Hexagon Q1 report on Monday: We expect moderate growth and improving gross margins

Hexagon will release its Q1 financial results on Monday, April 29. We expect revenue to grow moderately and profitability to improve, driven by improved sales mix and operational efficiency. Profitability is still burdened by negative FX effects, although these should disappear in the later quarters of 2024. Forward-looking comments on growth and market outlook could drive the share price, even though the company does not typically provide numerical guidance for the group.

We estimate growth to continue at moderate level

We estimate Hexagon's Q1 revenue to grow by 4% year-on-year to 1,339 MEUR, consisting of 5% organic growth, -2% FX impact and 1% structural growth. The largest division, Manufacturing Intelligence, will continue its good organic growth as we estimate it to grow by 5%, supported by new hardware product launches and continued growth in software products. Asset Lifetime Intelligence is also expected to continue its strong organic growth, driven by SaaS revenue. The second largest division, Geosystems, will be impacted by weaker demand in the construction industry, but will be supported by innovative reality capture products. Autonomous Solutions should continue to grow at a double-digit rate. The Security, Infrastructure and Geospatial division should return to growth in Q1, driven by new customer wins in late 2023, following a decline in revenue in 2023 due to the deliberate termination of certain low value-added activities.

Organic sales growth per division

Source: Inderes estimate

Profitability to improve despite the minor FX headwinds

We estimate Hexagon's Q1 adjusted EBIT at 391 MEUR (Q1'23: 371 MEUR) with an adjusted EBIT margin of 29.2% (up 0.3pp y/y). We estimate a negative FX impact on adjusted EBIT of around 16 MEUR year-on-year. We estimate the gross margin to improve to 66.8% (Q1'23: 66.5%), supported by a better sales mix driven by software and other new products. We expect operating expenses to grow at a slightly slower pace than revenue (3% y/y), which is possible thanks to the cost efficiency program launched in mid-23. Our earnings estimates are broadly in line with the analyst consensus compiled by Hexagon.

Forward-looking comments could impact to near-term growth estimates

Hexagon does not provide numerical guidance for the Group. However, the company does comment on orders and market activity at divisional level. In particular, commentary on growth prospects in the cyclical Geosystems and Manufacturing Intelligence divisions could provide material information to investors that could influence near-term estimates and impact the share price. Any commentary on new product launches, cost savings or NWC could also be minor price triggers for the stock in the Q1 report.