Arjo AB Class B Balances Growth With Margin Pressure

Arjo AB Class B (($SE:ARJO.B)) has held its Q1 earnings call. Read on for the main highlights of the call.

Arjo AB Class B delivered a cautiously positive first-quarter earnings call, balancing solid growth and improving profitability against clear margin headwinds. Management emphasized that organic revenue growth of 3.8%, stronger cash flow and an improved EBIT margin show the business is on a stable footing, even as tariffs, FX and product mix weigh on gross margins and certain regions remain soft.

Revenue Growth Within Guidance

Group sales grew 3.8% in Q1 2026, which management framed as a stable start to the year and squarely within guidance. Growth was driven mainly by strong U.S. capital equipment sales and a notably robust performance in Rest of World markets, underscoring diversified demand despite regional weaknesses.

Solid Adjusted EBITDA and Margin Stability

Adjusted EBITDA declined modestly to SEK 456 million from SEK 486 million a year earlier, yet the EBITDA margin held almost flat at 16.9% versus 17.0%. This small move signals that underlying profitability remains resilient, with cost control and pricing partly offsetting the external pressures on the business.

Improved EBIT Margin

Adjusted EBIT came in at SEK 190 million compared with SEK 208 million last year, but the EBIT margin improved to 6.8% from 5.9%. The key driver was sharply lower restructuring costs, which dropped to SEK -6 million from SEK -40 million, supporting cleaner underlying earnings quality.

Stronger Operating Cash Flow and Cash Conversion

Operating cash flow rose to SEK 237 million, up SEK 53 million year over year, highlighting better cash generation from the core business. Cash conversion increased to 52.7% from 41.3% in Q1 2025, indicating more effective working capital management despite a slight uptick in working capital days.

Balance Sheet Strength and Leverage Management

Net debt to adjusted EBITDA remained steady at 2.2x, suggesting leverage is comfortably managed and providing flexibility for future investment. The equity ratio improved to 50.5% from 49.8% at year-end 2025, aided by a strong cash position and reduced investing outflows, including lower rental asset spending.

Product and Regional Margin Drivers

Patient Handling, including the Maxi Move 5 floor lift and ceiling lifts, as well as the Diagnostics business, delivered margin improvements on the back of higher volumes and a favorable product mix. Rental operations also saw margin gains in France, the U.K. and Australia, showing that operational tweaks and scale can lift profitability in select markets.

Large Rest-of-World Order and Execution Capability

A major contract in South Africa saw Arjo modernize 36 healthcare facilities, equipping more than 2,300 beds and mattresses. Management underlined that this complex project delivered good margins and strong cash conversion, highlighting the company’s execution strength in logistics, installation and project delivery.

Strategic Planning and Management Engagement

Arjo has launched an intensive group-wide strategy process aimed at unlocking what management calls significant untapped potential across the business. This cross-organizational effort is set to conclude in the summer, with the resulting strategy to be communicated in the second half of 2026, signaling a potential catalyst for the equity story.

Gross Margin Decline

Gross margin fell to 42.6% from 43.7%, a drop of 1.1 percentage points that marked one of the quarter’s key weak spots. The company attributed the decline primarily to an unfavorable product and country mix, along with tariff and FX headwinds that weighed on profitability.

EBITDA and EBIT Absolute Declines

In absolute terms, adjusted EBITDA decreased by SEK 30 million and adjusted EBIT by SEK 18 million versus the prior year. Management stressed that, adjusting for tariffs and FX, EBIT performance would have been broadly in line with last year, framing the decline as externally driven rather than operationally driven.

Tariffs and FX Negative Impact

U.S. tariffs reduced gross margin by around 0.4 percentage points, equivalent to roughly SEK 10 million, directly squeezing profitability. FX movements had an even larger effect, cutting gross profit by SEK 123 million and slightly denting adjusted EBIT, illustrating the company’s exposure to currency volatility.

Negative Product and Country Mix Effect

An unfavorable product and geographic mix, linked mainly to the large South African medical bed order, shaved around 1 percentage point off gross margin. Management emphasized that while the order is strategically attractive and cash generative, it temporarily distorts margin comparability and masks underlying mix improvements elsewhere.

Weaker U.S. Flu Season and Rental Pressure

A weaker-than-normal U.S. flu season led to softer rental volumes, which in turn pressured U.S. rental margins during the quarter. This contrasted with the improving rental profitability seen in other markets, underscoring how cyclical health trends can influence Arjo’s U.S. rental business.

Regional Weakness in Western Europe

Western Europe underperformed in Q1, with the U.K. highlighted as the main source of regional weakness despite solid growth in France and Italy. The mixed picture suggests that while Arjo is capturing opportunities in parts of Europe, it still faces demand and pricing challenges in the U.K. market.

Rising Input-Cost Risk from Middle East

Management flagged renewed cost pressure around energy and transport linked to developments in West Asia, though the impact so far has been minor. The company is preparing for potentially larger effects and signaled that it stands ready to take mitigating actions, including pricing discussions, if cost inflation accelerates.

Operational Cost Increase and Working Capital Days

Organic operating expenses rose 2.8% year over year, reflecting modest cost inflation and investment in the business. Working capital days ticked up to 83 from 81, a slight deterioration in efficiency, but this did not prevent overall cash conversion from improving meaningfully.

Forward-Looking Guidance and Strategic Outlook

Management reiterated that Q1 organic growth was within guidance and that adjusted EBITDA margins remain broadly stable despite pressure on gross margins. With solid cash flow, a sound balance sheet and preparations for potential cost shocks, Arjo is leaning on pricing and efficiency measures while positioning its forthcoming group strategy, due in the second half, as a key driver of future value.

Arjo’s latest earnings call paints a picture of a company managing through external headwinds while slowly strengthening its financial footing. Investors will watch how the new strategy, margin mitigation efforts and regional turnaround initiatives translate into sustained growth and higher profitability over the coming quarters.