Scanfil Q3'24 preview: Decline in revenue has weighed on earnings performance

Translation: Original published in Finnish on 10/22/2024 at 6:42 am EEST.

Scanfil will publish its Q3 report on Friday at around 8:00 am EET. We expect Scanfil's Q3 results to be weaker than the fairly strong comparison figures due to a decline in revenue. Scanfil's guidance has held so far, despite the recent weak news flow from the industrial and contract manufacturing sector (including earnings warnings from Noten and Kitron). In principle, we do not expect Scanfil to adjust its guidance in connection with the result. We do not change our view on the moderately valued Scanfil (2024e: EV/EBIT 9x) before the Q3 report.

The downward trend in revenue has continued

Scanfil’s demand situation has remained sluggish as order flow in the technology industry (Scanfil’s customer base) has been in the doldrums since the end of last year due to the economic slowdown and high interest rates. In addition, many value chains have continued to reduce inventories. The SRX acquisition at the beginning of Q4 obviously has no impact on the Q3 numbers. On this basis, we forecast Scanfil's Q3 revenue to decline by 12% to 187 MEUR from a relatively good comparison period, slightly below consensus. We expect Energy&Cleatech and Industrial revenues to continue to decline, while we expect MedTech&Life Science revenue to remain at about the same level as last year.

As is typical for the industry, the drop in revenue weighs on the bottom line

We expect Scanfil's Q3 adjusted EBIT to land at 13.6 MEUR, a decline of around 11% from good comparison figures. Our forecast is around the unanimous consensus level. We estimate Scanfil’s profitability to have remained practically flat at 7.3% (adjusted EBIT%), as we believe that productivity improvements have compensated for the decline in revenue. On the lower lines, our financial expense and tax forecasts are in line with Scanfil's normalized levels, although non-cash FX differences that are not material to the company as a whole could impact financial expense and EPS. We forecast that Scanfil's EPS will decline through operational leverage and land at EUR 0.16, as financing expenses were exceptionally positive in the comparison period due to FX effects.   In terms of cash flow, the report should be good as the decline in revenue has probably freed up working capital and, even on a seasonal basis, Scanfil's cash flow usually strengthens towards the end of the year.

Guidance may remain under pressure through year-end

Scanfil’s guidance is for revenue of 780-840 MEUR and an adjusted EBIT of 54-61 MEUR for the current year. Scanfil has traditionally not touched its guidance in its earnings reports, so we expect the company to reiterate its guidance, which has remained unchanged so far in H2, despite the weak news flow so far. Our forecasts are at the lower end of the guidance range for EBIT and consensus expectations are pointing in the same direction. After 9 months, with likely narrow margins of error and weak European economic and industrial data, Scanfil's guidance may be under pressure until the end of the year. In terms of outlook, we are also following Scanfil's reporting on new customer projects started this year, although the lack of comparison figures makes it very difficult to draw conclusions.