Hexagon Q4: Growth missed slightly, EBIT exceeded expectations

Hexagon released its Q4 results today. Revenue growth was slightly below expectations due to cyclical factors such as the weak construction market. However, profitability exceeded expectations, driven by strong gross margin. We don't expect major changes to consensus EBIT estimates for 2024-25 based on the Q4 report, although the company may provide more information on the business outlook in the earnings call later today (10am CET).

Organic growth just a tad below estimates

Hexagon's Q4 revenue of 1,435 MEUR were 1% below our and consensus estimates. Organic growth in Geospatial Enterprise Solutions (GES) missed our estimates by 2 percentage points (organic growth 2%, estimate 4%). The lower-than-expected growth in GES was mainly driven by the largest division, Geosystems, which is suffering from weak sentiment in the construction industry. Demand for construction-related products declined, while other product areas such as mining and reality capture solutions grew at double-digit rates. SIG sales declined slightly less than expected as a result of the deliberate termination of low-value customer contracts in early 2023. Autonomy and Positioning grew 11% organically, driven by precision agriculture, but growth was below our estimate. Industrial Enterprise Solutions grew 7% organically, in line with our estimates. Within IES, Manufacturing Intelligence grew slightly ahead of our estimate, supported by strong growth in automated inspection solutions. Asset Lifetime Intelligence's SaaS-driven growth was slightly below our estimate.

Table: Organic growth

Source: Hexagon and Inderes estimates

Profitability exceeded expectations

Hexagon achieved an adjusted EBIT of 438 MEUR (1% above estimates), representing a margin of 30.6% of revenue (Q4'22: 29.8%). The profitability improvement was driven by growth in high-margin software revenues (gross margin exceeded our estimate by 0.5pp) and cost savings, but was negatively impacted by currency movements (FX impact in line with our estimate). Hexagon also had a strong cash conversion of 103% in Q4. Adjusted EPS came in at EUR 0.12, beating our estimate by 5%. The company also said that it remains on track to achieve the target of 160-170 MEUR of savings from its rationalization program, to be fully realized from 2025.