Alfa Laval Earnings: Marine Segment’s Turnaround Yields Strong Profit Growth for the Group

Wide-moat Alfa Laval ALFA delivered impressive adjusted EBITA growth of 36% during the third quarter. Its EBITA margin expansion of 200 basis points to 16.7% was driven by restructuring initiatives in the marine and energy segments, as well as a favorable sales mix to higher-margin services. Its organic order intake grew 2% during the third quarter; management expects it to be at a similar level in the fourth quarter. While we expect to update our estimates in our model, we don’t expect our SEK 312 fair value estimate to change materially.

The marine division was the best-performing segment following several quarters of underperformance. Management has successfully executed its turnaround to reach a 15% EBITA margin during the third quarter, a 300-basis-point expansion year over year. Organic order intake in the marine segment grew 11%, which more than offset slight declines in the food and water segment against a high comparable and a slight increase in the energy segment. Alfa Laval’s order book grew 19% year over year to a record SEK 46.4 billion, which represents 8 months’ visibility into sales. The group’s book/bill ratio of 1.1 times indicates that revenue growth is likely to persist, despite growing 13% organically in the third quarter, supported by the execution of its energy and marine segments’ backlogs.