Epiroc Earnings: Several Large Order Wins and a Weak Comparable Boost Organic Order Intake by 9%

Narrow-moat Epiroc EPI A delivered organic order intake of 9% during the third quarter, which included its largest-ever order of SEK 700 million for underground equipment. Order intake also benefited from the removal of Russian orders in the prior period, which if we add back would have been flat year over year. Nevertheless, demand was significantly higher than its competitor Sandvik, which failed to receive any large orders during the third quarter. Organic order intake declined 7% sequentially compared with the previous quarter, but the third quarter typically has lower orders due to business seasonality, so we are not concerned about the group’s outlook. Management expects short-term demand for mining equipment and services to remain at a high level. Shares are trading 3% lower after the earnings report but remain at a premium to our unchanged SEK 156 fair value estimate.

Organic revenue grew 7% during the third quarter, driven by a 10% increase in service revenue, which more than offset a 2% decline in tools and attachments. Service demand continues to benefit from an aging fleet, with an average age of 8.5 years requiring midlife rebuilds. Acquisitions contributed an additional 9% to Epiroc’s top-line growth. Operating profit grew 12%, slower than revenue growth due to margin-dilutive acquisitions and under-absorption within the tools and attachments segment. The adjusted operating profit margin decreased by 210 basis points to 21.8%, of which 1% was from acquisitions. Profitability in the tools and attachments segment was hurt by an unfavorable sales mix due to declining demand for the segment’s more profitable hydraulic attachments used in construction work.