Translation: Original comment published in Finnish on 8/6/2024 at 9:00 am EEST.

Scanfil released its Q2 report this morning, which came in just slightly below consensus expectations for EBIT, despite a worse-than-expected decline in revenue. Market commentary was cautious, roughly in line with our expectations, although the company seems to have had some success on the sales front in H1. As expected, Scanfil reaffirmed its guidance, which had just been downgraded in June. Our preliminary assessment is that there is no significant upward pressure on Scanfil's near-term forecasts, but the risks are slightly tilted to the downside following recent weak economic data. 

Top line worse than forecast in Q2

In Q2, Scanfil's revenue decreased by 20% from a very strong comparison level to 196 MEUR, below all consensus forecasts. The decline in revenue was due to the reasons cited in the company's June profit warning, namely weak demand and customer destocking. Revenue in all segments declined in line with our expectations. In Energy & Cleantech, the revenue drop was sharper than expected, with customer destocking now overshadowing the support from the green trend. Similarly, Medtech & Life Science revenue exceeded our forecast and is already showing signs of leveling off. In the largest segment, Industrial, revenue was well in line with our forecast of a decline of around 20%.

But profitability exceeded expectations

Scanfil's Q2 EBIT decreased by around 21% to 13.9 MEUR. The company's operational performance was in line with our forecast, but EBIT fell just short of consensus expectations. Profitability (EBIT%) was at a good level on Scanfil’s scale and flat year-on-year at 7.1%, which we believe is a good performance given the magnitude of the revenue decline. Scanfil has been able to support its profitability well through savings and other productivity improvements, which bodes well for the improved demand environment that will come in due course. In the lower lines, financial expenses turned positive against our and consensus forecasts, likely for FX and non-cash reasons. The tax rate was also slightly below expectations. Scanfil's Q2 EPS of EUR 0.16 was significantly lower than the same period last year, but one cent above both our and the consensus expectations. From a cash flow perspective, the report was very strong, especially given seasonal developments, as the decline in sales freed up working capital as expected.

Guidance reiterated as expected

Scanfil reaffirmed its guidance for 2024 of 780-840 MEUR revenue and 54-61 MEUR adjusted EBIT, which had been downgraded in June. This was fully in line with our expectations. Regarding the market situation, the company said volatility and low customer predictability would continue but expects a “gradual” pick-up of the market, starting in the MedTech & life Science segment. On the other hand, Scanfil seems to have made some gains in new customer acquisition in Q2, but due to the lack of comparison data, further research is needed to understand the extent of these gains. Our preliminary assessment is that there is at least no significant upward pressure on our Scanfil forecasts for the coming years. However, given the recent lackluster economic data, we believe the risks for the coming years are slightly tilted to the downside, although interest rate cuts will support the investment-driven demand for Scanfil.