Hexagon Q2’25 preview: We expect a modest recovery in demand and FX headwinds

Hexagon will announce its Q2 financials on Friday, July 25. The abrupt deterioration in demand seen at the end of Q1 has likely not extended to Q2 but we don’t expect a sharp rebound either. We model a 7% decline in adjusted EBIT year-on-year owing to growth measures adding to the cost-base and FX changes burdening both sales and profitability. Management’s forward-looking commentary about demand and the impacts of the trade war is especially sought after in uncertain times like these.

Growth expectations set low after Q1

We believe the sudden demand slowdown seen at the end of Q1 has not carried over into Q2. The company gave some indication of sales recovery already in April, in conjunction with the Q1 report. The slight improvement in global S&P PMI figures for both manufacturing and services suggests that the demand environment has even improved towards the end of Q2. Our estimate for Q2 organic growth is 1.2% (revised up from -0.4 %). However, the recent FX changes (the weakened USD against the EUR) offset the upgraded organic growth assumptions. Looking at the divisions, we expect software-heavy divisions Asset Lifetime Intelligence (ALI) and Safety, Infrastructure and Geospatial (SIG) to deliver solid organic growth of 7% and 5%, respectively. For the hardware-focused divisions Manufacturing Intelligence and Geosystems we model low organic growth (0% and -1%), but we note that the tide could be gradually turning for these divisions after a prolonged period of weak growth. 

Division-specific organic growth

Source: Inderes

Conditions not optimal for profitability

Hexagon’s profitability already suffered in Q1 due to an abrupt stop in demand for high-margin software licenses owing to the trade war, but also due to the organic growth investments that it had made under the expectation of solid demand conditions. Demand conditions have likely recovered in Q2, but we don’t expect that the company has rolled back its spending materially. Our adjusted EBIT estimate is at 371 MEUR, 7% below the Q2’24 level. FX changes are also expected to depress EBIT by 25 MEUR, representing a large portion of the total decline.

Demand expected to continue improving slightly in H2

We anticipate a gradual improvement in organic growth towards the end of the year (2.2-2.7 % in Q3-Q4e). The geopolitical tensions and a threat of tariffs cause uncertainty in the economy. Hexagon has historically grown by an average of some 5% organically p.a., so we believe the company will start growing faster sooner or later. In 2024, the growth slowed down, especially due to the weakness in customer segments such as automotive and construction, but the declining interest rates and a potential fiscal boost in Europe could eventually prop up demand. Also, the upcoming separation of certain Hexagon’s SaaS-businesses (ALI, SIG + some other businesses) into a separate listed entity, Octave, is planned for H1’26 and could be a minor valuation driver for the stock, we believe.