Dometic Group AB (publ)
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Earnings Call Analysis

Q2-2024 Analysis
Dometic Group AB (publ)

Dometic Reports Improved Margins Amid Sales Decline

Dometic navigates tough market conditions with a Q2 EBITA margin of 14%, up from 13.7% last year, despite an 8% drop in organic growth. Sales channels like Service & Aftermarket and Distribution are recovering, while OEM sales are down 17%. Year-to-date figures reveal SEK 14.2 billion in sales and a 13% EBITA margin. Strong cash flow of SEK 2 billion aids in reducing leverage to 2.9 times. The company remains cautious but optimistic, expecting gradual improvements, driven by innovation and efficiency efforts, and focusing on higher-margin, high-growth areas.

Navigating Tough Market Conditions

In the recent earnings call for Q2 2024, CEO Juan Vargues highlighted persistent challenges in the market. Overall, the company witnessed continued weak conditions, particularly in the Original Equipment Manufacturer (OEM) segment, which was down 17% year-over-year. However, Vargues expressed optimism, suggesting that the company has passed the worst phase in terms of growth declines, indicating a possible upward trajectory.

Sales and Margins Update

The company reported an 8% decline in organic growth, with total EBITA down 9%. Despite this, the EBITA margin improved to 14%, up from 13.7% adjusted for prior one-time effects. This trend emphasizes effective cost management and pricing strategies despite lower sales volumes. The continuous focus on maintaining margins indicates a disciplined approach, even amidst falling sales in the marketplace.

Service & Aftermarket Resilience

The Service & Aftermarket segment showed signs of recovery, down just 1%, compared to a sharper decline in previous quarters. Vargues emphasized the strategic focus on this area as customer behavior shifts towards repairs rather than new purchases, largely influenced by economic constraints. The company anticipates this segment to stabilize and potentially improve in the coming periods, aligned with consumer spending on maintenance.

Mixed Performance Across Regions

The regional performance reflected varied results. In the Americas, organic growth dropped 13% but saw better results in Service & Aftermarket. Conversely, the EMEA region experienced a decline of 6% in organic growth, although OEM registrations showed an increase of 6% year-to-date. This dichotomy suggests that while some areas remain weak, others are starting to stabilize, giving investors cautious optimism.

Future Guidance on Growth and Margins

Looking ahead, management expects gradual improvements - particularly in the Service & Aftermarket and Distribution segments. Vargues noted, 'We will not see a major improvement in one quarter, but rather in steps.' Importantly, the outlook includes targets for margin expansion, with an ongoing commitment to achieving a leverage target of around 2.5 by year's end.

Strong Cash Flow and Reduced Debt

On a positive note, the company reported robust operational cash flow of almost SEK 2 billion, albeit lower than the previous year’s SEK 2.3 billion. Importantly, net debt to EBITDA has decreased to 2.9 from 3.2 a year ago, signaling improved financial health and a focus on deleveraging. The company remains committed to protecting margins and managing working capital efficiently.

Innovative Product Launches and Market Expansion

In terms of innovation, the call highlighted new product launches, particularly in the Mobile Cooling segment, showing practical enhancements that point towards future profitability. The company is making strides with product expansion, intending to capture greater market share. The CEO expressed confidence that the new product lines, especially within the Igloo brand, will drive both revenue and margin growth in the short to medium term.

Cost Management in Focus

Management discussed active strategies surrounding cost management, including price adjustments to mitigate the impact of rising raw material and logistics costs. They noted logistic costs are still significantly higher than pre-pandemic levels but are trending down gradually. This focused approach to maintaining margins while navigating supply chain challenges underscores prudent capital allocation.

Conclusion: Balancing Between Challenges and Opportunities

In summary, while the company faces challenges in the OEM and overall growth, the steady improvement in margins, strong cash flow, and a clear pathway for service and aftermarket growth suggest potential resilience moving forward. The strategic initiatives around product innovation and effective cost management position the company to capitalize on emerging opportunities, provided market conditions stabilize.

Earnings Call Transcript

Earnings Call Transcript
2024-Q2

from 0
Operator

Welcome to the Dometic Q2 Report 2024. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt; and Head of Investor Relations, Rikard Tunedal. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

J
Juan Vargues
executive

Hello. Good morning, Juan Vargues speaking. Good morning to the presentation of this second quarterly report for 2024. Moving over to the highlights in the quarter. Looking at the market, we still see tough market conditions. So no major changes from that perspective. If we talk in general terms, then we will, of course, look to the different sales channels we have. We see also retailer inventories coming down very much in the U.S., but also in the other areas, which is also leading obviously to a better situation for our Service & Aftermarket business as well for Distribution, while we see OEM still weak.

Looking at performance. We are happy to deliver a good margin improvement, considering obviously the loss that we have on the top line. Service & Aftermarket down 1%, which is a substantial recovery in comparison to Q1 of this year, but also very much in line with our expectations after the last quarter. Distribution also a clear improvement, ending up minus at 2%, very much driven by Mobile Cooling Solutions. And then on the OEM side, 17% down with negative growth practically in all areas. And when we see the major difference, we see really in the quarter is that we are starting to see the negative effects also in LV EMEA region.

EBITA margins, as I mentioned previously, good margin improvement, 14%. We have to consider, obviously, that last year, we have a onetime effect, positive effect of SEK 33 million. So the improvement is really 0.3 percentage points in comparison to 1 year ago. We continue to work on our efficiency improvements. We continue to work obviously, on the pricing and then we have a positive effect on the sales mix. At the same time, as we also have a negative effect of the segment mix, where as you most probably have seen, Marine is down 17%, and they are a very high-margin business for us. That means in reality that this is the fourth quarter in a row with improved margins despite the loss on the top line.

We're also very happy to report a continuous strong cash flow, which is clearly helping down our leverage. If we move over to the numbers, 8% down on organic growth; EBITA, down 9%; EBITA margin, though, ending up at 14% in comparison to 13.7% of last year, when correcting for the onetime off that we have 1 year ago. Adjusted EPS of SEK 1.76, a strong operational cash flow of almost SEK 2 billion and a leverage down to 2.9 in comparison to the 3.2 that we were showing 1 year ago.

We move over to the year-to-date numbers, SEK 14.2 billion after 6 months or 10% organic growth. So we have sequential improvement in comparison to Q1. EBITA down 9% with margin of 13% in year-to-date in comparison to 12.7% that we were showing 1 year ago. Adjusted EPS of SEK 2.96 and operational cash flow of almost SEK 2.2 billion in comparison to SEK 2.6 billion 1 year ago.

Looking at organic growth. This is the ninth consecutive quarter where we are showing negative growth. And our expectation is obviously that we will start moving upwards from this point. So with that what we would like to say is that the trough -- we have passed the trough, so to say, from a growth perspective.

If we look at the sales mix, no major changes, perhaps worth to comment that on one side, OEM is all-time low in terms of percentage of sales, while Distribution is all-time high. As a consequence, obviously, Mobile Cooling moving upwards at the same time as the OEM business is coming down.

Moving over to Service & Aftermarket. Happy to see Service & Aftermarket coming back in Q2 in comparison to Q1 and now we are starting to get close to largest numbers. We see, clearly, when looking at the upper -- the upper chart on the slide, we see that the traditional historical seasonal pattern is changing, and that's really a consequence, obviously, of dealers being very, very careful in building up inventories, ordering in the very last minutes. And I believe that we are going to see exactly the same situation for a couple of quarters until the situation stabilizes.

At the same time, we see the retailers are destocking and that's what we see. Now we are moving upwards in percentage-wise in comparison to last year. And what we can see when talking to dealers is that consumers are still repairing, they're still using the vehicles. But of course, they are cautious in spending more money than absolutely necessary just now to get out on the road. Again, we don't foresee any major changes as far as the interest rates, still are at a pretty high level.

If we move over to the EBITDA margin. We are of the opinion that we are doing a pretty good job in protecting our margins despite the drop in sales and the negative segment mix that we have. So the reality is that we have all the lower-margin businesses, improving the margins at the same time as both LVC where we have very high margins, and Marine, where we have very high margins just now having a negative impact on the sales -- the negative sales.

Having a look at the different segments. LV Americas, organic growth down 13%. We showed good growth in Service & Aftermarket in the quarter. At the same time, as we still have decline in the OEM, and we are clearly prioritizing margins in this case since that's where we have the lowest margins for entire group. Improvement on EBITA and EBITA margin, ending up minus 1.1% in comparison to minus 2.5%, very much supported by the mix, meaning Service & Aftermarket moving to positive territory at the same time as OEM is still a negative territory. And then we keep working on reducing our cost and finding the right balance.

We move over to LV EMEA, 6% down organically with growth in Service & Aftermarket as well, decline in the OEM. And I would like to mention here that we continue to see positive registration numbers while we were 3% down in registrations during the first half of last year. Now we are plus 6% in registrations in the first half of this year. And those first 6 months of this year, we need to add also last quarter was also positive. So on one side, we see that the market is developing really according to our expectations, we knew this was coming.

At the same time, now we see registration moving upwards, which means that perhaps the drop is not going to be as deep and as long as we expected, especially -- I mean the good news in this case is that registrations are increasing despite the still high interest rates. EBITA, good improvements in EBITA margins, moving from 11.7% to 13.7%. Same thing on one side, we keep working on efficiencies. We have the closure of the factory in Siegen that we completed during 2023, and that's having a positive impact. And then we have also, obviously, the sales mix in the Service & Aftermarket is growing.

If we move over to LV in the APAC region. Negative growth in the same way, minus 11%. With Service & Aftermarket in this case, below last year. We are growing in distribution. We see that the RV industry in Australia is having a tough time. This is not the first quarter, so we have seen this now for 2.5 quarters, I would say, and that will continue for a couple of quarters additionally. Still, we are very proud, obviously, of showing very strong margins as seen today, ending up at 29.9% in comparison to 31.4%.

Moving over to Marine, and over there OEM, very tough market on the OEM side. Organic growth, down 17%. At the same time, we need to keep in mind that the first half of last year, we were showing nice growth. And the region has started really in June last year and they continue during the remainder of the year last year. So in this case, we are expecting obviously some gradual improvements in comparison to the situation that we have during the second half of last year. Single-digit decline in Service & Aftermarket. I'm coming back to the same comment, just now, we will see some volatility in the Service & Aftermarket, since it's very much about dealers waiting until the very last minute. So we might be seeing some growth one quarter and then some reduction next quarter, but we are moving upwards. That's what we can confirm.

EBITA margins, even in this case, good margin protection, ending up at 23.4% versus 26.2% one year ago and it's very much sales-driven, the drop on the top line. While we are doing a good job in protecting our margins on one side through cost reductions but also having support by the sales mix. In this case, obviously, Service & Aftermarket is dropping less than the OEM side, at the same time as we see also the percentage of electric steering growing still today in comparison to the rest of the steering systems.

Mobile Cooling, ending up flattish at the same level as 1 year ago. We saw the positive trends in the Mobile Cooling area in the second quarter. We saw retailers starting to order again as we expected, same as for Marine. We had organic growth in Q1, Q2 last year, then retailers started to balance their inventories during the second half of last year and Q1 this year. And now we are seeing more traction. So we are optimistic. We continue to take market share on the hard coolers, which is good to see. And we are very positive, we are very optimistic after the launch of the first compressor-driven cooler under Igloo brand.

EBITA, strong 12% in comparison to 10.2% last year when you exclude, obviously, the one-off positive effect that we have 1 year of SEK 33 million. The improvements are very much driven by innovation, meaning new products but also becoming more and more efficient.

And then moving over to the last one, Global Ventures, showing negative growth of 5%, very much driven by the drop in the residential market in the U.S. EBITA, even there we have good margin protection, 15.1% versus 15.6% despite the lower sales. And in this case, we are investing quite a bit in developing IP in the Mobile Power Solutions area that we are starting to consolidate at the beginning of the year.

Moving over to innovation. We just launched a new range expansion for our active coolers. So we have a very strong position with our CFX3 series. We introduced a CFX2 series to capture a higher portion of the market, where we are not present today. We also launched a new campaign stove, the Dometic Cadac brand, which is also moving in a very positive way during the first couple of months as well as a shelter. In both cases, we continue to invest in developing more sustainable products. And this is also the case with these 2 products.

Last but not least, this is just a few of the product launches that we had during the quarter. We also launched the new PLB15, which is a new portable lightweight battery for outdoor applications, and nonetheless, to be connected to our own cooling boxes, but again, this is valid for our own cooling boxes as well as for any other electronic device that should be charged. And we will continue to invest in innovation, especially in the areas where we are expecting high growth, high margins moving forward. And with that said, Stefan, let's move into finance.

S
Stefan Fristedt
executive

Yes. Thank you, Juan. Starting off with reflecting on the EBITA development in Q2. As already has been mentioned a couple of times, we had a onetime effect of SEK 33 million in Q2 last year related to Igloo and to tariff reimbursement in that part of the business. So with that taken into consideration, we have an improvement of 0.3% units in our underlying margin.

Looking on the different details. Obviously, the organic sales decline has been impacting the EBITA in absolute terms. Then gross margin has improved with 0.3% units. And if we take then the SEK 33 million into consideration, it's 0.9% units improvement, driven by efficiency improvements is including the closure of the manufacturing in Siegen, which happened midyear last year, and then we have lower raw material costs which are also kicking in more and more as we are turning over our inventory, then we have sales mix and price management also contributing to this development.

R&D and SG&A expenses are increased to 14.6% from 14% of net sales. We are continuing to invest on R&D in strategic growth areas like Marine, Mobile Power Solutions and Mobile Cooling Solutions. And then that is partially offset by cost reductions in SG&A. We have very limited effect on FX in the quarter and obviously no effect from M&A.

Moving over to cash flow. As Juan already mentioned, we are really happy with the continuous strong cash flow, almost SEK 2 billion. And that was obviously supported by a reduction of inventory and a reduction of working capital in general. So inventory level is down SEK 900 million versus last year, which is happy to see that.

The income tax paid are slightly lower than last year. However, commenting on the tax rate here, it's higher than last year, but this is following the comments that we did in Q1 already and is driven by that we have a higher amount of profit in high tax jurisdictions and this is also partially related to non-tax deductible interest cost.

Financing, there is a big swing in that. The different parts of that, we pay dividends, SEK 607 million, which is a little bit more than last year. Then we have the net of paid and received interest, SEK 320 million versus SEK 258 million. However, in Q2, as you can see -- sorry, we leave it by that. And then SEK 750 million in private placement was signed in the second quarter in 2023.

Moving over to CapEx and R&D. CapEx is coming down a little bit. We have been in toughering, prioritizing as the situation is right now with a tougher demand. So CapEx is 0.9% of net sales in the quarter and 1.9% over the last 12 months.

Looking on R&D, it's 2.1% versus 2% last year. And it's driven by what I mentioned before, investment in structural growth areas, Mobile Cooling Solutions, MPS and Marine. And over the last 12 months, we have 2.4% in R&D expenses in relation to net sales.

Taking a look on our net debt to EBITDA. We have been coming down to 2.9 compared to 3.2x 1 year ago and sequentially coming down from 3.0 from Q1. And it's obviously driven by the strong operating cash flow and it's a high focus as well in protecting margin and reducing working capital around the organization.

I can also just repeat that we are committed on achieving our leverage target of around 2.5, and we are expecting that the leverage will continuing down during the remainder of this year.

Taking a step into working capital. Accounts payable are stable and more moving depending on mix. When we buy less in China, the number of days goes down a little bit as we have the longest payment conditions in China. Receivables, stable 44 days. So nothing to report there. And then we can see on the inventory side coming down to 141 days, which is obviously, yes, in relation to what has been mentioned before.

We can also see that the inventory balance compared to 1 year ago is SEK 6.7 billion compared to SEK 8.4 billion. And we are continuing to take actions to optimize working capital towards the target of 20% of net sales. It's obviously a bit of a difficult KPI when we have the organic sales decline as we have. So I still think that the underlying work with reducing working capital is absolutely moving on according to expectations.

Summarizing the operating cash flow, almost SEK 2 billion in the second quarter compared to SEK 2.3 billion in the same quarter last year. And yes, it's like I have reported before. We are expecting that the strong cash flow is going to continue. We are not going to achieve the record high that we had last year, but still strong and solid for the coming quarters.

Moving into our debt maturity profile. As you might remember, we did sign in March 2024 a new agreement with the second tranche of our credit facility, which then means concerns the term loan of $333 million that is now moved out to 2027 with 1 plus 1 year extension option. Then we have also amortized $100 million July 1 according to plan. And then the revolving credit facility has been increased by EUR 80 million. So it's now a total of EUR 280 million, and it is undrawn. Yes, and the average maturity by this has been extended from 2.2 to 2.5 years if we include the extension options, the average maturity is 3 years. For the time being, the average interest rate is 5%, and it's slowly going to trend down.

With that, I hand over to you, Juan, to summarize.

J
Juan Vargues
executive

Thank you, Stefan. So -- I mean the market is worried. It's not a lot that we can do about, but we continue to drive performance improvements. We are happy to report improved margins, strong cash flow and a leverage which is moving south, trending down. We are very happy to see as well the distribution, Service & Aftermarket are moving upwards stepwise and that should continue. And then we talk about the future, our expectations is a little bit more of the same. So we continue to see Service & Aftermarket as well as Distribution, moving upwards stepwise, we are not going to see a major massive improvement in one quarter. We will see that in steps. While we see the OEM still remaining pretty weak all over the place. Some areas, as we saw the U.S. market is stabilizing, but stabilizing at a low level, while the rest of the OEM businesses are coming down.

Strategically, what we are saying, we will continue to drive our strategic agenda. We have a better balanced mix today than we had a few years ago, which is obviously helping us to maintain our margins at good levels. We keep investing in growth areas. As Stefan mentioned a couple of times, some of the areas where we believe that we have an underlying growth, structural growth moving forward, and when we want to put more of our resources and our investments. And we will have the work continue to prioritize margin expansion in order to achieve our financial targets.

And with that said, I would like to open for the Q&A session. Please.

Operator

[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG.

F
Fredrik Ivarsson
analyst

First, can you talk about the market climate in Europe or European RV a bit more? I guess it seems like the manufacturers are becoming more cautious and prolonging the factory holidays and so forth. So to what magnitude is this sort of impacting your business in the short term? And also if you could talk about your expectations for the aftermarket in Europe, specifically in the coming quarters?

J
Juan Vargues
executive

I mean for us, Fredrik, it's not coming as any surprise, right? I mean we have been talking about this now for a couple of quarters, that it was very much expected. I think that our customers are becoming more cautious at the same time, as I have to say that I am just now more optimistic perhaps than they are simply because I see registrations coming upwards despite the fact so that means that consumers are taking out vehicles, existing vehicles at the same time as interest rates are pretty high.

So at this point, my expectation is that the drop is going to be there. It is already there, by the way. We see already now negative numbers on the OEM side. But our expectation is that it's now going to be as deep and as prolonged as we expected when registrations were very much down during the last, I would say, 2 years before Q4 last year. So that was on the OEM side.

On the aftermarket, it has been moving upwards. And I continue to expect we have the improvements moving forward. It has been -- I mean, we have never seen such a drop historically, not just in the European region, but in the rest of the region, the same. So we have seen exactly the same behavior from consumers. We have seen the same behavior from our dealers. And we see, obviously, that the inventories that the dealers were carrying out for the last 18 months, they are kind of fading away stepwise. I believe from the same perspective, that once we see interest rates coming down, I do believe that consumers are not just going to repair, which is absolutely necessary, but they are also going to start to upgrade their vehicles, they are going to start buying more accessories that they have been doing the last couple of years.

F
Fredrik Ivarsson
analyst

Very clear, Juan. Second question also on EMEA, where the margin has been picking up quite nicely recently. So where were you on those extraordinary costs, if we could start with those in the quarter. I think you were at SEK 55 million in Q2 last year. And also, if you could talk about where you are in terms of efficiency or inefficiency in the Hungary plant after the move from Siegen?

J
Juan Vargues
executive

I mean we are still not at the levels that we have in Siegen, obviously, after all those years probably situation is improving every day. We have people fully dedicated to that. On the cost efficiencies on the impact, we are talking in the quarter, about SEK 25 million. And we see, again, that we will see rather improvements going forward. Again, moving a factory takes a while before you get the same efficiency that you have in the old factory. But that's taking place, and part of that is what we see clearly on the margins. So the margin is the combination of a number of things.

As we communicated, we have a positive sales mix in the segments. Clearly, we have also the efficiency gains that we have in Hungary in comparison to the situation we had 1 year ago and the lower labor cost, we have also some lower raw material prices as we are consuming the inventories that we built up a high cost. And then we continue to drive our price management. I mean, just now, obviously, you all know the situation on the Red Sea, and we continue to maintain our margins. So our margins are improving.

F
Fredrik Ivarsson
analyst

And extra costs?

J
Juan Vargues
executive

The extra cost on -- you mean logistics in comparison to the initial point is -- so I mean we are high, still today we are high on logistic costs. So I have commented, we have not given the numbers by segment, but we have commented that logistic cost has been 2 percentage points higher during 2023 and beyond 2024, than they used to be prior to the pandemic. They are still high, but we have come down, I think, is 0.3 percentage points in comparison to the situation we had. So improving but slowly.

F
Fredrik Ivarsson
analyst

Okay. Good. And then if we could move to Mobile Cooling, the underlying margin there, obviously up a little bit if we're clean for the tariff refund you had last year. What were the sort of key drivers behind that margin expansion?

J
Juan Vargues
executive

I think this is innovation. The fact that we are launching high priced, higher-margin products, with every single product launch. We have obviously that we are becoming as well less depending on the American market. So we -- Mobile Cooling today is a global business. We're introducing the new ICF products carrying once again, higher average prices and higher margins everywhere, and we are very, very happy with the product launch. And at the same time, it is clear that when we come out in the organization from the automatic in terms of cooling boxes and put together, with the Igloo organization, we also have efficiency gains in that area, which is a combination of both.

F
Fredrik Ivarsson
analyst

Okay. Good. And last question from my side, a quick one, if we could get some help with your expectations from what's going on, on the raw material side and also with the higher freight rates that we see at the moment as you look into the coming quarters?

J
Juan Vargues
executive

No. Intention is, as we have been proven during the last years is obviously to protect our margins by price increases at the same time as we are looking for cost reductions. It's clear that we see higher freight cost, still very far away from the situation that we had in 2021, '22. So I mean you can read in media that prices went up basically by 100% since May this year. At the same time, they are still very, very low in comparison to where we are coming from $18,000 as we were a couple of years ago. So we feel confident that we will be able to protect our margins even moving forward.

Operator

The next question comes from Daniel Schmidt from Danske Bank.

D
Daniel Schmidt
analyst

A couple of questions from me. And coming back to Mobile Cooling where you clearly are making strides and you sound very happy with the active cooling launch in the North American market and the expansion of the brand, Igloo brand to Europe and Australia. Look at sort of -- you had sort of a flat development on the quarter. But I sort of -- my understanding was that you were in a negative territory at the start of the quarter and implicitly that would mean that you had maybe growth towards the end of the quarter. Is that what you saw as a trend?

S
Stefan Fristedt
executive

That's very correct.

D
Daniel Schmidt
analyst

And is that a function you think more of sort of retailers restocking on the old assortment? Or is it a good uptake of the new assortment combined with sort of restocking the old?

S
Stefan Fristedt
executive

Daniel, it's a combination. I mean, keep in mind that we were growing very nicely, even if many other areas of the business were coming down, cooling boxes has been extremely stable even in the last, I would say, 20 years. Then we got into June last year, and we saw a dramatic change in the way retailers were behaving in terms of inventories. They really pulled the brake. I guess that they built up too much inventory during the first half of last year on the expectation or a better 2023, it never happened and then they pulled a break. And that's really what led to a situation where for us, they weren't ordering.

So we have seen a rebalance in our own inventories. Now we have the opposite situation. Now we have very low inventory levels. Then, of course, the Mobile Cooling box market reflects also the situation with the weather. We are coming from a Q1 that was pretty bad, especially March was pretty bad in North America. And of course, outdoor Mobile Cooling, North America is kind of 70%, 75% of the business, pretty wet, pretty cold. We moved into Q2, better weather, people start buying new products. And at the same time, as we are launching new products on a continuous basis, and we introduced the ICF, which is higher prices, higher margins.

The good news in this case is that when looking at the statistics from NPD, we are growing both in dollars, which is, I mean, clearly that our mix is growing, but we're also growing in euros. So it's not just average prices. So there is a consumer demand. Hopefully, the consumer demand is going to keep growing unless we see really poor weather in the coming weeks, but now we are in the middle of the season. So expectation is that the improvement will continue. At the same time, obviously, as we have the active cooling boxes in more and more stores. So that should lead to improvements moving forward.

D
Daniel Schmidt
analyst

And sort of if you try to dissect it, are you equally happy with the launch of the brand internationally as you have are with the sort of active cooling solution in the U.S.? Or is there any one of these two factors that have been surprising on the upside or on the downside for that matter?

J
Juan Vargues
executive

It goes much, much faster in the U.S. because, obviously, there we already have an organization, having all the connections with all these major customers. Europe Igloo has historically not had a strong brand. They were not existing, right? So it will take a little bit longer, but it is moving as well.

D
Daniel Schmidt
analyst

And given what you're saying, and listening to that and given what you're saying in terms of innovation, driving the margin performance in Mobile Cooling, is it fair to say that it's more important for the margin short term to have a good uptake of the active cooling business in the U.S. rather than the international expansion?

J
Juan Vargues
executive

Yes. But I mean keep in mind that U.S. market is by far the largest market in the world. No matter if we are doing about passive coolers or active coolers.

D
Daniel Schmidt
analyst

Okay. And reading between the lines.

J
Juan Vargues
executive

Yes. I mean like in many other outdoor businesses, the American market is very, very often 60% to 70% of the world markets, no matter we are talking about boats or we are talking about coolers. And that's my opinion. That's why the Igloo acquisition was strategically important for us. Not just under the Igloo brand, but really to promote the active coolers, so we could grow both under the Igloo brand and under Dometic brand.

D
Daniel Schmidt
analyst

And are you seeing competitors picking up on the technological shift that you are driving in that market?

J
Juan Vargues
executive

Not so far. I think the market is still today a pretty small market. It's not that we don't have competitors. Of course, there are competitors, but they have no presence. And they have no, kind of distribution that we have. I mean keep in mind that Igloo has been in business now for 77 years, it's not just about picking up a couple of customers, but also to have the distribution capability, is to have the logistics in place, is to have the service network in place. So we feel confident about our capabilities moving forward. And of course, that's also one of the reasons for investing more and more in accelerating that growth.

D
Daniel Schmidt
analyst

And you're happy with the price point that you come up with. I think you have 5 different sizes and how you position them versus what's out there?

J
Juan Vargues
executive

Yes. I would say that we are talking specifically in the American market without any kind of doubts. We are talking about the rest of the world. That's also one of the reasons for launching the CFX2, because the CFX2 will attack a different portion of the market where we have seen the growth has been. Again, keep in mind that in the entire outdoor space, companies -- sorry, companies -- consumers but also retailers have been trending down. If you look at the CFX3, the CFX3 is the most premium product that you can find on the market. At the same time, as we have seen, obviously, that customers are asking for lower price points, even for compressor coolers. And that's why we have started to develop this product 18 months ago according to our plans.

D
Daniel Schmidt
analyst

And then jumping to another topic. You touched upon in the presentation when it comes to Marine and you also said that if you're optimistic on service and distribution, you're keeping quite pessimistic on the OEM business. But you also mentioned that it was in June last year where you started really to see the drop in the OEM business in Marine. And just has anything changed in terms of the trend in OEM Marine as of late? Or is it reasonable to assume that given the comp-based comparison or the comp-based change that you will have slightly less negative performance in that business in the coming quarters?

J
Juan Vargues
executive

That's our expectation. And then, of course, you have also the retail levels, right? If we think -- I mean -- and this is moving every single month. So I mean, the theory is, yes, absolutely right, Daniel. We have matches the comps that we have 1 year ago, clearly. At the same time, we have retail numbers from April when the sentiment on the Marine market was more optimistic and then they got the number for May, and May was again more pessimistic. So again, we will move upwards from low levels, and then the question is how much? And that I think that we wanted to evaluate that month by month as we are getting all the numbers. But the last 4 quarters have been pretty negative for Marine OEM, clearly.

R
Rikard Tunedal
executive

I think we step in here with the question from the web. It's for you, Stefan. Thinking about the Eurobond market and the 2026 refinancing, when could you come back to that market?

S
Stefan Fristedt
executive

Yes. I mean the Eurobond market is a very important source for us in our financing. Let me state that, first of all. So then we have also noted that the market and the margins you pay has been coming down considerably during the first part of this year. Then it's, of course, a matter of timing. I mean, as you see, we did pay back USD 100 million here 1st of July. And our ambition is that we will continue to use some of the funds that we're generating to pay back debt. But we are absolutely in the Eurobond market to stay there. So I still think it's a little bit early to expect that we're going to do something with the 2026, but it's approaching.

R
Rikard Tunedal
executive

Thank you. And back to you, operator, for more questions.

Operator

The next question comes from Agnieszka Vilela from Nordea.

A
Agnieszka Vilela
analyst

On Europe and are we -- I appreciate the fact that the registrations are stable or even growing, but actually, when we look at the orders and order backlogs of RV OEMs, they have been declining quite much sequentially, which also suggests that the dealers, they don't want to take on the new product and maybe there is some inventory glut. So as we see the production cuts at the OEMs, do you think that this kind of correction -- production correction and volume correction will be done this year already? Or will we also have the has negative RV OE growth into 2025?

J
Juan Vargues
executive

I think my firm opinion, I would say, is that we are already seeing production cuts. So it's nothing new. I mean it's already there.

A
Agnieszka Vilela
analyst

And how long will they -- do you have any kind of visibility on how long they will proceed the production cuts?

J
Juan Vargues
executive

I do believe that, that will depend, obviously, on interest rates, and that will depend on the registrations. Again, that's why I'm a little bit more optimistic than 1 year ago because I see registrations coming up while they were pretty negative 2022, and they were pretty negative during the first half of last year. I don't think that the RV OEM industry is going to fly to 2025.

A
Agnieszka Vilela
analyst

All right. And on Mobile Cooling, you're running at 9% EBITDA margin in the last 12 months. Can you tell us if is there any difference in profitability between Igloo and your active boxes business?

J
Juan Vargues
executive

Historically, it has been without any kind of doubts. It has been much higher on the Dometic side than it has been on the Igloo side. Then, of course, you have inventories built up 2021, 2022. Hopefully, those inventories are fading out stepwise, and we will see higher margins coming also from the Dometic side to the historical levels that we have been in.

A
Agnieszka Vilela
analyst

Have you seen more of a kind of inventory correction at retailers on the Dometic side?

J
Juan Vargues
executive

Yes, but not as pronounced as we have seen on the American side.

A
Agnieszka Vilela
analyst

And maybe a follow-up on the profitability level for your Mobile Cooling. I think -- when you acquired Igloo, you had an ambition to move that business towards the 15% EBITDA margin. Do you still find this level attainable given that you're at 9% margin for Mobile Cooling right now? And also what needs to happen to reach it?

J
Juan Vargues
executive

I feel that we need to continue working in the same way as we are working. Working on the geographical mix, working on the product mix. With any kind of doubts working on the channel mix. And I do believe that since the Igloo acquisition, you have seen margin improvements on Igloo as well. I know that we were pretty criticized at the beginning, right? When they came in with Q3 -- pretty negative Q3 2021. And since then, we have been improving margins stepwise. So I mean, we simply need to be better in driving pricing as we have been doing during recent quarters, but also on innovation, new product production and completing the product range. So we see margin improvements moving forward as well.

A
Agnieszka Vilela
analyst

But still, the gap is quite high, no, from 9% today to 15%?

J
Juan Vargues
executive

That's what we get paid for.

Operator

That was the last question at this time. So I hand the conference back to the speakers for any closing comments.

J
Juan Vargues
executive

So, well, I would like to thank you all for your attention. I know this is a busy day for all of you, really, with a lot of companies reporting. I would like to finalize by thanking my team for what we believe is a fantastic job under still today tough market conditions. Again, margin improvement, strong cash flow and lower leverage. So thank you very much for your attention. Happy holidays for those of you having your vacation period in front of you. And I'll see you soon. Thank you.