Revenue: EUR 1.3 billion, down 2% organically. Recurring Revenue: EUR 565 million, up 7%. Gross Margin: 67%, up from 65.5% in the prior year. Operating Margin: 29%. Cash Conversion: 70% in Q3, 81% year-to-date. Manufacturing Intelligence Revenue: EUR 464 million with an operating margin of 25.5%. Asset Life Cycle Intelligence Revenue: EUR 208 million, up 6% year-on-year. Geosystems Revenue: EUR 373 million, down 5%. Autonomous Solutions Revenue: EUR 135 million with an operating margin of 34%. Safety & Infrastructure Revenue: EUR 120 million, up 2% year-on-year with an operating margin of 21%. EBIT1 Margin: 29%, with a 10 basis point decline. Net Working Capital: EUR 56 million build, 8.3% of rolling 12-month sales.

Warning! GuruFocus has detected 4 Warning Sign with HXGBF.

Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Hexagon AB (HXGBF) is evaluating the potential separation of its Asset Life Cycle Intelligence division into a new company, NewCo, which could create additional value for stakeholders. The company reported strong recurring revenue growth of 7% in Q3 2024, reaching EUR 565 million. Hexagon AB (HXGBF) maintained a solid operating margin of 29% despite challenging market conditions. The company achieved a gross margin improvement to 67% from 65.5% in the prior year, driven by innovation and operational improvements. Hexagon AB (HXGBF) is well-positioned for growth into 2025, with strong product launches and a focus on innovation and customer engagement.

Negative Points

Hexagon AB (HXGBF) experienced a 2% organic decline in sales in Q3 2024, with total sales of EUR 1.3 billion. The construction market remains weak globally, particularly in Europe and China, impacting demand. The Geosystems division saw a 5% decline in sales, affected by cautious customer investment due to interest rate concerns. The Autonomous Solutions division experienced a sales drop due to exceptional performance in the previous year and delays in the agriculture market. Hexagon AB (HXGBF) faces ongoing challenges in the automotive sector, particularly in Europe, with a noticeable slowdown in activity.

Q & A Highlights

Q: Can you discuss Hexagon's position in the CAD and EAM markets and how it compares to competitors? A: Paolo Guglielmini, President and CEO, stated that Hexagon's NewCo has market-leading solutions, particularly with the SDx platform, which integrates data into a digital backbone. This strategy positions NewCo for significant growth and competitiveness in the market.

Story Continues

Q: What prompted Hexagon to evaluate the potential spin-off of ALI at this time? A: Paolo Guglielmini explained that the timing is driven by internal work and synergies observed between various business elements. The Board and leadership team have collaboratively defined the perimeter for the potential spin-off, seeing it as an opportunity to create focused global leaders.

Q: How much extra cost is expected to make NewCo a standalone entity, and is there potential for divesting NewCo? A: Paolo Guglielmini mentioned that details on additional costs will be shared in the future. Regarding divestment, the Board concluded that the current strategy of a spin-off is the best course of action.

Q: What is the growth profile of ETQ, Bricsys, and the utilities and infrastructure business included in NewCo? A: Paolo Guglielmini noted that ETQ is growing at 10-15%, Bricsys is transitioning to subscription with similar growth rates, and the utilities and infrastructure business is growing in mid- to high-single digits. These businesses have different maturity levels but strong synergies.

Q: What are Hexagon's expectations for the construction and China markets in 2025? A: Benjamin Maslen, Chief Strategy Officer, indicated that the European construction market remains weak but stable, with potential improvement in 2025. The US market is stronger, and China's construction market may benefit from government stimulus, with positive effects expected in 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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