Kion Group Earnings: Investors Underwhelmed Despite Continued Profit Margin Improvement

Kion Group KGX largely underperformed expectations in the third quarter, despite broad-based year-on-year improvement. Shares are down 4.1% in early trading.

Notwithstanding below-consensus results, continued EBIT margin improvement is still a big story, improving to 8.2% from negative 3.7% the year before, supported by a continued increase of material availability in industrial trucking and improved pricing from prior years beginning to be realized. Previously, the company struggled with the timing difference between price increases and order book execution, resulting in depressed margins. Revenue growth was 0.9% for the quarter versus the year prior. Order intake grew 4% in the third quarter but remains 13.5% lower through nine months than at this point in 2022.

Management updated its outlook for 2023, reducing revenue expectations but raising projections for adjusted EBIT, free cash flow, and return on capital employed. Despite management’s revised outlook, we do not expect any changes to our narrow moat rating or fair value estimate of EUR 50.

On a division level, supply chain solutions’ (warehouse automation equipment) revenue decreased 17.7% year over year, but margins increased to 2.2% from negative 20.8% the prior year. Margins should continue to improve given continued additions of price-adjustment clauses paired with the slowing inflation. Outlook for the segment was lowered for 2023 as customers continue to postpone the placement of orders, and those orders that were placed are long term, meaning a small volume of the revenue will be recognized in 2023.

Revenue in the industrial truck division grew by 10.1% as price increases from previous years are contributing to the top line. These same factors led to a 600-basis-point increase in the adjusted EBIT margin. Following nine months of strong results, managers again increased guidance for revenue and adjusted EBIT, as they expect favorable material availability to continue.