Sandvik Q2 2026 Earnings Call | Record Revenue and Adjusted EBITA Jump 48% on Mining Surge

Thank you Luis and welcome also from my side to the second quarter report presentation. To summarize, the quarter was a very strong quarter with record revenues and profits. We see strong momentum across key regions and segments as well as also good price realization which is of course very important in the current environment. Total order intake grew by 17% and organically we grew by 70% as well. Total revenues increased by 24% but organically 23%. Adjusted EBITA came in at 8.3 billion up from 5.6 in the prior year period. This corresponds to a margin of 22.6% up from 19% and rolling 12 monthly VA margin is now 20.4. Adjusted profit for the period 5.8 billion up from 3.7 and the free operating cash flow came in at 3.6 corresponding to a cash conversion of 46%. This is on the lower side but it's driven of course by our significantly higher invoicing and we will go through the components of that a little bit more throughout the presentation.

Want to start with highlighting the acquisition we announced in the quarter which is very strategic for us. The filter press manufacturer DM Filtration which is based in Italy. This means that we are entering a new market segment in mining filtration and dewatering and this will also form the base for a new filtration division within rock processing. We have said for a number of years that we have a strategy to grow in attractive niches in downstream mining. We started three years ago with the acquisition of shank to complement our crushers with screens and this is now the next steps we're taking as we also now go into filtration and dewatering. This is a very attractive business. Besides the structural growth in mining, filtration is growing even faster. This business market that they are in is growing around 15% per year. Driven also by regulatory trends where mine operations want to derisk the tailing dams and also to get the permits to operate the mine. They increasingly move to filter presses instead. And you need large filter presses for this. And in this segment the infiltration is the market leader. They have a total addressable market of 20 billion in their core offering. If we add also adjacent offerings that they have it increases further. Good growth as I said the company has revenues of 1.1 billion expected this year margins and a high share of aftermarket. So all the attributes that we would like to see in what we call then the attractive niches in downstream mining. So a very strategic acquisition for us in the quarter.

Other key strategic highlight in the quarter listed here Dharma Proet released a new turning rate with increased tool life and productivity for our customers. This is an important launch for us to capture the growth opportunities we see in the mid market. And then very important is a completely new generation of automine called automine aura. This is a complete rewrite of the automine platform. So making sure we are on the latest and the modern technology platform that can scale for the future. It also adds significant new features such as 3D mapping in real time. Currently today, the automation solutions used in mines have a 2D navigation system. Going full 3D means that we can in real time map the tunnel of the mine. We can see things like potholes and rocks on the ground and overall it means we can increase the speed of the automated equipment by over 15%. And this has also been validated by customers in their natural environment. So really important new technology step for us in automine to make it easier to deploy, easier to use and increase productivity further. And then intelligent manufacturing in collaboration with machining have inaugurated a new innovation hub in Punea, India. This is a good talent pool not only for software and AI staff in general but also for CAM engineers. There's a lot of CAM software companies there. CAD and CAM I should say. So it's a good place for us to have a new innovation hub that we expect to scale up to around 400 people now in the midterm. So an important part in growing our digital offering.

Looking then at the market development starting with mining we continue to see very favorable market environments both upstreams and downstreams. Of course favorable commodity prices is what is spurring the high activity. We see high production rates among customers and we also have an expanded and also somewhat aging fleet which means that the consumption of spare part maintenance is very high currently we also see investments in new equipment and brownfields are making up by far the largest share of this come back to that and then also very strong demand for both digital and automation solutions in the quarter. Infrastructure here we continue to see a recovery both in Europe and North America in both aggregates and demolition and recycling. Asia is a bit more flattish. It continues to be muted by the market in China which continues to be fairly muted.

If we look at industrial manufacturing we see a good market development almost across the board. Very positively we see an underlying improved sentiment in general industry with some underlying volume increases. We continue to see very strong aerospace and defense. Light vehicles is maybe or it is the only segment I would call weaker this quarter. Europe is flattish, North America flattish a little bit stronger than Europe but still flattish underlying. China is down in the quarter. India is up. Rest of the world is also flattish. Mining and energy is improving. I would say it's maybe the segment that is improving in the most interesting way. We see quite strong demand from energy customers as they are delivering gas turbines and diesel generators to data centers. Transportation also positive a little bit more flattish in Europe but otherwise good across the board in the world. Underlying medical and electronics also strong especially driven by Europe. These are the underlying market trends and now looking at how our organic order intake development for cutting tools look like. It of course reflects very closely but there are a few things that sticks out but if you look here general industry aerospace and defense are up double digits across the board. Light vehicles a bit weaker up mid single in Europe double in North America high single in China and overall up high single digits but looking at then the underlying market trend you will understand that it's quite a lot of then price and other effects in this so this does not reflect so much the underlying market. Mining and energy up double digits across the board transportation up double digits except in Europe. Medical and electronics here we are a bit down in Europe and North America. This is still a quite small segment for us. So it will be a bit volatile quarter by quarter. This typically reflects more specific customer dynamics that will vary across the quarters. Over time we should follow the underlying trend.

Order intake and revenues. Order intake of 37.8 billion revenues of 36.8 book to bill of a positive 103%. And looking at this separate and more sequentially, we can see that order intake has now been up double digits five quarters in a row. And what's pleasing to see here is of course that we continue to grow at the highest pace even though the comparables this quarter was also double digits growth quarter. Revenues very clear trend that we are successfully ramping up converting the orders into revenues but as you saw previously we still have a positive book to build. So we are still building order backlog but we now have a good momentum and also the invoicing which will of course turn into profits and cash flow as we go further.

Then going into the separate business area starting with mining we continue to see high activity strong demand and the record high order intake. It's the first quarter where we note over 20 billion SEK in order intake in a single quarter. Aftermarket business is very strong driven by portion services and digital mining technologies. As you can see up 17% in the quarter which is quite exceptional for the aftermarket business. Equipment also grew more modest 2% but then on comparables that were all-time high in the quarter same quarter last year. So we still think that's a good number given where we were last year with a growth of 50%. Excluding major orders and order intake increased by 13%. Profitability came in at 3.8 billion a margin of 20.5%. Here the organic operating leverage was 25% which is on the weaker side. We had a couple of one-offs in the quarter that impacted negatively. We had some litigation costs related to a settlement and also one customer mine a diamond mine in South Africa closed which hit us a little bit in the quarter. Currency also had a negative impact of 60 basis points. You can also see the breakdown there that brownfield continues to be very strong 66% of sales or order intake I should say green field 9 and replacement 26%. And this is very much driven by strength in brownfield green field and replacements are also very strong.

Rock processing then solid demand in mining positive development also in demolition and recycling and aggregates total order intake increased by 8% organic increased by 7%. Here we also got a major order from LKAB in the quarter of 173 million. This is fairly unusual for us to get orders of this size in rock processing. I think it's a good sign that the broader offering that we are putting together also increases our potential to get larger orders also in rock processing. Overall the organic order intake growth was then 6%. Profitability 392 million 14.6%. They had an operating leverage of 25% which is approximately where they should be but they had a dilution from currency then of 50 basis points offsetting this. This margin is still not where we want them to be over time but is a significant improvement versus the relatively poor Q1 and as we convert now the order intake into invoicing as we usually have a better second half of the year we expect this to continue to trend in the right direction.

Machining of course a lot happening here in the quarter we see as I already mentioned solid broadbased demand for cutting tools with strong growth in all key regions underlying demand has improved in general industry and was strong in for example aerospace and defense also energy and mining and transportation. Total order intake increased by 29% and of this growth was 30% and as we also write in the report the cutting tool organic growth was 20%. And on the sales side or revenue side 19%. Daily order intake stable in the beginning of this quarter but as we have also said unusually high uncertainty driven both by the political environment and the tungsten price dynamics means you should take this for what it is. It's an observation of the first couple of weeks. Profitability was very strong, 4.2 billion, almost double from the same period last year. This corresponds to a margin of 28.7%. This is driven by higher volumes, good price realization, good cost absorption in powder and also the savings program. Then we also have a temporary effect in this number. You know that we have a temporary effect from the increased powder prices which means that we are selling at market prices and we bought the raw material at a cheaper price. So it's a temporary effect that is partly offset by that we are lagging a little bit on the price increases in cutting tools to offset this increased raw material cost. The net effect of this is a positive 550 million corresponding to 380 basis points. So if you want to take out these temporary powder effects and look at the more sustainable margin you are around 25% in the quarter. The organic operating leverage was good at 55% and also if you exclude powder the cutting tool business had a good operating leverage in the quarter. Currency slightly negative by 20 basis points.

Intelligent manufacturing very solid quarter good broadbased demand in both CAM and methodology software. High single digit organic order intake growth in new licenses and continued strong growth in the subscription sales. Total order intake increased by 15% organically 7%. And as you can see in the table in the bottom right corner, the subscription transition impact was about 2 percentage points on both orders and revenues. So if we normalize for that, we are approximately where they should be high single digits to low double digit organic growth. Good profitability development as well. 198 million up from 151 with a margin of 22.5% and the leverage of 41%. Slightly diluted from currency of 40 basis points but accretive from the reseller acquisitions of 110 basis points. With that I hand over to you.

Thank you. Going into the conclusion then to summarize the market and macro environment we continue to see strong momentum in mining recovery in demolition and recycling and aggregates during the first half of the year. We also see improved sentiment in general industry and continued strong demand in several other segments such as aerospace and defense. Then of course the political and macroeconomic environment is very uncertain with everything going on in the world. We don't see an impact of that as of yet. The trends we are seeing is underlying positive but of course this creates increased uncertainty. Our financial performance is very strong in the quarter. Order intake and revenues grew double digits. We have record profits and margins above our target range even. And if we look at the unadjusted EPS, the growth in the quarter was 63% and over 50% if we look at the adjusted number, which is of course a very strong development. We continue also to make strategic progress. We have entered the filtration and dewatering segment with the acquisition of DM Filtration. We've also strengthened our leading electric offer with our first surface drill rig that is electric. It's a top hammer drill. Also shown here a number of other innovations that we have launched in the quarter. We continue to execute on our strategy which also means consistent delivery every quarter while we are continuing to build Sandvik stronger in the long term. I think we have shown in this quarter that we are capturing key business opportunities and responding quickly to both market and customer needs. Sandvik continues to be a very strong platform with a strong culture and a mindset where we are winning together. Thank you so much. Let's head to the Q&A.

I can start and you see if you want to add something there. I mean when we break down the margin for this quarter then we have the temporary timing effect. It has a positive in quarter impact. 80 basis points. And as you said that will then come down as per the guidance for Q3. What will remain is still good profitability in our tungsten mine at these high tungsten prices. We also get good fixed cost absorption in the powder division. And then on the cutting tool side in the second quarter price versus inflation was still a bit dilutive and then it's of course very much volume dependent.

Yes. As we also mentioned the primary drivers are partial services and digital technologies. Digital technologies has very good growth driven by automation and Deswick which is my planning software. Partial services is driven by a number of things. Of course customers are using the equipment to the fullest extent. We have an expanding fleet. We talked about that before. Also the fleet is fairly old. All of those things are driving aftermarket demand operation services. Also the fact that the fleet we are now putting out there is more advanced machines which tends to also increase the aftermarket per machine because it's more advanced and it becomes more sticky in terms of the aftermarket coming to us since it's difficult for others to service that type of equipment. Then we can also say that on the consumable side meaning the combination of rock tools and ground support it was also a good development in the quarter overall. So I could simplify it and say it's across the board but those are the specific drivers.

No, I wouldn't say there is a commodity aspect to that. Of course, if you have a commodity that's where you don't want to mine, it would have an impact. But today even though it varies a bit all commodities or most of the commodities are at good levels especially the commodities related to underground.

Thank you.

I mean we stick to our long-term guidance of high single digits. We have now a period behind us with higher growth than that. But I think at some point it will probably normalize around the more high single digit because that's what we see as a sort of a long-term sustainable pace. Now there has been a number of these things you know with high production rates. We're converting the fleet from maybe a little bit more older equipment to newer equipment. So maybe there are some additional boosts here. Well there are I cannot say or we are not guiding for either how long that could last or say I mean it's up to you how long you will want to pencil in the double digits but if you take a long-term friend I would say you should put high single digits.

Maybe you start with the top five.

7%ish pre-buy effect on orders and revenues are at the same level in Q2, but if you remember we had a higher order intake in Q1. We are in a way still sitting on that backlog even though we have delivered the orders in March, but it has been refilled by new pre-buys. This is in our view expectations of more price increases later in the year, which is a reasonable expectation. So customers are sitting on a little bit higher inventory levels at the moment because of that. So 20% cutting tools, maybe 7%ish is a pre-buy effect. Then of course there's a price effect in there. And then what you have left is an underlying market-driven volume of high single, oh sorry, low single digits. Can add maybe a percent or so to that for us because we see we are taking some market shares. Then we also see some longer term restocking which is normal in a cyclical upturn adding to that. So the underlying volume type development is still in the high single digits, you could say, but some of that is restocking dynamic, the rest is market share. So there is a volume effect and I think that helps.

Yeah. And looking at the margin development, then this temporary pricing effect is the biggest contributor to the year-over-year margin development. But then as I also said, we have a material impact also from better profitability in our mine and good fixed cost absorption in the powder business. Then on the cutting tool side, price versus inflation is dilutive on the cutting tools as we're still lagging on the raw material cost in comparison to the price increases that we've done. But then we get positive leverage on higher volumes and then we have the structuring program. But the powder business, both the temporary and the fixed cost absorption, both have a sizable impact on the year-over-year development on the margin.

Yes. Yes. And the net effect of the positive absolute effect in powder and cutting tools is just the 550 together.

And the reason we choose to provide it like this is because of course the negative effect you have on the cutting tool side, that is actually something we are having as profit in the powder business since that's where the money ends up. It makes sense if you look at machining as a whole to look at the net effect of this.

In tonnage. Yes. Thank you.

Yeah, I think this with the averages is a very important point because you almost have to do the calculation on a weekly basis to get even more accurate. Personally, I think this quarter is basically a bit impossible from an outsider to predict this number because of course it's a mathematical exercise but you don't have all the information. Even for us, if I look forward a quarter ago, it's very difficult even for us to assess these impacts because when you have things going up several hundred percent over a quarter in a steep curve, the timings become very important. That's also why we are trying to guide a little bit more and provide a little bit more data going forward, because now the prices have been quite stable during Q2. Taking this and the new information you are getting, if the tank prices stay where they are, it should be a more easily predictable development going forward.

Yeah, good point. So another thing we want to remind you of is that we had very high powder order intake in Q4 and also Q1. The normal thing in the powder business is that we take frame orders at the beginning of the year for the whole year. And then it happened also in Q4 because of this dynamic, customers wanted to place orders earlier to secure supply. But this also means that now in Q2, for example, we are basically not taking any orders for next year. We have the orders already. The order effect you're seeing is the re-evaluation of the order backlog based on increased tungsten prices. So if you are modeling a forward rolling 12-month order intake to always have the next 12 months in the order backlog, you will also end up wrong. What happens now is the backlog is shortening. And then in the fall, we will open up the order books for next year. We have customers wanting to place orders now. We don't want to take them because it's such an uncertain situation. So we prefer to wait for that and then we'll open up the order books in the fall. And maybe I should say primarily in Q4 as well.

Yeah, I mean what we've said for mining is that the normal leverage is around 30%. Now we came in at 25% in this quarter and that is primarily the result of those two one-off items that we mentioned. First, a settlement for litigation, and then costs related to this diamond line that was effectively put into restructuring. So it is those two. So this is not a drag that we continue in coming quarters. It was specific to the second quarter.

No, I would say we're still around this slightly elevated. So maybe 10 to 11 months is where we're sitting.

Thank you.

Do you want to talk about the Chinese competition developments? Yeah, on the price going forward here, I mean the dynamic we have is a three-month lag announcing price increases and so on. Of course when we announced, if we take the mid-May or early May price increase, we did that announced then early Feb. So even if we already a week after that we should have done more, we cannot do price increases every week or every month. So it means that naturally we have to wait a little bit. And that's why it's fairly obvious also when you look compared to other players that there will be more price increases coming. We don't see that, I mean that should be fairly obvious. In terms of competition from China, I guess you're referring to the tungsten prices are a bit lower in China currently. This is not a dynamic we are seeing really in our segments, primarily with premium tools. We have always faced cost competition, that's nothing new, that's been there for ages. The Chinese players that are exporting are primarily in the mid-market selling through distribution, always competing on price, nothing new. If you look at what these price differentiation and timestamps between the different regions mean when you apply it to the COGS of the cutting tool, it's something we can manage. We are selling on value and not price. Of course there are also many markets where there is big resistance to going to Chinese tools as well, which is also putting up a bit of a barrier there. So we are confident that whatever price we need to put through will also come through.

Yeah. What we would consider a temporary effect because we are only trying to estimate or isolate what we think is a temporary margin boost or a temporary margin negative impact on the cutting tools. When we do cutting tools price increases that are not, if we come out of a dilutive position, then we don't think that is a temporary boost any longer for the cutting tools.

Yeah, let me try to explain. First of all on the powder side, you can look at the tungsten prices, they went up, they were creeping up in the fall but they had a major rise in Q1. So it was during one quarter. So it's not so strange that we now have one quarter of this positive timing effect because after that they have leveled out. And with this up to three months lag in the COGS, that should start to level out in Q3 since we are now working with raw material in the powder business that have been bought at these elevated levels as well. When we come to the cutting tools and the nine months lag, we are of course part of this with the timing of price increases in cutting tools. In powder there is an automatic pricing which means we get this windfall. In cutting tools, we are trying to match the best we can the price increases with the pace at which it flows through our COGS. So when we estimate the price increase we need to do in three months, we are trying to do them at the level so we match the COGS that will flow out at that point in time, to have a neutral effect on the margin in cutting tools. We want to be fair to our customers and also for competitive reasons, we don't want to overdo this. We're just trying to maintain our margin in cutting tools despite this higher raw material cost. So if we could change prices in real time, there would be no effect. Now we have a three-month notification period, it creates a little bit of dynamic, which means right now we're a little bit behind. We will eventually catch up in the fall and then it will be neutral.

Yeah, I mean you are right that on the rock tools side, the drill bits contain tungsten and there are price increases coming through there as well. Rock Tools though in the total aftermarket business, Rock Tools is sizable but it's a definite minority. Parts and services is by far the biggest. You have ground support and digital mining in there as well. Also on the rock tools, the tungsten portion of the raw material, it's mainly steel. So the tungsten portion means it's not the same effect as you would have in a cutting tool. And another effect here is that we are not selling through distribution, mining contracts are a little bit more slow moving in pricing as well. We have not broken out that effect in aftermarket and I would say in this quarter it's immaterial. It is something maybe to consider going forward, but it's not something I would call out at all this quarter.

Thank you.

Thank you. It's a good question. We have been not so specific around this, but what we have said is we want to grow in attractive niches. What we mean by that is product categories where there is a high share of aftermarket service, meaning typically good margins and resilient business. It's also where we think we can add something in terms of competence and so on. If we are in the comminution circuit, meaning close to the crushers, you also asked about M&A but there are also other ways of going into markets there with organic developments. So I think we will three years from now be a little bit broader than we are now. I do think we took a big step forward with filtration and we'll probably consolidate that for a while. Schank was three years ago, we know it took a few years to get fully into that part of the market, establish, start to scale it, get synergies. It will take some time also with filtration and dewatering. So I don't want to be more specific than that. We will definitely try to broaden it a little bit more, but it will also be based on what opportunities arise and what kind of organic investments we are ready to make. But I wouldn't expect something like this every year. We want to build it slowly but steadily, and we're in it for the long term. I think mining will be a good business 30 years from now as well, so we're not in a hurry, but the direction is clear where we want to go.

I think major orders above 2 billion in a quarter is fairly rare. That's also why we were quite happy that we matched last year's level again. But I would be stretching myself if I said that that's some kind of new normal. But I will also say we do see a very active market out there. There's lots of projects, a lot of business to be won. So 2 billion is unusually high, but there is no reason why it shouldn't be major orders also in the upcoming quarters. Let's put it like that.

I think you should use the rolled-down prices. Because when we are talking about these dynamics and our powder business and so on, China is completely separate also for us. It's a completely separate supply chain. So our powder business is the non-Chinese part and that is driven by the rolled-down prices and also the scrap potentials.

No, sorry. We're not giving the split between the two. Just a net number, I'm afraid.

Yes. Yes. That's what I said before. That's true.

No, sorry. We're not giving more specifics than that, I'm afraid.

Thank you.

Yeah, I don't think it is a little bit of a dynamic where probably in Q1 there were some customers placing more orders to secure supply during the year and now it's more normalized. I don't have a specific number on that or anything like that. It's a fairly normal seasonal pattern that we have a more positive book to bill in Q1. So maybe it was a little bit more emphasized this year. I don't know. But that is fairly normal pattern.

Short answer, no. There is no material pricing in that. It's normal pricing. So nothing that is an extra material driver. How surprised were we? Well, a little bit, let's put it like that. We are always impressed especially when parts and services come in with these gross numbers because they have been growing for a long time now at very high level. So we understand we can see the underlying drivers, but of course you're always happy to see things coming in a little bit on the upside.