Sandvik AB - ADR

Record growth + profitability (good): Q2 delivered record revenues and profits with order intake +17% (org. +17%) and revenues +24% (org. +23%). Adjusted EBITA SEK 8.3bn (margin 22.6%, up from 19% prior year). Adjusted profit SEK 5.8bn (up from 3.7bn). Free operating cash flow SEK 3.6bn with cash conversion 46% (weaker than normal due mainly to significantly higher invoicing timing).

Machining/tungsten accounting drove a big “timing effect” (surprising): In machining, Q2 included a temporary tungsten price effect of SEK ~550m (group impact cited as ~150 bps margin in-quarter). Management said the effect should ease in Q3 (they expect ~SEK +200m in Q3, i.e., lower than Q2). Excluding the temporary tungsten impact, machining margins were described as still strong (implied “underlying” much closer to target-range). Main driver behind underlying improvement also included fixed cost absorption in powder; however cutting tools faced price-vs-inflation lag (price increases were not fully synchronized to raw material cost increases), creating negative absolute profit impact in cutting tools that is largely offset at machining level.

Mining & aftermarket momentum; some one-offs hurt leverage (bad + good): Mining recorded record high order intake with very strong aftermarket: aftermarket +17% YoY (parts/services + digital technologies; fleet aging/expanding and “stickier” advanced equipment). Mining profitability margin 20.5%, but organic operating leverage only ~25% vs ~30% “normal”, primarily due to two Q2 one-offs: litigation settlement costs and a diamond mine closure in South Africa. Management stated this is not expected to persist in later quarters. Book-to-bill stayed positive (103% overall) with ~10–11 months lead time still roughly unchanged.