Upon looking at KBA's half-year results, it is becoming clear that 2013 is going to be another challenging year for equipment manufacturers. While orders in the second quarter were up from a weak first quarter, the trailing four quarters add up to just under one billion Euros of new orders.
The situation looks particularly serious for the web division which is faced by higher complexity costs than its competitors due to its more fragmented product portfolio.
During strong cycles the division benefits from the higher margin securities press business, but the picture below illustrates that the Web segment has been living off backlog for the last 18 months - most likely higher margin multi-year specialty press orders - generating sales north of my current break-even estimate of Euro 120 million per quarter.
During strong cycles the division benefits from the higher margin securities press business, but the picture below illustrates that the Web segment has been living off backlog for the last 18 months - most likely higher margin multi-year specialty press orders - generating sales north of my current break-even estimate of Euro 120 million per quarter.
Assuming no immediate reversal of the trend an obvious question is how quickly the company can lower its breakeven point. Sheetfed results have been negative for four out of the last five years and the above analysis suggests that the (relatively) good times for the web division are coming to an end.
With backlog down to just about 6 months of sales and twelve months trailing orders adding up to only 384 million Euros it is unlikely that the web division will stay above break-even in the coming quarters.
As management is working on its strategy to become more of a supplier to the packaging industry by acquiring Flextecnica (flexible packaging) and Kammann (container decorating) the coming downsizing discussions are an unwelcome distraction.
With backlog down to just about 6 months of sales and twelve months trailing orders adding up to only 384 million Euros it is unlikely that the web division will stay above break-even in the coming quarters.
As management is working on its strategy to become more of a supplier to the packaging industry by acquiring Flextecnica (flexible packaging) and Kammann (container decorating) the coming downsizing discussions are an unwelcome distraction.