Munters Group Earnings Call: Backlog Booms, Margins Lag

Munters Group AB ((SE:MTRS)) has held its Q4 earnings call. Read on for the main highlights of the call.

Munters Group Charts Robust Long-Term Path Despite Short-Term Margin Pressure

Munters Group AB’s latest earnings call balanced soft near-term profitability with an upbeat long-term picture. Management highlighted record order intake, a sharply higher backlog, strong cash generation and major capacity additions—especially in the U.S.—as foundations for accelerated growth from 2026 onward. While quarterly margins and net income were hit by tariffs, underutilization in AirTech, product transitions and acquisition-related one-offs, executives framed these as temporary growing pains rather than structural issues.

Record Orders and Backlog Underpin Growth Visibility

Munters reported a remarkable surge in demand, with order intake jumping 191% in the quarter (around 200% organically) to SEK 9.2 billion, of which SEK 5.7 billion had been pre-announced. The order backlog climbed 53% (about 80% on a currency-adjusted basis), giving the company multi-year visibility on future invoicing. Management stressed that this expanded backlog is a key driver of confidence in future revenue growth, even as current-quarter sales and margins fluctuate.

Data Center Technology Surges on AI-Driven Demand

Data Center Technology (DCT) delivered an exceptional quarter, driven largely by AI-related investments and broad-based customer demand. Book-to-bill in DCT was around 7x, underscoring the intensity of order momentum. Approximately 95% of these orders came from the Americas, reflecting strong regional concentration as hyperscale and AI workloads expand. Management emphasized that this unprecedented order strength sets the stage for a step-change in the business but also creates some lumpiness and concentration risk in the near term.

Strong Visibility on Future Invoicing

The company expects at least a 30% increase in Data Center invoicing in 2026, and potentially up to 40%, underpinned by its record backlog and the planned ramp-up of production capacity. This implies a significant uplift in revenue contribution from DCT over the next few years. Munters presented this visibility as one of the key reasons it remains confident about margin recovery and earnings growth despite the current quarter’s softer profitability.

Capacity Expansion Positions Munters for a Higher Growth Ceiling

Munters detailed a substantial build-out of production capacity, stating that it can now handle roughly 50% more orders than before. A new facility in Virginia, including a dedicated test lab, is central to its U.S. strategy and will help localize production for American customers. The test lab is scheduled to be fully operational in the second quarter, supporting faster qualification, reduced logistics costs and better mitigation of tariff impacts over time.

Solid Full-Year Growth and Double-Digit Margins

Despite the weaker fourth quarter, the full year showed resilient performance. Net sales rose 8% (about 15% on a currency-adjusted basis, according to management), and the adjusted EBITA margin reached about 12.7%. This underscores that, on an annual basis, Munters is still delivering double-digit profitability while investing heavily in capacity, innovation and strategic acquisitions.

Cash Flow Strength and Tight Working Capital Management

Fourth-quarter operating cash flow was strong, aided by disciplined working capital management. Operating working capital stood at around 7.3% of net sales, freeing up cash for acquisition-related payments and debt management. This cash-generation profile gives Munters room to fund growth initiatives and restructuring programs while maintaining flexibility around leverage and shareholder returns.

FoodTech’s Digital Shift and Recurring Revenue Momentum

FoodTech has completed its pivot to a digital and software-driven model, with recurring revenues increasingly at the center. The business boasts very low churn of roughly 2% and management expects annual recurring revenue to grow 20–30% year over year over time. Margins remain solid, though quarterly performance can fluctuate. The quarter saw some softness in software orders—partly seasonal—offset by growth in controllers, but the structural shift toward high-margin, sticky software income remains intact.

Operational Improvement Programs to Support Margin Recovery

Munters outlined a suite of operational efficiency initiatives, particularly in AirTech. Existing programs are expected to deliver SEK 100 million in savings in 2026, while a second wave of measures targets an additional SEK 250–300 million run-rate in savings by year-end. These improvements are being phased in and are already beginning to contribute, with management positioning them as crucial levers for restoring and then expanding group margins as volumes grow.

Innovation and Energy Efficiency as Competitive Differentiators

The company reported an innovation “vitality index” above 50%, indicating that more than half of sales derive from new or recently developed products. R&D is focused on energy-efficient solutions, including new media and AI-enabled controls, which can yield 10–20% energy savings per improvement area and up to around 40% in combination. Munters sees these sustainability and efficiency gains as key differentiators for data center and industrial customers increasingly focused on total cost of ownership and environmental impact.

Soft Q4 Revenue and Margin Reflect Transition and One-Offs

In contrast to the strong order picture, Q4 net sales declined about 8% (flat on a currency-adjusted basis), and the adjusted EBITA margin slipped to 10%, down from 13.5% in Q3. Management attributed this to a mix of temporary headwinds: lower volumes in AirTech, tariffs, product transitions and one-off items. The company argued that these factors mask the underlying strength of demand and are expected to ease as efficiency measures and new capacity come fully online.

Tariff Headwinds Temporarily Depress Data Center Margins

Tariff costs were a key drag on profitability in the quarter, reducing Data Center margins by roughly 4 percentage points. Munters expects most of this impact to fade after the first quarter as it shifts more production to the U.S., although some residual effects will persist until the new facilities and local sourcing are fully ramped. Management framed tariffs as a near-term issue that should not alter the long-term margin potential of the DCT business.

AirTech Underutilization Exposes Volume Sensitivity

AirTech suffered from lower volumes and under-absorption, with a weaker battery market and softer demand in EMEA weighing on utilization. This underutilization contributed around 2 percentage points of margin pressure in the quarter. The company expects that as volumes normalize and efficiency programs take hold, AirTech margins should recover, but the quarter highlighted how sensitive the segment remains to volume and regional mix.

One-Off Charges and Acquisition Costs Weigh on Earnings

Items affecting comparability totaled SEK 174 million in the quarter, including SEK 98 million in contingent acquisition-related consideration and SEK 77 million in restructuring charges tied mainly to AirTech. For the full year, acquisition-related considerations approached SEK 200 million. These charges depressed reported earnings and contributed to the decline in net income, but management characterized them as strategic investments and restructuring necessary to support future growth and efficiency.

Net Income Pressure and Elevated Leverage

Net income declined for both the quarter and full year, reflecting lower operating earnings and the significant one-off charges. Leverage increased to about 2.9x, above the company’s long-term ambition of 1.5–2.5x, driven in part by lease liabilities and ongoing strategic investments. While management reiterated its commitment to returning leverage to the target range over time, investors will likely monitor balance-sheet discipline closely as Munters executes its growth and capex plans.

Product Mix and Transition Costs Hit Near-Term Margins

Munters is in the midst of several product transitions, such as ramping chiller production and moving certain offerings into or out of the DCT system. These moves carried transition costs and unfavorable temporary product mix effects, weighing on margins in the quarter. Management expects these pressures to be transitory, with the completed product shifts ultimately supporting better scale, localization and profitability.

Concentration Risk and Lumpy Data Center Orders

While the DCT pipeline is exceptionally strong, the business is exposed to concentration and lumpiness. A very high share of orders currently comes from the Americas, tied to large AI and hyperscale projects, which can make quarterly order patterns volatile and create short-term predictability risk. Munters emphasized that a large backlog mitigates some of this volatility, but the company acknowledges the inherent risk profile of such concentrated, project-driven demand.

Sustainability Metrics Show Room for Improvement

On the sustainability side, Munters reported an increase of about 3% in Scope 1 and 2 emissions and a roughly 19% rise in Scope 3 emission intensity in 2025. This runs counter to longer-term decarbonization ambitions and highlights an area needing continued focus as the company scales. Management positioned its energy-efficient technologies as part of the solution but acknowledged that the internal footprint remains a work in progress.

FoodTech’s Short-Term Softness in Software Orders

Within FoodTech, the quarter saw an organic decline driven by weaker software orders, which management partly attributed to seasonality. This was cushioned by growth in controllers, helping stabilize segment performance. The company remains confident that underlying demand for digital solutions in food production and livestock management is robust, and that software softness is temporary against a backdrop of strong ARR growth and low churn.

Guidance: Record Invoicing and Margin Rebound in 2026

Looking ahead, Munters guided to positive net sales growth and a record invoicing year in 2026, with margins expected to strengthen in the second half as tariff headwinds ease and AirTech efficiency programs gain traction. The Data Center backlog supports at least a 30% uplift in invoicing, potentially up to 40%, with DCT margins targeted to move into the high-teens over time. Capacity expansions—including the Virginia test lab and chiller production ramping around the second quarter—give the company room to absorb about 50% more growth without major new capex, which is planned to remain broadly in line with 2025. FoodTech’s ARR is guided to grow around 20–30% annually with churn at about 2% or lower, while operating working capital is kept tight and leverage is gradually guided back toward the 1.5–2.5x ambition. The Board also proposed a dividend of SEK 1.6 per share, signaling confidence in the cash flow outlook.

In summary, Munters’ earnings call portrayed a company in transition: short-term profitability is under pressure from tariffs, volume softness and one-off costs, but underlying demand—especially in data centers—is booming and supported by a record backlog. With expanded capacity, structural cost-saving programs and a growing stream of high-margin recurring revenue in FoodTech, management is betting that 2026 will mark a step-up in both growth and margins. For investors, the story now hinges on execution: delivering on efficiency gains, managing concentration risk in DCT and proving that the current margin dip is indeed temporary.