Fiskars: Risk of profit warning in the air

This report is a summary translation of the report “Tulosvaroitusriski ilmassa” published on 9/4/2024 at 8:18 am EEST.

Consumer demand remains weak, which has led us to slightly lower our forecasts for this year. Our forecast for the adj. EBIT is now 108 MEUR, while Fiskars has guided for a result slightly above last year's level of 110 MEUR. We reiterate our Sell recommendation and EUR 15 target price. 

We lowered our forecasts due to the continued sluggish market

We understand that consumer demand in Europe has continued to be sluggish, while consumer demand in the US, an important market for Fiskars, has even shown small signs of weakening. As a result, we lowered our revenue forecast mainly for Q4'24 and now expect revenue in Q4 to be flat instead of slightly higher than in the comparison period. For the year as a whole, however, the revenue forecast was reduced by only 1%, while the EBIT forecast was down by 5%. We still expect Q3-Q4 adj. EBIT to be up year-on-year, but the improvement will be less than previously forecast. We have not made any significant changes to our estimates for the coming years.

Achieving guidance starts to look tricky

Fiskars’ guidance expects comparable EBIT to be slightly above the 2023 level (110 MEUR). If you consider Georg Jensen for the full year 2023, Fiskars' pro forma adj. EBIT was 101 MEUR (as GJ's Q1-Q3'23 result was negative), compared to which the guidance requires a more defined improvement. In the absence of organic growth, this will come exclusively from efficiency measures and synergies from the Georg Jensen deal. In H1, Fiskars' organic revenue development was -5% and adjusted operating result was approximately 10 MEUR below the comparison period. The result should therefore improve by more than 10 MEUR towards the end of the year in order to meet the guidance. As Georg Jensen was already included in the Q4'23 figures, we consider this challenging given the ongoing weak consumer demand. For the full year, we now forecast an adj. EBIT of 108 MEUR, slightly below the company's guidance.

Organic growth and a clear margin improvement in 2025-26 forecasts

Under the current management, i.e. in the last 3-4 years, the company has focused more on growth, but also on further improving profitability. However, due to weaker market demand, no growth has been achieved and the adjusted EBIT level fell to the pre-COVID level of around 100 MEUR last year (including Georg Jensen for the full year) after the strong 2021-22. This year is also relatively close to the same level, which means that the result excluding Georg Jensen is even weaker than in 2016-19. We see the actions and strategy of the current management as good as such, but the performance level the company is aiming for clearly requires more volume which calls for market recovery. This will not happen this year and the longer demand remains sluggish, the more negative risks build up for next year's growth rate as well. However, we expect clear organic growth and margin improvement in 2025-26. In our view, margin increase is linked to growth, so if growth remains weak, margin improvement is unlikely to be significant.

Even neutral valuation requires strong earnings growth from current levels

Fiskars’ 2024-25 valuation multiples (e.g. P/E 15-17x) are above our acceptable multiples and only within them for the 2026 forecast. Therefore, we consider the stock’s expected return as weak despite good earnings growth expectations in the coming years. We feel the clearly weakened earnings level in 2022-23 and the partly surprising acquisition bruised the company’s investment profile and raised the risk level of the stock.