Epiroc's profit hit by struggling construction sector, shares drop
Adds analyst comments in paragraphs 6-8, background in paragraph 9, Sandvik results in paragraph 13
July 19 (Reuters) -Swedish mining equipment maker Epiroc EPIRa.ST reported a bigger-than-expected drop in second-quarter operating profit on Friday, hit by weak demand from the construction market.
Already soft demand from construction customers declined further in the second quarter, hampered by continuing destocking trends, CEO Helena Hedblom said.
That weakness is expected to persist, while underlying mining demand should remain at a high level, she added.
Epiroc's shares fell more than 5% after the results, and could see their biggest intraday decline since March 2023 if the losses persist.
Its operating profit dropped 14% from a year earlier to 2.92 billion Swedish crowns ($273.6 million) in the quarter, missing analysts' mean forecast of 3.33 billion crowns in an LSEG poll.
Morningstar analyst Matthew Donen said the negative share reaction was due to the disappointing operating margin, which fell to 17.7% from 21.5% a year earlier.
"The margin was again hit by higher costs, weaker mix and dilution from M&A," J.P.Morgan said in a note, adding that considering the positive currency exchange effects, the underlying picture was even weaker.
But Donen said he was confident that Epiroc's margins could return to their typical levels of well above 20%, boosted by its recent restructuring plan and the integration of Stanley Infrastructure.
Epiroc bought Stanley Black & Decker's SWK.N Stanley Infrastructure for $760 million in December.
The group, which makes drill rigs, rock excavation and construction equipment among others, said its quarterly order intake rose by 6% to 16.35 billion crowns, beating the 16.11 billion expected by analysts.
Supply chain bottlenecks and high costs have negatively impacted the mining and construction sectors for many quarters, but Epiroc's level of orders has remained solid in the past year.
Swedish peer Sandvik SAND.ST also saw robust mining demand in the second quarter, while demand from infrastructure clients was weak due to low investments in Europe and China, and high dealer stock levels, it said on Friday.
($1 = 10.6718 Swedish crowns)
Reporting by Marta Frąckowiak in Gdansk; Editing by Milla Nissi
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