Kesko Corporation Q3 2024 Financial Release

In the third quarter of 2024, Finnish retail giant Kesko Corporation (KESKOB:HE) reported a mix of challenges and growth across its sectors. CEO Jorma Rauhala emphasized a significant improvement in the Building and Technical Trade sector, which saw its first profit increase in two years.

Despite a rise in net sales to €3 billion, the company experienced a decrease in comparable operating profit to €201.5 million. Kesko's Car Trade division faced a downturn in new car sales but saw an uptick in used car sales and service demand, contributing to overall profitability. The company also issued a €300 million green bond to fund projects like the Onnela logistics center, aiming to boost efficiency by 2026.

Key Takeaways

• Kesko's net sales increased to €3 billion, up €77 million year-on-year.
• Comparable operating profit decreased to €201.5 million.
• Building and Technical Trade sector reported the first profit increase in eight quarters.
• Grocery Trade net sales rose slightly; Car Trade profitability maintained despite new car sales decline.
• €300 million green bond issued, maturing in 2030, for financing projects like Onnela logistics center.
• Forecasted comparable operating profit for 2024 is between €630 million and €680 million, with improved conditions expected in 2025.

Company Outlook

• Kesko anticipates a challenging operating environment for 2024 but expects stable net sales and operating profit.
• The company projects an improvement in the operating environment for 2025, especially in Building and Technical Trade.
• Car Trade is likely to continue experiencing low new car orders but robust demand for used cars and services.
• Grocery Trade's comparable operating margin is expected to exceed 6%, despite investments in pricing and store network.

Bearish Highlights

• Net sales in Q3 decreased by €6.5 million year-on-year.
• Demand for new cars remained low, with a 24.4% drop in first registrations in Finland.

Bullish Highlights

• Used car sales increased, and K-Auto's market share grew.
• Sports trade sector saw improvements in net sales and comparable operating profit.
• New income streams from Media and Data business are expected to contribute significantly.

Misses

• Operating margin in Q3 was €63.5 million (5.4%), a decrease from the previous year.

Q&A Highlights

• CEO Rauhala expressed cautious optimism regarding market share recovery in Grocery Trade by 2026.
• Building and Technical Trade margins in Q3 exceeded expectations, with continued profit growth anticipated.
• Akseli highlighted the competitive landscape in Grocery, with a focus on price-driven market strategies.
• New income streams from media and data are projected to contribute double-digit millions annually.

Kesko's Q3 performance reflects a complex landscape of both progress and setbacks. The company's strategic investments and diversification, such as the acquisition of Danish builders merchants, are set to strengthen its market position in the long term.

With the issuance of the green bond and the projected efficiency gains from the Onnela logistics center, Kesko is laying the groundwork for future growth.

Despite the current challenges, particularly in the Car Trade, Kesko's management remains confident in the company's strategic positioning and its ability to navigate the tough market conditions toward a gradual recovery and growth across its various divisions.

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