Elekta AB Earnings Call: Growth Amid Challenges

Elekta AB Unsponsored ADR Class B ((EKTAY)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Elekta AB Unsponsored ADR Class B highlighted a mix of positive developments and ongoing challenges for the company. While Elekta reported strong performance in Europe, growth in its service business, and positive trends in China, the company continues to face challenges in the U.S. market, including order cancellations and issues with gross margin recovery. The introduction of a new operating model and cost reductions underscores Elekta’s proactive approach to addressing these challenges.

Strong Performance in Europe

Elekta has continued to build momentum in the European market, achieving an impressive 11% organic growth in orders. This growth is indicative of successful product launches and a robust market presence, positioning the company well in this key region.

Positive Trends in China

Despite experiencing a double-digit decline in revenues for the second quarter in China, Elekta saw growth in orders and positive momentum for the second half of the year. The company reported a book-to-bill ratio of approximately 1.3, suggesting a strong pipeline and future opportunities in the Chinese market.

Service Business Growth

Elekta’s service segment demonstrated a 7% growth, continuing its strong development. This growth reflects successful software upgrades and an expanding service market, contributing positively to the company’s overall performance.

Improved Cash Flow and Reduced Net Debt

Elekta reported significant improvements in cash flow generation year-to-date compared to the previous year, with net debt reduced by nearly SEK 700 million. This financial strengthening is a positive sign for the company’s stability and future investment capabilities.

New Operating Model and Cost Reductions

In response to ongoing challenges, Elekta announced a new operating model aimed at increasing speed and agility. The company targets a cost reduction of no less than SEK 500 million, which includes a workforce reduction of approximately 10%. This strategic move is expected to enhance operational efficiency.

Decline in US Revenues

The Americas region, particularly the U.S., saw a negative growth of 8%, highlighting the need for a commercial turnaround and improved market execution. Addressing these challenges will be crucial for Elekta’s future success in this region.

Order Cancellation Impact

Elekta canceled SEK 2.2 billion in orders due to a firmer interpretation of order criteria, primarily affecting the Middle East and Africa regions. This decision reflects the company’s commitment to maintaining a firm order review process.

Challenges in Gross Margin Recovery

While there has been some improvement, Elekta’s gross margin remains below pre-pandemic levels. Supplier dependencies and increased tariffs continue to pose challenges, requiring strategic adjustments to improve profitability.

Forward-Looking Guidance

During the earnings call, Elekta’s leadership outlined their strategic initiatives and financial metrics for the fiscal year ’25-’26. The company reported a 1% organic sales growth and a 2% increase in orders, driven by strong performance in Europe. The gross margin improved to 37.9%, and an adjusted EBIT margin of 10.1% was achieved. Elekta plans to implement a new operating model to achieve SEK 500 million in cost reductions by Q1 ’26-’27, with a focus on enhancing commercial execution and product development speed.

In conclusion, the earnings call for Elekta AB Unsponsored ADR Class B reflected a balanced outlook with both positive developments and challenges. While the company is making strides in Europe and its service business, it faces hurdles in the U.S. market and gross margin recovery. The new operating model and cost reduction plans are promising steps towards addressing these issues and positioning Elekta for future growth.