Essity AB (ETTYF) Q3 2024 Earnings Call Highlights: Record Cash Flow and Strategic Growth Amid ...

GuruFocus News
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In This Article:

  • Organic Sales Growth: 1.9%, with 3.4% excluding restructuring in professional hygiene.

  • EBIT Margin: Increased to 14.1%.

  • Return on Capital Employed: 17.7%.

  • Health and Medical Organic Sales Growth: 2.8%.

  • Health and Medical Margin: 19.4%, a nearly 3% improvement year-over-year.

  • Consumer Goods Organic Sales Growth: 3%, with higher volumes at 5.3%.

  • Consumer Goods Margin: 11.8% in Q3.

  • Professional Hygiene Organic Sales Growth: -0.8%, with underlying growth at 4.7% excluding restructuring.

  • Professional Hygiene Margin: 18.6%.

  • Cash Flow: Record high cash flow for the quarter.

  • Net Debt to EBITDA Ratio: 1.1.

  • Capex Guidance: Between 7.5 to 8 billion SEK for the year.

Release Date: October 24, 2024

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

Positive Points

  • Essity AB (ETTYF) reported profitable growth with higher market shares and volumes across all business areas.

  • The company achieved a record high cash flow and improved EBIT margins.

  • Essity AB (ETTYF) had its net zero emissions target validated by the Science Based Targets initiative, showcasing its commitment to sustainability.

  • The health and medical segment showed strong profitability with a margin of 19.4%, driven by innovation and strong market positions.

  • The company is focusing on expanding in emerging markets, particularly in Latin America, to drive future growth.

Negative Points

  • Organic sales growth was only 1.9%, with some areas like professional hygiene showing negative growth due to restructuring impacts.

  • Currency translation effects negatively impacted earnings, with only 3% of sales in Sweden.

  • Raw material costs, particularly pulp, had a significant negative impact on results.

  • Consumer tissue faced challenges with negative price mix and higher raw material costs, affecting profitability.

  • The company is facing a demand for early repayment of bonds, which it believes is unfounded, but it adds uncertainty to its financial situation.

Q & A Highlights

Q: Can you elaborate on the impact of pulp prices on your earnings, given the recent significant increase? A: Fredrik Rystedt, CFO: Pulp has had a negative impact, but there are mitigating factors. The increase wasn't as high as 60%, and we have a mix of soft and hardwood pulp. Mitigating factors include oil-based materials and a stronger EUR vs. USD. Additionally, energy costs were lower due to hedging, and higher production volumes improved efficiency and absorption costs.

Q: With pulp prices declining recently, is there a risk of lower prices in consumer tissue? A: Magnus Groth, CEO: We expect higher prices in consumer tissue in Q4. While raw material benefits may not be as positive, there is still a need to increase prices due to ongoing cost pressures.

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