Alfa Laval’s First-Quarter Results Impacted by Disappointing Marine Profit Margin

There were many moving parts in wide-moat Alfa Laval’s first-quarter results that disappointed investors. The most evident dissatisfaction is the marine segment’s EBIT margin of 11%, down from 15% last year. The decline was mostly due to the existing marine backlog being priced prior to significant material cost inflation and higher royalty payments to a joint venture for marine water treatment systems, due to increased deliveries. While this may impact short-term profitability, we believe price increases that have already been implemented and a shift in the product mix will help margins return to normalized levels, and thus represent short-term noise rather than underlying issues. Results were also impacted by a SEK 602 million cancelation of Russian orders, mostly from the marine segment, and a SEK 721 million record order in the food and water business. We reiterate our SEK 280 fair value estimate and view shares as fairly valued.