Scanfil Q4 morning result: Fundamentals appear to be intact despite operational underperformance

Translation: Original comment published in Finnish on 4/24/2024 at 8:58 am EEST.

Scanfil announced its Q1 results this morning, which were slightly below our forecasts in terms of EBIT, mainly due to some non-recurring items. As expected, Scanfil left its guidance unchanged, but in light of Q1 and the comments, the guidance is at least partly based on the expected recovery in the operating environment towards the end of the year. Our preliminary assessment is that the Q1 report will not put significant upward pressure on our near-term forecasts for Scanfil. 

As expected, growth fell sharply into negative territory

Scanfil's Q1 revenue declined by 11% to 199 MEUR, down from a strong comparison period and was well in line with our forecast, which was at the lower end of the consensus. Adjusted for spot purchases of components in the comparison period, the drop in revenue was just under 9%. Revenue in all segments declined in line with our expectations, but the decline in Energy&Cleantech, which is benefiting from the green transition, was smaller than expected, while Industrial and MedTech&Life Science declined slightly more than we expected. The latter two segments continued to suffer not only from changes in demand but also from destocking.

Profitability missed forecasts, but fundamentals still appear intact

Scanfil made an operating profit of 12.7 MEUR in Q1. Thus, the operational result was down around 15% year-on-year and missed our forecast, which was at the lower end of the consensus, by around 6%. EBIT margin remained slightly weak by Scanfil standards at 6.4%, but this was impacted by 0.4% by severance payments and currency movements, the company said. As a result, the company's operational performance in Q1  was broadly in line with our expectations and in line with Scanfil's current fundamentals, and we do not see any major drama associated with the earnings miss. In the lower lines, financial expenses turned positive against our forecasts, likely for FX reasons. There do not seem to have been any big surprises in taxes. As a result, Scanfil's EPS ultimately fell to EUR 0.15, in line with our forecasts. In terms of cash flow, the report was strong, especially seasonally, as the decline in revenue limited the working capital commitment in Q1, which is typical for Scanfil. As a result, cash flow in Q1 increased from zero in the comparison period to 10 MEUR, despite the lower profit and high tax payments in Q1. 

Guidance was reiterated and we do not expect the report to result in significant forecast changes

Scanfil reiterated its guidance for 2024 of 820-900 MEUR revenue and 57-65 MEUR adjusted EBIT. This was fully in line with our expectations. The company flagged a weak demand outlook for Q2 as well. Scanfil expects the operating environment to improve towards the end of the year, which would also allow for a slight improvement in profitability, in line with industry logic. In our view, this is not without risk, as the upside assumption for H2 is at least partly based on a pick-up in European economic growth through lower interest rates and the support these factors provide to Scanfil's investment-driven demand. Therefore, in our view, it is not entirely clear at this stage whether the guidance will be met. Prior to the first quarter, our forecasts were at the lower end of the company's range, based on a rather weak European macro picture throughout the year. As a starting point, we do not expect the Q1 report to materially impact Scanfil's short- or longer-term forecasts.