Huhtamäki Oyj (HOYFF) H1 2025 Earnings Call Transcript

Huhtamäki Oyj delivered stable H1 2025 results amid a volatile market, maintaining a 10.2% adjusted EBIT margin in Q2 and 10% for H1, with H1 EPS up 3%. The company successfully completed its EUR 100 million cost reduction program 1.5 years ahead of schedule, achieving savings at a lower cost. Key operational highlights included an S&P credit rating upgrade to investment grade, the acquisition of Zellwin Farms, and significant progress in sustainability. While H1 organic net sales were flat, Q2 saw positive organic growth, though reported figures were impacted by a weakening USD. Segment-wise, Foodservice maintained strong margins despite a soft market, North America exhibited robust volume growth, Flexible Packaging improved results through cost efficiencies, and Fiber Packaging delivered solid growth. Management expects similar market trends for Q3, emphasizing continued self-help initiatives and disciplined capital allocation.

Analysis

Huhtamäki demonstrated notable operational resilience in H1 2025, delivering stable performance amidst market volatility and significant foreign exchange headwinds from a weakening U.S. dollar. A key achievement was the completion of its EUR 100 million cost-saving program 18 months ahead of schedule and at a lower-than-projected cost of EUR 73 million, which successfully defended profitability. While reported sales were impacted by a EUR 34 million negative currency effect in Q2 alone, organic growth turned slightly positive in the second quarter after a negative Q1. The company maintained its adjusted EBIT margin within its target range at 10.2% for Q2, supported by these cost measures. Segment performance was varied: North America showed strong underlying volume growth of over 3% driven by recent investments, while Fiber Packaging grew 10% on a comparable basis. The Foodservice segment, despite a soft market, improved its Q2 margin to 9.6% year-over-year through restructuring, and the Flexible Packaging turnaround gained traction with its H1 margin improving by 200 basis points to 8.3%. Strategically, the company is exercising strict capital discipline, with H1 CapEx down 10%, and has strengthened its balance sheet with an S&P credit rating upgrade to investment grade. Management's outlook anticipates a continuation of current trends into Q3, with a focus on self-help measures and organic growth initiatives whose benefits are expected towards the end of the year.

Key Decisions for Investors

• Investors should acknowledge the company's proven operational execution, reflected in the successful cost-saving program and stable margins, which positions it to capitalize on any future market recovery.
• Monitor volume trends in the Foodservice and Flexible Packaging segments, as existing cost discipline provides significant operating leverage for when demand returns, and track the ramp-up of new North American assets which are expected to be a primary growth contributor from late 2025.
• Factor in the persistent negative foreign exchange impact, particularly from the U.S. dollar, which is masking underlying performance, and note the specific short-term headwind in Q3 from the factory fire in South Africa.
• Consider the enhanced financial flexibility from the new investment-grade credit rating and management's increased openness to shareholder returns beyond dividends, which could become a more prominent part of the value creation story if organic growth opportunities diminish.