with MSC!
It’s a busy day, so let’s get right to it: Hexagon reported Q1 revenue of €917 million, up 10% as reported and up 4% on an organic, constant currency (occ) basis — disappointing analysts who had expected slightly higher growth hand revenue. Hexagon doesn’t forecast, so … Hexagon also doesn’t report details, like subdivision revenue numbers, so we have to rely on growth rates to see what’s going on. Here’s what we’ve got, all on an occ basis unless otherwise noted:
Revenue from the Industrial Enterprise Solutions (IES) business was up 5% to €468 million. Within that, Manufacturing Intelligence (MI) was up 4%, despite a slowdown in demand from the electronics segment, while Process, Power and Marine (PPM) was up 7%. MI was up because of “strong growth in the design and production software portfolio”, all relatively recent acquisitions like MSC. PPM reported 7% growth, with contributions from the traditional design portfolio (which CEO Ola Rollén said had been declining for 3 years!) as well as construction and information management solutions.
For once, there was a question about MSC! Yay! Mr. Rollén said that MSC had a really good quarter, with revenue growth of about 7% organic, and with bookings growth ahead of that. When pressed, Mr. Rollén said that the 7% was volume growth and not price increase because “we haven’t done that”. “We’re quite pleased with out simulation business”. I bet.
Revenue from Geospatial Enterprise Solutions (GES) was up 3% to €449 million. Within that, Geosystems was up 8%, Positioning Intelligence was up 18%, and Safety & Infrastructure was down -17% on what the company said were “implementation issues in North America”. Mr. Rollén told investors that these are continuing challenges and that “actions have been taken” to return the business to growth in the second half of 2019.
The geo mix was pretty much as it has been, with revenue distributed 33% Americas, 37% EMEA, and 30% Asia-Pacific. On an organic basis, North America was the only region that showed negative growth of -3%, due to declines in the automotive and public safety sectors that were partly offset by growth in power/energy and infrastructure/construction.
Mr. Rollén didn’t explain the automotive decline in North America, saying that he did see stabilization in Europe in March, and that Hexagon MI has good traction in both traditional and newer automotive in China. He also indicated that there’s a dampening effect on CAPEX in general due to the saber rattling between China and the US.
Mr. Rollén also quickly ran through recent acquisitions, all of which we’ve covered here. Thermopylae Sciences and Technology will replace desktop solutions to enable dynamic edge mapping for defense, intelligence and private sector customers. Mr. Rollén said that this will help Hexagon recover from missed opportunities in the US, where its older-generation desktop product (and sales channel) couldn’t compete.
j5 International makes operations management software for industrial sites. Mr. Rollén said that the joint Hexaon/j5 offering will give customers “the ability to incorporate real-time situational awareness of facility operations into their digital twin … [The first example is] Hexagon’s new Shift Excellence Digital Transformation solution is powered by j5 International’s shift handover software”.
Etalon, announced in early January, adds to the Smart Factory strategy. Its calibration solutions continuously monitor and initiate compensation of machine tools, measuring machines, robots and other factory components.
The elephant in the room is that Mr. Rollén is again in court, as the authorities appeal his acquittal on insider trading charges. Hexagon announced a few days ago that CFO and EVP Robert Belkic will act as CEO when Mr. Rollén is unavailable. Mr. Rollén did make it to the earnings call and took questions, seeming 100% in charge and on top of his facts.
So many moving parts, geos, channels and products. But, in all, the news was good and the optimism seems well-founded.