NIBE Industries Q1 on Thursday: Continued low demand expected

NIBE will report its Q1 results on Thursday at 8.00 am CEST. We expect NIBE’s Q1 performance to be weaker than the strong comparison figures, primarily due to the weakness of the European heat pump market. While NIBE does not offer specific numerical guidance, the company usually shares commentary on market activity and provides some insight into future expectations. We expect the company to maintain the outlook it gave in its Q4 report. This suggests that the European heat pump market may be in for several more challenging quarters, potentially extending through the remainder of the year. In addition, we will closely monitor any comments on the destocking situation within the value chain.

We expect revenue to decline in Q1 from a strong comparison period

In our view, NIBE’s demand situation continued to slow down in Q1 as a result of weakened consumer confidence, a sluggish new construction market, the need to reduce inventory levels and an unfavorable relationship between gas and electricity prices. Reflecting this situation, we expect NIBE’s revenue to decrease by 6% from a strong comparison level to 10,998 MSEK (growth of around -13% adjusted for acquisitions). Our forecast falls within the mid-to-high range of the consensus. We expect organic revenue to fall in all three business areas, with Climate Solutions experiencing the greatest decline in both absolute and relative terms.

Earnings expected to flex downwards with revenue

NIBE has taken an exceptional charge of 900 MSEK in Q1 (related to restructuring), which is expected to result in savings of 600 MSEK in 2025. We forecast NIBE's adjusted EBIT for Q1 at 1,189 MSEK, down 33% due to lower sales volumes and continued high overhead costs. The consensus range is wide, probably due to different treatment of the one-off costs associated with the savings program. We therefore do not consider comparisons with the consensus to be particularly insightful in this case.

Looking at the lower lines, we anticipate an increase in financial costs compared to last year due to higher interest rates and increased debt levels. Consequently, we expect adjusted EPS to have decreased to SEK 0.48. In terms of cash flow, the decline in revenue is expected to limit the seasonal working capital commitment in the first half of the year, but the low operating income and the continued high level of investments are expected to dampen cash flow.

Market conditions remain uncertain in near term

Sales statistics for the first quarter of 2024 in European countries such as Germany, the Netherlands, and Sweden show a decline of around 50% year-on-year, although they are coming down from the high levels seen in 2023. We expect the company to maintain its outlook from the Q4 report, which suggests that the European heat pump market may be in for several more challenging quarters, possibly extending through the rest of the year.

In our view, this outlook seems reasonable given the ongoing inventory adjustments, the exceptionally strong performance in the first two quarters of last year, and the likelihood that interest rate cuts will not significantly boost consumer purchasing power until the very end of this year at the earliest. However, we expect demand to gradually recover in the second half of 2024 and into 2025 once market conditions improve. Moreover, we remain optimistic about the long-term growth prospects, driven by increasing awareness of energy efficiency, government incentives for renewable energy, and the growing adoption of sustainable heating solutions.