<a id="bm-comp-c4647477-660c-4e80-a19f-889245b87d02" name="bm-comp-c4647477-660c-4e80-a19f-889245b87d02" class="BMCustomAnchor"></a><table><tr><td bm-component-id="c4647477-660c-4e80-a19f-889245b87d02" style="vertical-align: top; width:100.000000%;"><ul><li>Soft Q1 earnings driven by gross margin pressure in the US</li><li>Weaker USD weighs on estimates, given US-heavy operations</li><li>Net debt down sequentially, but still at high levels</li></ul></td></tr></table><a id="bm-comp-dcc36bb0-1fec-4fa9-80d3-8b0943416b68" name="bm-comp-dcc36bb0-1fec-4fa9-80d3-8b0943416b68" class="BMCustomAnchor"></a><table><tr><td bm-component-id="dcc36bb0-1fec-4fa9-80d3-8b0943416b68" style="vertical-align: top; width:100.000000%;"><h3 class="bm-h3">Soft Q1 earnings due to US gross margin pressure</h3><p>Ferronordic reported Q1 net sales of SEK 1,206m, up 3% y-o-y, and EBIT of SEK 13m (FactSet consensus SEK 37m), for a margin of 1.1% (1.8% in Q1'24). The y-o-y decline is mainly explained by gross margin pressure in the US, where the product mix was suboptimal. However, we highlight that these mix effects can be quite lumpy from quarter to quarter, and as such we see this as a temporary slump rather than a structural margin decline. Moreover, the company managed a sizeable working capital release, leading to net debt coming down to SEK 1,826m, down from SEK 1,978m in Q4'24.</p><h3 class="bm-h3">~160% of '25e EBIT is from the US, so the weaker USD hurts</h3><p>Given that the US segment accounts for ~160% of our '25e group-level EBIT, the weakening of the USD in Q2 will have a substantial impact on Ferronordic's earnings. All in all, we lower '25e EBIT by 25%, followed by 16-15% for '26e-'27e. The Q1 miss in isolation explains ~10pp of the '25e EBIT downgrade, and we make only minor organic revisions apart from this, while the rest stems from FX.</p><h3 class="bm-h3">Leverage moving the right way, but still at high levels</h3><p>Although the net debt in absolute numbers came down in Q1 for the first time since Rudd was acquired, the net debt to equity ratio still stands at a high 133%. Management stresses that it has exciting expansion opportunities in the US, and in a longer-term perspective we agree with this considering Volvo's comments about consolidating its US construction equipment dealership network. However, we see near-term expansion opportunities as limited given the high leverage, and argue the first priority has to be to work down debt. Finally, the share is trading at 12x '26e EV/EBIT, while our distributor peer group trades at 14x.</p></td></tr></table>