Dometic Group AB (publ) (DOM) Earnings Call Transcript

Welcome to Dometic Q3 Report 2026. Today, I am pleased to present CEO, Juan Vargues; CFO, Per Carlsson; and Head of Investor Relations to Tobias Norrby. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Good morning, everybody, and welcome to this quarterly report, the third quarter for the year. Let's move on to the presentation. We are very happy to report organic growth. It has been a while ago since we could show positive numbers. And is even more positive is obviously that the underlying markets are still weak. We have still today low consumer confidence. But looking internally, we started by showing organic growth a couple of quarters ago in one of the segments then we got 2 segments and now we have 3 segments showing a positive development. Even positive is that we continue to see a good order intake in Q3 and a stronger backlog when we move into Q4 in comparison to what we had last year and what we had as well in Q3. Obviously, we would like to see higher profitability. As you all know, we are working very hard with our restructuring program, so acting capacity all the time. At the same time, we have still today the headwinds coming from raw materials just now. And obviously, volumes are still very much down in comparison to what we had a few years ago. We keep working hard on implementing our strategy and that means these days, on one side, finding the pockets of growth, wherever they are, on the tough market conditions, but also continue to adapt capacity to the new need by reducing complexity and using our assets in a better way, in a more efficient way. That means as well that considering the situation in the American market, considering the fact that the industry is down 14% this year that we might have new interest rate hikes moving forward, expectation is we should be careful with our expectations on the remainder of the year and next year. And therefore, we also launched a new restructuring program addressing primarily Land Vehicles Americas. There are a couple of other pockets, but the vast majority of the program will address Land Vehicles Americas. Having as a target to have SEK 15-additional-million savings by the end of 2028. Looking at the numbers, organic growth, 3% up. EBITA reaching SEK 9.7 million versus SEK 10.4 million last year. A negative free cash flow for the quarter of SEK 90 million affected by a few one-offs that Per is going to comment later on. And then all of that leading to a leverage slightly higher than 1 year ago, 3.4% versus 3.2%. Looking at the underlying OEM markets. We see U.S. RV production is very much down, both quarter-to-date, but the same numbers in reality for the year-to-date number, minus 14%, so still very, very weak. We have also registrations in Europe. You may know we don't get numbers, there is no association publishing numbers every month as we have in the U.S. on manufacturing, but we have registrations instead which is a pretty good indicator of the state of the market. Registrations. We had a strong Q1 across Europe. We hold a weaker Q2 and Q3, as you can see, is pretty negative, reaching 16%. And meeting we're meeting OEMs across your just now the expectation is obviously that this weakness will continue for the remainder of the year, almost probably also next year. Looking at the U.S. Marine business, a little bit same saying. We still have the majority of dealers feeling that their inventories are high, that they are suffering from obviously, low consumer confidence and price pressure. So at this point, we can't see any signals of any major change on market conditions from an OEM perspective. We can do is, obviously, to focus on the rest of the areas where we are present, which means the service and aftermarket business or the distribution business. And considering all factors, again, we are happy to see the evolution in states and bringing us to the feeling that we are taking market share just now on a broad base. We expect as well our investments in some of the aftermarkets, in more cooling and marine to continue to show the diversification process that we started a few years ago is paying off. Again, SEK 5.1 billion in sales revenue in the quarter with 3% organic growth. EBITA SEK 495 million or 2% down with EBITA margin reaching 9.7%. Adjusted EPS of SEK 0.03 in comparison to SEK 0.64 one year ago. I already commented the negative free cash flow of SEK 90 million, and we'll be back to that and the leverage ending up at 3.4%. Looking at the year-to-date numbers. Happy to report finally 1% organic growth year-to-date, not just in the quarter, but we are turning to positive even for the year. EBITA almost SEK 1.8 billion in comparison to 1 year ago or 10% down with an EBITA margin of 11%. Adjusted EPS of SEK 2.16. A free cash flow of a little bit more than SEK 0.5 billion, an average of 3.4%. Looking at sales, the graph is self explanatory. Land Vehicles growing 2%. As you can see, Americas is still in decline 8%, but pretty far away from what we see in the decline of the markets. Again, manufacturing in the U.S. is down 40%, we are down 8%. So that's good news. EMA, 9% up, very positive. PAT also turning to positive 1%. Marine, 4%. Mobile cooling, strong 9%, which feels very, very good, and the Ventures is still suffering as well 6% primarily driven by the connection to the RV industry in the U.S. Looking at the evolution of the different channels. We clearly see also how we have been targeting growth outside the high-ticket discretionary spend. moving more and more into distribution channel, more as well into service and after market and that has brought quite a lot of resilience. We're looking at how the different end user markets develop over time, especially driven by the OEM situation and consumer confidence. Looking at organic growth by channel. I also believe that the slide is explanatory. We see the stability. We are coming from a negative situation for a number of quarters. American market falling first. Then once the American market stabilized, and we love the European market coming down and then the marketing APAC coming down. But the good news is that we have just now the opposite situation. We got into some kind of stability and now we see as well that we are starting to grow. Especially happy to see, obviously, service and aftermarket, which we have been investing from a product development perspective, we have been developing even from a branding perspective, introducing a new brand to address a different channel than we were used to. We see as well OEM being positive 4% despite the weakness on the -- in the RV industry. We are growing primarily driven by commercial vehicles at this time. And then distribution, pretty flattish, has been flattish for a couple of quarters, and we still expect, obviously, to see that channel moving into positive in the quarters to come. EBITA showing good resilience despite the fact that we have raw metal prices just now playing against us. You are all aware on plastics due to the oil prices coming up and being at a pretty high level to 20% higher than 1 year ago. We have a revenue close to 40% higher than 1 year ago. We have steel 10% to 15%. So this is playing against us, but we still managed to mitigate some of the negative effects. Gross margins staying at 29.3% versus 29.5% last year. Here, we need to consider as well that we have a negative product mix with mobile cooling growing 9% in comparison to the rest, where we have lower margins in comparison to the average. And then SG&A, we have also been working hard. We continue to invest in pro development. We continue to invest in sales activities. And at the same time, we reduced in other areas of the company, especially administration, all of this leading to a slightly lower EBITA margin for the quarter. Going a little bit deeper into different segments, Land Vehicles, 2% up with growth in service and aftermarket overall and growth as well in the OEM channel, especially driven by commercial vehicles. While RV declining, but a pretty slight decline. So we see also that that's moving. Now we need to understand what is going to happen in the European market in the coming months. But we have seen a pretty positive development in Europe from a perspective during the first quarter of this year. EBITA ending at 6.3% or kind of a little bit more than SEK 140 million with improved gross margins despite raw material cost, and that's obviously a consequence of all the savings that we are getting through the restructuring program that we have been running in the last couple of years. We also see higher SG&A as a consequence of investments in both product development sales and marketing in a similar way as in a couple of other segments as well. Marine, positive 4% organic with growth, very nice growth in service and aftermarket and flattish on OEM. We still -- we are all aware of the situation on the bolting market in the U.S. We see that market is still negative, where we see positive in Europe, very much driven by the jet market, the super jets and the mega jets going still very, very well. Good resilience of margins as well, 20.4% with stable gross margins. Again, protecting tariffs in Canada, kicking in at the same time as we have been pricing, we have the raw material prices. But again, we increased our prices and manage to mitigate the negative effects and slightly negative FX effect as well in the Marine business. Mobile Cooling, very nice growth, 9%, very much driven by North America and seen very, very good sell-through, I have to say, higher than I would expect. But obviously, here I would like to talk about the weather, but I believe the weather has had a positive impact in this season in comparison to last year. margins lower than we expected and up of 5.4%, but very much driven again by raw material prices. We have increasing prices, but we have still -- we are still suffering from a time lag between cost increases where we get new cost increases on a monthly basis and price increases where we normally -- when we are talking about the major accounts, we have anything from 3 months to 9 months implementation. working as well on SG&A up the capacity to the new levels. Global Ventures, negative organic growth with mid-digit negative growth, both on other global verticals and over Power Solutions. EBITA margin, 7.7%. And here, we are clearly suffering from factory In this case, in this segment, we have small units and a bit more complicated to capacity to the demand on the market, even if we are still working to reduce our capacity even there. Looking on sustainability. We're also happy to report that we continue to make quite nice progress with coming down target with share managers above targets, which is also positive. Renewal energy also developing in a nice direction and above our target for this year as well. And the same is valid in terms of assessments of the material suppliers also there a above target for the year. As I commented earlier, the American market is not developing as we all would like to see. That means that we continue our efforts looking the restructuring programs that have been implemented until now we would expect a service of SEK 900 million. So SEK 750 million from the program announced before the SEK 150 million of the program that we announced in Q2 this year. At this point, we are running a savings of SEK 600 million, adding another SEK 110 million in savings in Q3. As we speak, we are just now 1 of 3 manufacturing units, that will obviously bring additional savings in the quarters to come. We look at what we have done so far. One manufacturing unit has been shut down another 6 distribution centers have also been reduced. Now moving forward, we still suffer from overcapacity, especially in Land Vehicles Americas, considering the situation of the market and that we don't see the market turning back anytime soon, so we need to continue. We are adopting capacity. We are raising cost we are also working on to portfolio. Additionally, I would say, some value that we started in December 2024. We want to improve asset utilization we want to reduce capacity and look at additional footprint allocation. We keep working hard on simplifying the portfolio. We will be selective on customers and products and channels, so the 3 dimensions. As commented earlier, is very much focusing on Land Vehicles Americas and getting back to profitable situation. The program as such, we are booking a restructuring cost of SEK 425 million, will generate SEK 250 million in additional savings bring in the total savings once we are done with 3 programs to SEK 1.115 billion in savings. And the estimated cash impact is going to be SEK 140 million. So we try as much as we can to drive which means that worked very, very hard on savings. We're very hard in adapting capacity to the needs -- the market needs. At the same time, as we continue to invest in the long term growth generation, which means that we continue to invest into development and keep our levels at 3% of sales. We keep investing in innovation. We are just now 23% in our innovation index. As some of you may remember, innovation indices for us is the share of products that we are selling less than 36 months. Just now we are running at 23%, having us a target of 25% and we continue to invest in sales and marketing, not the least driven by the number of product launches that we have in the pipeline. We have been launching a lot of new products, and we continue to launch new products. A few examples of product launches during the quarter. We have new AC equipment in the distribution works for the RV industry. And commercial vehicles, we have a new kitchen equipment on air fryer, even therefore, the RV and commercial vehicle industry. We have a new premium series of and the front-runner brand. So that's the new Dometic 1 series that we believe very much on. And we have also launched a new generation of solar panels and this will continue way forward. So a lot of things going on in the innovation pipeline in other words. And with that Per, I would like to hand over to you.

All right. Thank you. Good morning, everyone. I'll walk you through the P&L and the cash flow in the coming slides. So on a very solid and good top line, I would say, with the growth of 3%, especially obviously, is that we have brought in 3 of the largest segments, which will support -- that gives us a gross margin of 29.3%, which I would consider as a good margin management as we still have a -- quite have a headwind from the higher material prices, both in resin and in metals, so plastics and metals, impacting not the least the mobile cooling business. We also have a little bit of a negative impact on the currency as we have seen a strengthening of the RMB in the year and in the quarter. And as you know, we have quite a lot of production in China, both internally and externally sourced. Against that, we have the price increases that have been implemented throughout the year. we see an effect of that, and that gives us basically a flat margin year-over-year. On the operating expenses, underlying SG&A is up in line with sales, which is in way very good because it's a lower pace of increase than what we have seen earlier in the year. The other part here in the operating expenses is the other operating expenses and income, where we had a couple of good ones in '25. But underlying SG&A with sales. So that gives us the EBITA of SEK 495 million, 9.7%, which is then slightly down compared to last year, but still quite a good number for us. With all that, we have a couple of big items impacting the P&L. We have the items affecting comparability, which is a net number of SEK 72 million. Restructuring provision for the program that we have launched, Juan talked about, of SEK 425 million, which is then offset by the reversal of the provision related to the ACON earn-out case that we had a victory in to say that we also communicated during the quarter. So that's SEK 354 million favorable, that gives us the unfavorable of SEK 72 million in the quarter. Below that, we have the noncash adjustment of the intangibles related to acquisitions. So that's an impairment of close to SEK 4.2 billion, a significant number, obviously. That's for land vehicles, which is, I mean, you can say, connected to the restructuring program that we have launched and also in the Global Ventures also related to the American market. And then we also have an adjustment of the intangibles on the mobile cooling side. And I would say that this should be seen more as a retroactive adjustments on the balance sheet, I mean due to the development we have seen in the market more in the recent years rather than a changed view on the future. And why now in this time? Well, we always do an impairment test in Q3 every year. So that's the reason for the timing. On the financial side, Financial expenses are slightly down, primarily supported by lower interest expenses as our debt is coming down. And then we have taxes of SEK 245 million. Taxes this quarter is a little bit distorted obviously by the high number of nonrecurring adjustments of the IAC and the impairment. I would say you can still assume an underlying tax rate of some 34% doing your estimate. Taxes here is also impacted that we have taken a very conservative approach on the reversal or release of the ACON earnout, and we believe that will come back in Q4. Moving over to the capital side. So working capital still at 25% on an LTM basis, in line with what we have seen here during the last year, still running with high inventories, which is then offset by a favorable development on the payables, partly related to the inventories, but also better terms and then also favorable development on receivables. We do believe that we have potential to come down, especially on the inventory side. And we still have a target of 20% working capital for the group, as we have talked about also 100 days on the inventory might sound a little bit aggressive at this point in time, but we believe there is potential there for further cash release from working capital 1 should be mindful though that now going into the fourth quarter, we are going into the premium season for the mobile cooling business to be ready for the early or the spring time sales, especially in the U.S. in 2027. Moving over to next slide. Relatively flat, the small peak you see on the CapEx side in Q3 is related to the manufacturing moves we are doing in the U.S. where we are building up capacity in the receiving plants. As Juan mentioned, we have 3 restructuring cases ongoing in the U.S. now, which should be finished towards the end of the year would also give us some more savings related to the '24 restructuring program. R&D remains on about 3% of sales. which is a level that we believe is good for us. We're able to launch all these new products that we have. And that takes us to the cash flow itself, statement. There, we filed an operating cash flow of SEK 563 million for the quarter, which is impacted by the timing of the accounts receivable program where we have a lower amount now in the program due to the seasonality of sales, that's an unfavorable impact timing impact compared to last year of SEK 350 million, which we got paid in the second quarter instead of the third quarter. The inventory impact is lower than what we have seen in the first half that is start to flatten out the curve. Below operating cash flow, we have a significant interest payment in the quarter related to the annual payments of the bonds 2 of the euro bonds. So that's a SEK 20 million payment in the quarter -- on the quarterly, let's say, extraordinary impact is about sx 15 million out of that. And we also have the payment of tax settlement or a tax dispute that has been ongoing for a couple of years in and that takes us then to a negative free cash flow for the quarter. Furthermore, we have also paid back SEK 750 million of debt in the quarter, which was done in August. And this then shows you the seasonality for a number of years of the cash flow. And obviously, a negative free cash flow in the quarter is not something we would like to see. I think we have some good reasons for that, which is below the operating cash flow side, which is favorable and what we are aiming to deliver. And this has an impact, obviously, on the leverage side, which is somewhat up compared to Q2, driven by the lower EBITA LTM as well as the cash flow and FX. So all 3 are going in the wrong direction for us. Typically, otherwise, we have a relatively good hedging on our leverage. Compared to last year, the 3.2 going to 3.4 is all related to the EBITA as our net debt is down compared to last year, which we continue to work on to get our debt down. It's a key measurement for us, obviously. And just the status on the maturity profile on the debt side that we have them in a couple of years from now, but we are continuously obviously working together with our bank group to have a solid and good profile on our debt. Okay, I think that concludes my part. Back to you, Jaun.

So what about going forward? Well, we have a number of priorities. One is to continue to look for the growth opportunities even if the market environment is still pretty tough, but there are always opportunities to find something more, especially, obviously, service and aftermarket perspective and from a low-ticket discretionary spend perspective. We want to improve the earnings quality of the company while we will continue to protect our investments in future growth. We will continue to emphasize driving a restructuring program to a positive conclusion and by that, improving profitability. We will continue to focus on cash generation, taking down leverage towards our long-term target of 2.5x. And we will also continue to adapt to a volatile change in market conditions and pursue any opportunities, any strategic opportunities wherever they arise and that will conclude our presentation. And with that, we open for the Q&A session. Please go ahead.

[Operator Instructions] The next question comes from Agnieszka Vilela from Nordea.

I have a few questions. Maybe starting with light vehicles. I think that the growth in the quarter was a bit surprising and obviously positive and mostly surprising in EMEA. So if you could guess what has been driving the growth there? And also, do you expect the momentum to continue?

You have different business. I mean there is 1 reason for for land vehicles and not RV. And the reasons obviously that we have on the businesses apart from the RV, we are doing well in RV in the quarter, I have to say. So it's still positive even in Europe, but is very much positive on the commercial vehicle side. And then we have also a very strong service and aftermarket quarter. We have seen EMEA doing pretty well starting already in Q1, Q2 was stronger and Q3 has been very, very good. We don't know the EMEA. We see as well a recovery in APAC, I have to say. So despite the interest rate hikes that we have seen 4 times this year, we have in the quarter a positive growth of 1%, even there driven by service and aftermarket, but also we're doing decently, I would say. And then of course, you have, as you are very much aware of Land Vehicles Americas, where we are still dropping -- now we are dropping less than the market, which is also good to see.

Yes. And just looking at these regions like -- and maybe go looking into 2027, I mean it's a lot of uncertainty, but would you describe some regions as doing a bit better than others and having better outlook?

We have seen Europe doing much better, right? I mean the question is just now is what we see on registrations. What we see on, again, whether interest rate increases are going to happen and what will be the impact on the consumer? I mean, underlying, it is clear that the European consumer is in a slightly better shape than the American consumer just now, I mean, that's crystal clear. But we are looking at registrations, of course, that we need to be alert where it's going to happen in the coming months. . So that's why I mean -- you have the OEM side. I don't think that we are going to see any major improvements as far as interest rates are so high as they are. Our debt has to be of the market, making sure that we are performing much better than anybody else. Launching new products, looking at new channels. And as you may remember, we also introduced a new brand to address a part of the market that we're growing and that what we see that we are taking quite a bit of share as well.

And that's my follow-up, actually, because Juan, you mentioned that you're taking market shares. Could you justify any regions or products that you are succeeding with? And also what is driving that? Is it the your innovation investments and R&D that you put into that business quarters ago or what's really driving that?

I think it's just now is on road front. I think that -- I mean, if you look at our growth, I mean, you know how the market will perceive Dometic for a long while. But the reality is that the American market and Agenamerica market is above 50% of our sales market, which is down 14% since the beginning of the year. At the same time, as we are running Q1 ended up at 0 growth; Q2, minus 1; and now we are mining 3, that's telling you that this is not just that we are taking share this quarter. We have been taking share now for a couple of quarters. But the good news is that it seems as it is accelerating. We have been communicating better order intake. We have been communicating stronger order stock. So I simply believe that we are taking share just now everywhere. If you look at the registration numbers in Europe, minus 16% in Q3, and we are showing plus 9%, something we must be doing differently. And if we had a product the same, we have been launching a new series of roads for AC both on the RV side and on the truck business. We have been launching new products on continuous basis on mobile cooling, where we see very nice growth. Marine, we have the gyro still not flying pace that we would like, but still we are talking on the market. We're still positive. So I think it's very much in our broad front.

Perfect. And then the last question for me on the cost inflation and especially on the raw materials side and your price increases. What was the net impact in the quarter? Was it still negative? And what mitigation actions are you taking? And when do you expect to be in balance?

I mean there's 2 things. When you have one of your prices move in that direction. On 1 side, you need to push back from a sourcing perspective. On the other side, you need to pass price to the market. Sometimes, it takes a little bit longer, sometimes it goes it little bit faster depending on the segment, depending on the region and the customer. We have a negative impact, but I -- our personal feeling is that we are mitigating quite well, while at the same time showing growth, which is not easy in a market which is tough, where customers are looking for lower price costs, so to say. We will continue. I mean this is also 1 of the reasons, obviously, for driving very, very hard our restructuring programs We are still in a catch-up situation.

And when do you believe to be in balance if the prices remain as they are?

I mean, normally, if the prices stay at these levels, we should be maximum in another 60 days, I would say.

The next question comes from Fredrik Ivarsson from ABG Sundal Collier.

Sorry, I came in a bit late, so excuse me if I missed something here. But to follow up on, obviously, question on the raw But did you actually comment on the gross impact from the raw mat headwind here or if not, can you do so?

[indiscernible] we don't got so many products and so many different types. I mean we see that we have a net negative, which is causing, I would say, somewhere 50 basis points and 100 basis points.

Was that the gross number?

Yes.

Okay. Good. And then still, the grossing was pretty stable, which is obviously due to a combination of price mix. And then which 1 of those 2 facts or price or mix, would you say had the impact in 3Q?

Mix Plays a role, but it's less obviously the price.

Good. And then on the order intake, you talked about the positive trend. Is that driven by both RV and outlook more positive in any of those 2?

Yes. Service aftermarket and mobile cooling. Service aftermarket a little bit everywhere. And then Mobile Cooling is also very positive, and Marine is very positive as well. So I would say that the 1 which is lagging in still

[Operator Instructions] The next question comes from Igor from Tubi (sic) [ DNB ].

Yes, just a couple of questions from my side as well. I just wanted to start off with the CapEx level going forward, given that you are closing down some manufacturing side, should we assume or expect a similar level going forward or should this come down in any way, so to say?

I mean, over time, we have been shutting down a large number of factories in the last 8 years. What we have done is that we have really changed the profile of the CapEx. In the old days, we were spending CapEx in machinery and manufacturing capacity. While today, we are spending much less on that in that area, but we are spending more on IT, modernizing our IT profile at the same time as we are spending more as well in product development. I mean if you think about innovation index and how we are growing in the number of product launches, it's clear we defined the launches you have new tooling, you have investments in a number of areas. . So I don't think that you will say that we are going to come down to what I have. I do believe that being between 2.5 and 3 is a good level for the kind of company we represent.

Okay. Very clear. And in terms of the new restructuring where you have announced additional cost savings of SEK 250 million -- SEK 50 million, the net cash impact of SEK 140 million will come, so to say?

Yes, through all the way to '27, partly even into early '28.

Perfect. And a final one from me. You mentioned that the partnership trend or consolidation that you see in the U.S., Are you in any talks around that or how should we think about -- or are you looking to divest that part of the business? I just want to try to understand what your strategic way is there, so to say?

I mean I told you, these are relatively small markets. So we will always have folks to the left and to the right. What winning with that is obviously that we see the situation just now with Patrick and Liebert that might have a consequence for other smaller players. And that might mean as well, obviously, that customers don't like, obviously, monopolistic situations. So customers might be looking for other options, right? As you know, our position on the RV OEM market in the U.S. has been tough in recent years, right? And this might also open for customers looking for other options like us. So it's a perspective. And I'm not just thinking about the industry. I mean we see obviously, that the outdoor sector has been in a tough position in the last 4 or 5 years. We see that companies are acquired by players, companies applied by industrial players. So there is a lot of movement as we speak. And of course, you can kind of just stay outside. You need to have your eyes open and evaluate any opportunity.

Yes, clear. And a follow-up, are you considering any divestment of any other part of the business or...