Purmo Q1 morning result: Expectations beat, on par with last year

Translation: Original comment published in Finnish on 4/24/2024 at 9:11 am EEST.

Purmo's Q1 results exceeded our forecasts for both revenue and profitability, and thus adjusted EBITDA beat our forecast by more than 10%. The slightly better-than-expected result was mainly due to a slight recovery in demand for radiators. As expected, the company reaffirmed its guidance for full-year results at or above last year's level. The report brings slight upside to our forecasts.

Revenue declines slightly less than expected versus prior year

Purmo's revenue declined already in Q1'23 compared to a very strong comparison period, but demand weakened further last spring and has been flat since Q2-Q4'23. Q1’24 revenue declined less than forecast year-on-year and was also higher than in previous quarters. Revenue beat our expectations, particularly in the larger Climate Product & Systems segment, where Purmo saw an upturn in demand for radiators in certain regions. However, revenue for the segment as a whole and for radiators declined year-on-year, while revenue for Climate Solutions fell by almost 20%, which was more than we expected.

Efficiency program supported margin improvement

The drop in revenue and its negative leverage effect has a negative impact on earnings development. However, the company's efficiency program has made good progress and is supporting Purmo's results. The impact of the efficiency program was 34 MEUR by the end of Q1'24 and Purmo further estimates it to be 50 MEUR by the end of 2024. As a result of the efficiency measures, Purmo's adjusted EBITDA was virtually flat year-on-year and exceeded our forecast. As with revenue, the better-than-expected performance was entirely driven by the Climate Product & Systems segment, where Purmo improved its real EBITDA margin by 1 MEUR year-on-year. The margin improved in both segments and was already above 14% at group level, compared to the company's target of above 15%. One-off items burdening the result were only 1 MEUR in Q1, which is why the reported figures exceeded our forecast even more. Purmo's net debt to total EBITDA (excluding the hybrid loan) remained at around 2.5x, which is manageable and in line with the company's target (below 3.0x).

Broad guidance untouched

Purmo reiterated its guidance and expects adjusted EBITDA in 2024 to be at the same level or above compared to 2023 (92 MEUR). At the same level means +/- 5% and above means more than 5% improvement. This means that the estimate range is quite wide. Our forecast is a slight improvement of 4% to 96 MEUR, where we see a slight upside due to the Q1 earnings beat. Purmo reports that retailer inventory levels have leveled off and the above-mentioned efficiency program is supporting the result this year, as expected. On the other hand, the guidance takes into account the impact of a weak market and potentially declining price levels. The company hosted a webcast which can be viewed here: https://purmogroup.videosync.fi/2024-q1-results