Kalmar Q1'25 preview: Trade policy is throwing a spanner in the works

Translation: Original published in Finnish on 04/24/2025 at 07:30 am EEST

We reiterate our Accumulate recommendation for Kalmar but lower our target price to EUR 30 (was EUR 38). We believe that the strongly elevated trade policy tensions are negatively reflected in the demand outlook for the material handling market. We expect this to be reflected in Kalmar's order flow, so we made negative forecast revisions for the coming years. Due to the high level of uncertainty, we have also raised our required return for the stock, but we still see the company's long-term earnings growth prospects as favorable. Even with our lowered estimates, we still find the stock's valuation quite moderate, which supports a positive view. In our view, a stronger positive recommendation would, however, require indications of uncertainty dissipating in the operating environment. Kalmar will publish its results on April 29, at around 9 am EEST.

We will pay special attention to the company's comments

We expect Kalmar's revenue to have decreased by some 5% from the comparison period, which is largely in line with the consensus. On the other hand, both our and the consensus’ expectations for the adjusted EBIT margin is 12.4%. Correspondingly, we do not expect the rapid increase in trade policy tensions to have been reflected in orders received in Q1, and we forecast orders to have grown by some 7% year-on-year (consensus +5%). However, the actual figures play a supporting role in connection with the result, and we focus on the comments regarding the impact of rapidly escalating global trade policy tensions on Kalmar's production and supply chains (incl. direct costs related to tariffs) especially in the US market that is significant for the company and customers' decision-making. We are particularly interested in the company's measures (e.g. pricing), as predicting the final impact and, on the other hand, the development of customer activity is almost impossible in a rapidly

We cut our estimates for the next few years

We have previously commented on the potential impacts of the tariffs initially proposed by the US on Kalmar here and here. We estimate that the prevailing uncertainty will inevitably also be negatively reflected in the material processing market. In the short term, we expect this to at least postpone investment decisions, which will also be reflected in Kalmar’s order flow. At the same time, it is worth noting that, due to the existing order backlog, the effects on the company's revenue are visible with a certain delay, which is also offset in part by aftermarket services. However, reflecting the overall picture, we made clear cuts to our forecasts for the coming years (2025e-2027e adj. EBIT-%: -9-13%). We also see some risk to the company's guidance for an adjusted operating profit margin of over 12% this year if the situation continues to escalate (cf. 2025e adjusted EBIT: 12.2%). We expect Kalmar's operating profit to jump above last year's level only in 2027. We assume, however, that the situation will be resolved in a reasonable time, but if the global economy falls into a prolonged recession, there could be pressure on our forecasts.

Valuation isn’t high, but the forecasting risks are elevated

Based on our updated estimates, Kalmar's adjusted P/E figures for 2025 and 2026 are around 8x and 7x, while the EV/EBIT ratios are around 11x and 10x. We find the multiples fairly moderate in absolute terms, also considering the company's return on capital (cf. 2024 ROCE %: ~19%). At the same time, we believe that the multiples are limited in the short term by the current lack of earnings growth we expect this and next year, and the elevated forecast risks due to trade policy tensions. With high uncertainty, we have raised our required return. Correspondingly, in the longer term, we feel the company has good prospects for earnings growth through expected market growth and Kalmar's efficiency programs, which is also indicated by our DCF model (EUR ~32/share) that is clearly above the current share price.