Arjo AB Class B Signals Steady Progress Amid Headwinds

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 struck a cautiously optimistic tone on its latest earnings call, pairing steady top-line growth with tangible progress on profitability and cash generation. Management acknowledged clear headwinds from tariffs, currency and mix effects, yet stressed that underlying operations remain solid and that ongoing efficiency and pricing actions should help offset external pressures over time.

Revenue Growth Within Guidance

Group sales rose 3.8% in the first quarter of 2026, a pace management described as a stable start to the year and comfortably within their stated guidance range. Growth was powered by strong capital equipment sales in the U.S. and robust momentum across the Rest of World segment, underscoring resilient demand despite mixed regional trends.

Solid Adjusted EBITDA and Margin Stability

Adjusted EBITDA slipped to SEK 456 million from SEK 486 million a year earlier, but the adjusted EBITDA margin held essentially flat at 16.9% versus 17.0%. The stability of profitability, despite currency, tariff and mix headwinds, was presented as evidence that cost controls and pricing discipline are cushioning the impact of external shocks.

Improved EBIT Margin on Lower Restructuring

Adjusted EBIT came in at SEK 190 million versus SEK 208 million in the prior-year quarter, yet the EBIT margin improved to 6.8% from 5.9%. The uplift was largely driven by substantially lower restructuring charges, with non‑recurring costs reduced to SEK 6 million from SEK 40 million, highlighting cleaner underlying earnings quality.

Stronger Operating Cash Flow and Conversion

Operating cash flow increased to SEK 237 million, an improvement of SEK 53 million year over year that management linked to better operational execution. Cash conversion rose to 52.7% from 41.3%, signaling that earnings are increasingly being translated into cash even as working capital days ticked slightly higher.

Balance Sheet Strength and Leverage Management

Net debt to adjusted EBITDA remained steady at 2.2 times, reflecting disciplined leverage in a still uncertain macro environment. The equity ratio edged up to 50.5% from 49.8% at year‑end, while lower investing outflows, including reduced rental asset spending, contributed to what management characterized as a strong liquidity position.

Product and Regional Margin Drivers

Margins improved in Patient Handling and Diagnostics, helped by higher volumes and a favorable product mix in key offerings such as floor and ceiling lifts. Rental profitability strengthened in France, the U.K. and Australia, suggesting that targeted operational improvements and portfolio focus in those markets are gaining traction.

Large Rest-of-World Contract Showcases Execution

A large contract in South Africa saw Arjo modernize 36 healthcare facilities, including more than 2,300 beds and mattresses across the network. Management emphasized that strong execution in logistics and installation underpinned both attractive margins and solid cash conversion on this flagship order.

Strategic Planning and Management Engagement

The company has launched an intensive strategy process aimed at unlocking what management describes as significant untapped potential across the organization. Cross‑functional teams are involved, with plans to finalize the new strategic direction over the summer and communicate it to the market in the second half of 2026.

Gross Margin Decline from Mix and External Headwinds

Gross margin slipped to 42.6% from 43.7%, a decline of 1.1 percentage points that management mainly attributed to mix, tariff and currency pressures. While acknowledging the setback, they argued that the impact is partly temporary and that ongoing efficiency measures and selective pricing should help stabilize margins.

EBITDA and EBIT Under Pressure in Absolute Terms

In absolute numbers, adjusted EBITDA fell by SEK 30 million and adjusted EBIT by SEK 18 million compared with the prior-year quarter. Management stressed that when stripping out the effects of tariffs and foreign exchange, earnings were broadly in line with last year, pointing to a more resilient underlying performance than the headline figures suggest.

Tariffs and FX Weigh on Profitability

U.S. tariffs were estimated to have reduced gross margin by around 0.4 percentage points, equating to roughly SEK 10 million in the quarter. Foreign exchange movements shaved SEK 123 million off gross profit and had a modest negative impact on adjusted EBIT, reinforcing the importance of mitigation measures such as pricing and sourcing optimization.

Negative Product and Country Mix Effects

An unfavorable product and geographic mix, driven in part by the large South African medical bed order, reduced gross margin by about one percentage point. Management framed this as a short‑term drag tied to specific contracts and regions rather than a structural shift, but acknowledged it complicates year‑on‑year comparisons.

Weaker U.S. Flu Season and Rental Pressure

The U.S. rental business faced pressure as a weaker‑than‑usual flu season reduced demand for temporary equipment, weighing on rental volumes and margins. This contrasted with improving rental trends elsewhere, highlighting how regional health patterns can materially influence Arjo’s rental revenue profile.

Regional Softness in Parts of Western Europe

Western Europe underperformed in the quarter, with the U.K. singled out as a key source of weakness despite strong showings from France and Italy. Management indicated that they are monitoring the region closely and may adjust their commercial and operational approach to restore growth and profitability.

Rising Input-Cost Risk from Middle East Developments

Management flagged renewed pressure on energy and transport costs linked to developments in West Asia, noting only a minor impact so far. They are nevertheless preparing contingency plans, including potential pricing adjustments, in case these cost pressures intensify in coming quarters.

Operational Cost and Working Capital Trends

Organic operating expenses increased by 2.8% year over year, reflecting ongoing investment in commercial and support activities. Working capital days rose slightly to 83 from 81, a modest deterioration that management believes can be managed through continued focus on inventory and receivables efficiency.

Forward-Looking Guidance and Strategic Outlook

Management reiterated that the 3.8% organic sales growth and roughly stable EBITDA margin are consistent with their guidance framework, despite headwinds to gross margin from FX, tariffs and mix. With stronger cash flow, a solid balance sheet and a new group strategy slated for approval in summer and communication later in 2026, Arjo signaled confidence in its ability to navigate cost risks while pursuing profitable growth.

Arjo’s latest earnings call painted a picture of steady progress, with stable growth, improving cash metrics and a stronger EBIT margin offsetting external pressures on gross profit. For investors, the key takeaways are resilient underlying demand, disciplined balance sheet management and a forthcoming strategic update that could define the company’s next phase of value creation.