Earnings call transcript: Hexagon AB reports Q1 2026 revenue growth amid currency headwinds

Hexagon AB reported Q1 2026 revenue of EUR 964 million with 8% organic growth, EBIT of EUR 251 million, and EPS of EUR 0.067, while gross margin declined 150 bps to 62.9% due to currency, tariffs, and input-cost inflation. The company also completed the Design & Engineering divestiture and announced the acquisition of Waygate Technologies, while its cost restructuring program remains on track to deliver EUR 74 million of annualized savings. Despite the solid operational print, shares fell 10.21% as investors focused on margin pressure and FX headwinds.

Analysis

Hexagon’s reaction looks less like a fundamental break and more like a clean-up move as investors finally price the portfolio transition risk: lower-quality revenue streams are being removed faster than the market can handicap the new mix. The key second-order effect is that near-term margin optics will remain noisy while the business is actually de-risking its mix toward higher recurring software/services and more defensible industrial positioning — that should matter more after the April 30 CMD than on the headline Q1 print.

The bigger incremental catalyst is Waygate, because it fills a strategic hole rather than simply adding scale. If integration is executed well, it can raise attach rates across Hexagon’s installed base in aerospace/defense and manufacturing, but the real value may come from cross-selling into inspection workflows where switching costs are high and buying cycles are long; that means the earnings benefit is back-half 2026 to 2027, not immediate. The market is likely underestimating how quickly operating leverage can reassert itself once currency and tariff noise stabilize, but it is also overestimating the pace at which revenue synergies show up in reported numbers.

For KMB, the signal is stronger than the quarter: the agreement to consolidate hundreds of systems onto Octave is the kind of enterprise proof point that can shorten sales cycles across adjacent verticals. That said, the transition to recurring revenue creates a temporary drag on reported growth and capitalized software accounting, so the stock can look optically more expensive before the ARR flywheel becomes visible. Contrarian view: the selloff may be overdone if investors are anchoring on gross margin compression while ignoring that the new mix should produce better durability and higher terminal multiple once the spin and acquisition stack is digested.

Key Decisions for Investors

• Buy Hexagon AB on weakness into the April 30 CMD; 3-6 month horizon. Use the current selloff to build a position for a re-rating once the market sees post-divestiture, post-spin margin clarity. Risk/reward skews to the upside if management confirms 2H margin recovery and Waygate synergy timing.
• Pair trade: long Hexagon AB / short a slower-growing industrial automation peer with more cyclical end-market exposure over the next 1-2 quarters. Thesis: Hexagon’s mix shift and recurring revenue exposure should deserve a premium once reporting noise fades, while the short leg remains more exposed to macro and tariff compression.
• Sell short-dated downside in Hexagon only after the CMD if management reiterates the savings run-rate and integration roadmap. Structure as a cautious put spread overwrite; implied volatility should compress if guidance de-risks, but avoid naked short premium ahead of the event.
• For KMB, stay long on any pullback tied to capitalized software or SBC concerns. Medium-term, the Octave customer wins imply a broader enterprise expansion story; near-term, the market may underappreciate that transition-year optics suppress reported growth without damaging ARR quality.
• Avoid chasing Waygate-related supplier/adjacent names until there is clarity on which assets remain core versus under review. The acquisition is strategically constructive, but integration and portfolio rationalization risk will likely create dispersion before it creates broad beta.