Fiskars Group: Large earnings improvement unlikely next year

Translation: Original published in Finnish on 10/24/2024 at 6:53 pm EEST

Fiskars improved its Q3 result organically despite a continued clear decline in revenue. Reaching this year's guidance indicating improved earnings is still on a razor's edge, and our forecast is at last year’s level. With the continued sluggish consumption environment, we do not see any significant earnings improvement in 2025 either. Thus, we reiterate our EUR 15 target price and raise our recommendation to Reduce (was Sell).

Earnings increased with efficiency measures, but the improvement and forecast overshoot came mainly from the 'Other' segment

The Group's Q3's comparable revenue decreased by 7%, while we expected a 2% decline, with both segments declining sharper than expected. The Georg Jensen deal pushed the growth in reported revenue to 5%. The Group's comparable EBIT rose to 24 MEUR (Q3’23: 18 MEUR), slightly above our expectation (23 MEUR). The earnings improvement and small overshoot compared to forecasts are mainly explained by fluctuation in the Other segment’s result, which stabilizes over time.

Still challenging to reach the guidance

Fiskars reiterated its guidance, so the company expects comparable EBIT to be slightly above the 2023 level (110 MEUR). After three quarters, the company is around 4 MEUR behind last year, so improvement is needed in Q4 to meet the guidance. We expect the downward trend in revenue to stabilize and efficiency gains to support Fiskars in Q4, which prompts us to forecast a small earnings improvement. Q4 is Fiskars’ main quarter for earnings and as its own retail sales are a significant result driver we may have to wait until next year to know if the guidance materializes. With a slight overshoot in Q3, we raised this year’s forecast a bit and our adjusted EBIT estimate is now 110 MEUR, so at last year’s level. Currently, there are no signs of a strong turn in demand for next year. However, we expect organic growth to return in 2025, but a more pronounced earnings improvement to be visible only in 2026. We lowered 2025-26 estimates by 6-8%

Fiskars separates its segments into individual companies, enabling additional savings and a future demerger

In connection with the Q3 result, Fiskars announced that it will separate the Fiskars and Vita segments into independent legal entities, the implementation of which will take until the beginning of 2026. The current organizational model was announced a good year ago, and already then, the segments and the brands within them gained more independence and Group activities were reduced. This announcement continues the development as the company further reduces its joint Group activities. The aim  is to save 12 MEUR over the next year with the efficiency improvement. We believe this segment separation is also preparation for a potential full separation of the segments into independent companies in the future, e.g., through divesting or a separate listing of the Vita segment. In our view, the change will not bring significant operational changes to Fiskars’ operations, and therefore it has no significant effect on the company's value at this stage.

A neutral valuation requires strong earnings growth from current levels

Fiskars’ 2024-25 valuation multiples (e.g. P/E 20x, 16x) are above our acceptable multiples and only within them with the 2026 forecast. Thus, we believe the share’s expected return consists mainly of dividend income and is subdued despite the earnings growth outlook for the next few years.