NIBE Q2’24 earnings preview: Destocking expected to continue to hit demand

NIBE will report its Q2 results on Friday at 8.00 CEST. We expect NIBE’s Q2 results to be weaker than the strong comparison figures due to a decline in revenue. While NIBE does not offer specific numerical guidance, the company usually shares commentary on market activity and provides some insight into future expectations. We expect the company to maintain the outlook it gave in its Q1 report, indicating that destocking will conclude by Q2 and that demand will gradually improve in the second half of the year. Our primary focus will be on updates regarding demand and the destocking situation, as we view these as the key highlights of the upcoming Q2 report.

Revenue down from strong comparison figures

We estimate that demand for NIBE has been sluggish due to ongoing inventory destocking in the distribution channel, a slow new construction market, and weak consumer demand driven by rising interest rates. Additionally, the unfavorable relationship between gas and electricity prices has reduced consumer incentives to switch to heat pumps. Given this situation, we expect NIBE’s organic revenue to decline by 16%, partially offset by 6% growth from acquisitions. Consequently, we estimate total revenue to decrease by 10% to 10,707 MSEK, which is higher than the consensus forecast. We anticipate revenue to decline across all business areas, with Stoves negatively impacted by destocking and Element affected by low demand in consumer goods and the semiconductor sector. However, we expect Climate Solutions to experience the most significant decline, both in absolute and relative terms.

Decline in revenue also likely to put pressure on profitability

We expect NIBE’s Q2 EBIT to land at 799 MSEK, which is at the higher end of the consensus range, representing a decline of nearly 60% from record-high comparison figures. This drop in profitability is primarily due to lower sales leading to capacity underutilization, though it is expected to be partially offset by the cost savings program. Further down the income statement, we anticipate an increase in financial costs compared to last year, driven by higher interest rates and increased debt levels. As a result, we estimate adjusted EPS to have decreased to SEK 0.16, which is relatively in line with consensus. In terms of cash flow, the decline in revenue is expected to limit the seasonal working capital commitment in the first half of the year. Additionally, most of the ambitious investment program initiated in 2020 has already been implemented, and some investments aimed at increasing production capacity have been postponed, which should help support free cash flow. However, the low operating income is expected to dampen overall cash flow.

Market conditions remain uncertain

Sales statistics for the first half of 2024 in European countries such as Sweden, the Netherlands, and Germany show a year-on-year decline of around 50%, although these figures are coming down from record-high levels in 2023. However, there are some signs of recovery. For instance, applications for subsidies in Germany have gradually increased from around 7,000 per month in the spring to approximately 13,000 in June, although the numbers remain relatively low. We expect the company to maintain the outlook it provided in its Q1 report, indicating that destocking will conclude by Q2, with a gradual improvement in demand anticipated in the second half of the year.

While we believe the market will bottom out in H1’24, we expect the recovery to become more pronounced in late 2024 and throughout 2025. This outlook is influenced by ongoing inventory adjustments, the exceptionally strong performance in the first two quarters of last year, and the likelihood that interest rate cuts will not significantly enhance consumer purchasing power until late this year at the earliest. Additionally, subsidies for heat pumps in the key German market are not expected to be disbursed until September.