Koskinen’s Q3 morning result: Performance stalled dramatically due to volume and cost-based reasons

Translation: Original comment published in Finnish on 11/17/2023 at 9:24 am EET

The Q3 result published by Koskisen this morning was loss-making in the lower lines and, well below our expectations across the board, especially due to volume and cost (raw wood) reasons. Koskisen repeated its guidance for the current year, but due to the weak Q3 and the seemingly weak market situation, the prerequisites for a positive earnings revision that we expected were largely lost. We expect Koskisen’s share to be under pressure today due to the disappointing Q3 result, although the company’s low valuation (2023e: P/B about 1x) should already support the share somewhat.

Sales stalled due to long production breaks in July

Koskisen had not published comparison figures before the Q3 report. This made it difficult to assess the seasonality of operations, although it is known that the comparison figures were tough. In Q3, Koskisen’s revenue decreased by 17% to EUR 55.5 million, which was clearly below our estimates. The revenue miss was driven by the volumes of both businesses, which decreased clearly from the comparison period due to weak demand and production shutdowns in July. In particular, the volume in the Panel Industry was well below our forecast. On the other hand, there were no surprises in achieved average prices as the average price in the Sawn Timber Industry remained stable at a weak level and the average price in the Panel Industry continued to rise (although this may also be linked to reasons related to the product mix).

Koskisen's adjusted EBITDA was EUR 1.4 million in Q3. The operating result decreased from the strong comparison level by almost 90%, while we expected the drop to be clearly smaller. Our forecast was too positive for both divisions, but the sharp drop in profitability caused by the Panel Industry's volumes and high costs (birch log) was the clearest disappointment. The Sawn Timber Industry was EUR 1 million in the red at EBITDA level due to the weak price level, low volumes and high costs, but it was known that due to the ramp-up of the new sawmill line in Järvelä, Q3 would be disrupted for the unit and difficult to predict (we expected a zero EBITDA for the unit). In the lower lines, depreciation and financing costs were lower than we expected and taxes turned positive due to the loss-making result. Thus, Koskisen’s EPS plummeted to EUR -0.04 in Q3. In terms of cash flow, the report was also subdued, as the cash flow from operating activities corresponded more or less to EBITDA, and the tail-end of the investment in the new sawmill line pushed free cash flow clearly into red.

No changes to 2023 outlook despite the stall in Q3

Koskisen repeated the guidance given in the prospectus for 2023, based on which it expects that its 2023 revenue will not exceed the 2022 level, and its adjusted EBITDA margin is 12-14% (2022: 21%). After the Q3 numbers, repeating the guidance was a given and after nine months Koskisen is still at the top end of the profitability guidance range (Q1-Q3: adjusted EBITDA-% 13.8%). However, the positive earnings revision scenario that we reflected for Koskisen dried up due to the Q3 disappointment, as comments about the operating environment were also subdued in terms of both demand and costs (timber tree), although similar production shutdowns as seen in Q3 are unlikely in Q4.