And we’re off: Sandvik reports 9th consecutive quarter of revenue growth
It’s that time again: PLMish earnings season. If you recall, a year ago, we heard of companies winding down their businesses and exiting operations in Russia, often at a considerable cost in lost sales and asset write-downs. What will this year’s Q2 results bring?
Today, Sandvik reported that Q2 revenue was up 19%, as reported, to SEK 32,243 million (about US$3.2 billion). In constant currencies (cc), revenue was up 16%; organic cc revenue growth was 12%.
Focusing on the CAM-ish parts of the business, organic revenue was up 3% in Sandvik Manufacturing and Machining Solutions overall, while “Sandvik Manufacturing Solutions’ software revenues grew by mid-single digit[s]. A positive order intake development was seen in North America and Europe. The recovery in China after the re-opening has been slower than expected, with a weaker sentiment also signaled in the recent PMIs [Purchasing Managers’ Index — see below]. The daily order intake in the first two weeks of July was stable compared to the second quarter.”
A few more details:
- Total Q2 revenue for Sandvik Manufacturing and Machining Solutions was SEK 12,616 million (about US$1.2 billion), up 13% as reported (but more or less flat sequentially) and up 3% year/year on an organic basis
- That flat sequential revenue performance is cause for concern. Orders lead revenue, and Sandvik reported that MMS saw total order intake grow 9% in Q2 (up 3% in cc) but a 1% decline in the organic business. That said, “daily order intake in the first two weeks of July was stable compared to the second quarter.”
- By vertical, the company said it saw “double-digit growth in aerospace and high single-digit growth in automotive [but] lower volumes in general engineering and energy” that was partly “compensated [for] by price [increases].”
- By type of business: “positive software revenue growth, positive order growth in cutting tools offset by negative growth in the powder business.”
- By geo, SMM reports “slightly positive order intake development in North America of 1%, while Europe was flat and Asia was down -4% year on year”
Sandvik has started using a Hexagon-like chart of arrows and categories to describe performance —page 4 in the Q2 slide deck, here –to describe its various end-markets:
Complicated. From a PLMish perspective, that little comment about “daily order intake in the first two weeks of July was stable compared to the second quarter” is key: stability is good in an uncertain economic climate. The summer quarter in manufacturing is always challenging, so flat is good.
Speaking specifically about the business climate for cutting tools, which he sees as a better economic indicator overall (and separate out Sandvik’s mining business, which is largely in Australia and Asia), Sandvik CEO Stefan Widing said that demand in Europe and North America was up mid-single digits while Asia was down slightly, due to a larger decline in China. He also pointed out that the flat arrows in mining are deceptive — they signify flat “at a very high level — we are spoiled with these high numbers.” General engineering, he said, was a bit more negative, with a softening of demand.
Mr. Widing mentioned PMI, the Purchasing Managers’ Index, as indicative of that softening. The PMI quantifies economic trends in the manufacturing and service sectors. It tries to measure whether market conditions are expanding, staying the same, or contracting by surveying purchasing managers, the leading edge of the supply chain in any given company. The PMI is compiled monthly by the Institute for Supply Management. They interview executives at over 400 companies across 19 industries and then aggregate those responses by weighing the industries’ contribution to the U.S. gross domestic product (GDP). (There are similar efforts for other geos and industries.) The result is a PMI between 0 and 100; over 50 represents an expansion, while under 50 is a contraction, and the further away from 50, the more dramatic the change. Note that this is a relative measure, always compared to the previous month—the point: The Manufacturing PMI was 46.0% in June, continuing an eight-month downward trend. Pessimism means challenging selling environments. Read more here.
Back to Sandvik. In giving a bit more color on SMM, the company said it had integrated Coromant’s CoroPlus Tool Library into Cimatron 2024 and Mastercam 2024. This enables users to access a database of Coromant tools, 3D tool assemblies, and cutting data by importing the information directly into Mastercam and Cimatron, meaning that they can more easily manage [Coromant, at any rate] tools and create toolpaths more efficiently. Integration was always one of Sandvik’s CAM-related build-out goals: creating a more unified offering across its manufacturing and machining businesses.
Much more earnings info is available here: https://www.home.sandvik/siteassets/3.-investors/reports-presentations/interim-reports/2023/interim-report-2023-q2.pdf
So … a cautious start to PLMish earnings. Tomorrow, we hear from Mensch und Maschine — we’ll combine that with last week’s report from Addnode to look at the PLMish VAR economy.