Sandvik (OTC:SDVKY) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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View the webcast at https://sandvik.avalon.events/3da052ee-5fdc-4cac-a3a8-4f76d3ddd899
Summary
Sandvik reported a strong Q3 2026 with total order intake growth of 20% and organic revenue growth of 25%, achieving a profit margin of 22.5% and record-high cash flow.
Strategic initiatives included the launch of a concept surface drill rig and digital solutions showcased at industry events, along with a new Manufacturing Lifecycle Management solution.
The company noted robust demand in mining and infrastructure markets, with particular strength in aerospace and defense, though light vehicle demand in China was subdued.
Operational highlights included solid growth in the Mining segment and innovative product launches in Rock Processing and Machining, despite fluctuating tungsten prices impacting the latter.
Management highlighted continued strong financial performance, strategic progress, and resilience in adapting to market volatilities, with a positive outlook on demand and innovation.
Full Transcript
Luis Cheddar (Head of Investor Relations)
A warm welcome to Sandvik’s presentation of the third-quarter results 2026. My name is Luis Cheddar, Head of Investor Relations, and beside me I have our CEO, Stefan Widing, and CFO, Cecilia Felton. We will, as we usually do, start with the presentations. Stefan and Cecilia will take you through the highlights of this quarter, and after that we will move on to the Q&A session. So with this short introduction, it’s over to you, Stefan.
Stefan Widing (President & CEO)
Thank you, Luis, and also from my side. Hello everyone and welcome to the third-quarter report. If we summarize the quarter, we think this was a very good quarter. We see broad-based demand, we have strong operational execution, the profit margin is above our target range, and we also have a record-high cash flow. In the quarter, total order intake grew by 20% and the organic order intake growth was 17%. Total revenue growth was 29% and the organic revenue growth was 25%.
Adjusted EBITDA came in around 8.5 billion SEK and this corresponds to a margin of 22.5%, up from 19% in the prior-year period, and the rolling 12-month EBITDA margin is now at 21.3%. Adjusted profit for the period amounted to 5.8 billion and the free operating cash flow then came in at 7.2 billion, up from 5.6, and corresponding to a cash conversion of 87% in the quarter. If we focus a bit on some of the key strategic highlights in the quarter, starting with Rock Processing, a good product launch in the screening business on the compact screen size. We usually have engineered products in screening, but these are standard products that are pre-engineered, and this means that we can deliver faster and also reduces the amount of time we have to spend on each order, so a good product launch from them. On the mining side we had our Future of Mining event with over 600 customers in the quarter, and there we launched our concept surface drill rig, which showcases the future of surface mining.
This is a fully automated and battery-electric machine combining AI, robotics, electrification and digital connectivity, and it shows our vision for how we think surface mining will develop in the future. Those of you that will attend our Capital Markets Day in Finland in November, you will get to see this machine performing live in our surface test mine outside of Tampere. Intelligent Manufacturing had a milestone also this quarter. We participated, both Intelligent Manufacturing and Machining, at the IMTS trade show in Chicago. This is one of the largest manufacturing trade shows in the world that happens every second year, and here for the first time we showcased our digital solutions under the Sandvik brand umbrella. And we also launched a new solution called Manufacturing Lifecycle Management, where we connect the dots between design, machining and quality data across the entire lifecycle for the first time.
Also this we will showcase more to those of you that will attend the Capital Markets Day in November. And also to show that we of course innovate in our core product range, Walter released a new portfolio of solid carbide end mills in the quarter. These are products that are tailored for the aerospace sector and especially hard materials such as titanium and special-grade stainless steel. So important innovation in the core business as well. If we shift to focus on the market development, we continue to see a robust development both upstream and also downstream. High commodity prices continue to underpin strong activity and we see a good demand both for equipment and aftermarket. High utilization rates and an aging fleet of course drive consumption demand for parts and services. Also this quarter we continue to see a good interest and demand for our digital automation solutions. And we also see now a bit of an increased activity in downstream mining, even though we do not see it in the order book yet.
But we do see an increased activity, which is positive. Infrastructure market also continues to develop positively. We should highlight demolition and recycling and also North America, which is where we see the most positive market sentiment, but also slightly positive in aggregates and in Europe. If we look at the industrial segments starting with general industry, we see a quite broad-based demand picture here, up across all regions. Aerospace and defense is very strong, also across all regions. Light vehicles continues to be subdued. We could say that Europe and North America are stable at low levels, while China deteriorated in the quarter. India is really the only larger market where we see a positive development in the quarter.
And then for the other segments, mining, energy and transportation, medical and electronics, we overall see a positive development with some specific highlights around the power generation and some of the transportation segments. If we look at our organic order intake for cutting tools in the period, that of course broadly, or in most cases, aligns well with the underlying market, with a few deviations. If you look at general industry, you can see negative China.
Here we see a positive development in the premium cutting tools, but we have a business around blanks. And this is a product that sits between the powder and the finished cutting tool, selling sort of half-finished products on the Chinese market. And here we saw significant pre-buys or stocking up earlier in the year driven by tungsten price dynamics, and now with stable tungsten prices, customers are simply using the inventory they bought earlier.
So that has a negative impact in the quarter for that business. Otherwise light vehicles, also you can see that negative in China. Europe is up high single digits, but there’s of course a lot of price in there, so the volumes are actually down. North America also slightly down on volumes. Otherwise I think there are no specific things to call out in this picture. If we go to orders and revenues, orders close to 37 billion in the quarter. Revenues 37.7, book-to-bill of 98%. As you recall, we typically have a second half of the year with higher deliveries and usually a slightly negative book-to-bill below 100%. So this is nothing unusual for the season. If we look at this from another angle, organic and structural growth, I think a key thing to highlight here: it’s the sixth straight quarter in a row with double-digit order intake growth and solid organic growth across this period.
And this was also a quarter where we started to meet a bit higher comps. We grew 16% in the same period last year and now 17% this year. So I think strong, strong order growth on top of a strong quarter last year. Revenues, of course, we continue to ramp up and very solid execution there with a 25% revenue growth in the quarter. Going into our business areas then, starting with Mining. Again, very solid demand across both equipment and aftermarket. We have good organic order intake growth driven by strong growth across all our aftermarket divisions and summing up to 16%. Equipment, 23% growth if we exclude major orders. As you recall, we grew equipment by 75% last year driven by large orders. I think the large orders this quarter are okay at 700 million, but very tough on the comp side.
So I don’t see this as anything that is concerning in any way. Profitability was strong at 4.3 billion, profit margin of 21.8%, good organic leverage of 31%. And then a little bit of a mixed impact from currency, where it had an absolute positive impact, but since the top line was even more positive, it had a slightly dilutive effect on the margin in the quarter. You can also see the split: brownfield 55%, greenfield 13 and replacements 32%. This is fairly in line with what it has been in the past couple of years.
Maybe slightly stronger. Greenfield at the expense of brownfield. At the expense of greenfield. A couple of percentage points. If we look at the average over the past couple of years. Rock Processing then, robust underlying demand in mining and also, as mentioned, the positive market sentiment in demolition and recycling. Total order intake though decreased by 2% and the organic drop was 8%. Here we had no major orders this quarter while we had a couple of large orders last year, so this was more flattish if we exclude for that. We also see a very strong demand in aftermarket, which is positive, shows the activity levels in the business.
But orders on the equipment side in this a little bit smaller business area are lumpier, and that we also see in this quarter. Adjusted EBITDA 418 million, solid margin of 15%, basically the same as last year, down 10 basis points. We have a negative operating leverage in the quarter since the revenue growth organically was flat. It’s very small numbers we’re talking about here. And we are investing in the frontline as we see a positive demand picture going forward, which means we have a little bit of higher cost there in the quarter that is not yet met with higher revenues.
But again overall small numbers in that bullet point. And currency also a small impact, accretion of 10 basis points. Machining then, positive demand as mentioned across the board, except for light vehicles. Total order intake grew by 35% organically, or at fixed exchange rate 33, and also organically 33%. Cutting tools grew by 19%. In that number we would say underlying volume improvement around 5%. On top of that a couple of more percentage points driven by pre-buys, and then the remaining part is essentially price. We continue to see development continuing in the same way now into the fourth quarter.
EBITDA was high, 3.7 billion, margin of 25.7%, up from 19%. Here we then have positive contribution from the higher volumes, from the powder business, and also from our savings programs which are contributing 82 million in the quarter. The temporary timing effect coming from tungsten came in at 104 million, which is about 100 million lower than our guidance, and this corresponds then to an in-quarter effect of 70 basis points. The leverage was very good in the quarter, 45%, and currency had a slight positive impact of 10 basis points.
Intelligent Manufacturing had a very solid and I would say uneventful quarter. Broad demand across the board, strongest coming from aerospace and defense. We have a double-digit order intake growth in both licenses and subscriptions. If we normalize for the negative 2% that comes from the transition towards subscriptions, the order intake growth was 14% underlying in the quarter, and profits were also good: 258 million, leveraged at 33%, and a margin of 27.1%, which is very strong, neutral from currency in absolute terms, slight dilution on the margin, and then also a very positive effect from our acquisitions year over year.
So with that I hand over to you, Cece.
Cecilia Felton (Chief Financial Officer)
Thank you, Stefan. All right, so let’s dive into the numbers then in a bit more detail together. As Stefan said, strong growth on both orders and revenues which resulted in order intake just short of 37 billion and revenues of 37.7 billion. Earnings came in at 8.5 billion corresponding then to a margin of 22.5%. And this is the second consecutive quarter where we are above our margin corridor. Net financial items came down compared to last year as you can see here. Tax rate excluding items affecting comparability and also on a normalized basis was 24.3%. So in line with guidance, net working capital continues to gradually come down. We’re now at 27.2% and this is on a 12-month rolling basis and you can see that it is an improvement of 2.1 percentage points compared to last year. As Stefan mentioned, it was a strong cash flow quarter, 7.2 billion corresponding to a cash conversion of 87% in the quarter.
Returns also improving year over year reaching 19.1%. And if we exclude PPA we are at 20.4%. Adjusted EPS grew by 65% compared to last year and reached 4.64 SEK. So good earnings growth and also margin improvement compared to last year. And this is primarily driven by higher volumes, good profitability in powder solutions and also our ongoing savings program. As Stefan mentioned, the temporary timing effect from the tungsten price development came in a bit lower than what we guided at 104 million. And this is due to, as you might have seen, tungsten prices came down slightly towards the end of the quarter which resulted in a revaluation of our inventory and hence the slightly lower outcome. However, at a group level this corresponds to an in-quarter impact of 30 basis points. It was a good, all in all a good leverage of 37%.
Currency was slightly dilutive, 20 basis points, and as you can see here in the graph, on a 12-month rolling basis the margin is now at 21.3%. If we continue with the bridge then and as usual we’ll start with the organic column. The good leverage of 37% resulted in a margin accretion of 3.6 percentage points. Currency was positive as you can see here, both on top line and on EBITDA, but the top line impact was bigger and hence there’s a slight margin dilution of 20 basis points. Structure was slightly accretive and all in all that brings us from a margin of 19% last year to 22.5% this year.
If we continue down in the P&L, looking at net financials and as usual starting with the interest net, here you can see that it came down but very slightly compared to a year ago. And this is the net impact of on the one hand lower borrowed volumes. But as you can see here at the bottom of the table, we also have a higher borrowing yield. Then last year we had a negative impact in FX and other asset classes, whereas this was slightly positive this year.
And these are the main explanations for the reduction in the finance net. Tax rate, as you can see here, very uneventful in the quarter, 24.3% on a normalized basis, which is in line with our guided range. And here you can see that net working capital in relative terms continues to trend down. As I said, we’re now at 27.2%. And on the right-hand side you can see that this is primarily driven by Mining and Rock Processing. So good development and achievement so far, but also a continued focus area for us going forward.
If we then continue with free operating cash flow. And as you can see in the bars here, it was a strong cash flow quarter, 7.2 billion corresponding to a cash conversion of 87%. You can also see that on a 12-month rolling basis cash conversion is now at 75%. And looking at the year-over-year development, you can see that EBITDA adjusted for non-cash was significantly higher compared to Q3 of last year. CAPEX was a bit higher. And then you can see the impact of the net working capital build-up, all in all then ending up with a free operating cash flow of 7.2 billion.
Financial net debt remained at 30 billion. It’s the same level as we had in the second quarter. And net debt also remained at 37 billion. Our balance sheet target however came down slightly. We were at 1 at end of Q2, we’re now at 0.9. And this is driven by a higher 12-month rolling EBITDA. Looking at outcome versus guidance, currency came in at 158 million. The temporary timing effect from the tungsten price, as I mentioned, 104. And then on a year-to-date basis CAPEX is now at 2.8 billion, interest net at 0.5 and the normalized tax rate at 24.2.
And looking ahead then at the fourth quarter and full year, we expect a continued positive currency impact of around 0.6 billion in the fourth quarter. In terms of the temporary timing effect from the tungsten price development, here we expect a limited impact in the fourth quarter and this is based on the tungsten prices as of last of September. We will also have a tariff refund in Machining in the fourth quarter and this will be of around 400 million which will then negatively impact both order intake and revenues for Machining.
As we have received these tariff refunds, we have booked them as a liability on our balance sheet and this means that there will be no impact on absolute EBITDA then for the full year. We have left guidance for CAPEX and tax rate unchanged but we have increased the guidance for interest net slightly to 0.7 billion. And with that I will hand back over to you, Stefan.
Stefan Widing (President & CEO)
Yes, thank you. I just want to clarify when we talk about the tariff refund that we have already received that refund and now we’re talking about that we will give this back to our customers. Just so there’s no misunderstanding there on the conclusions. I mean if we start on the macro side, we have said already continue to see a strong demand in upstream mining and also an increased activity downstreams. We see a positive demand picture in cutting tools and the supply constraints and high market activity continues to support a strong tungsten demand as well. We have a strong financial performance, order intake growing double digits and the strong execution led to 2016 revenue growth. In total, our profit margin is above our target range and we deliver a record cash flow.
As Cecilia mentioned, the earnings per share is up 65% in the quarter, which I think is a quite remarkable number. Especially that we should consider that there is no one-time sort of effects in the comp or in the current period of any material size. The strategic progress is also very solid. We continue to launch important, important innovations in both digital and also surface mining. As I’ve talked about, we continue to show good innovation progress also on the digital side. And it was really a milestone that we could start to show bigger common solutions. Now at IMTS we also closed the acquisition of DM Filtration which also meant that we now have a 24th division in the group. We continue to deliver consistently each quarter while we also invest into our long-term strength.
There is a volatile market out there, but I think we continue to show that we have the agility and speed in adjusting to meet all the different developments that we see out in the world. And I think we have again proven the strength of Sandvik’s business portfolio, our strategy and our operating model. So thank you for listening. Let’s go to the Q and A.
Luis Cheddar (Head of Investor Relations)
Thank you Stefan and Cecilia. Yes indeed, it’s time for the Q and A session. So operator, we can take the first question please.
OPERATOR
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the attached to the telephone. If you wish to move yourself from the question queue you may press star and two. Participants are requested to use only handset while asking a question. Anyone has a question, press star and one at this time. The first question is from the line of Alex Jones, Bank of America. Please go ahead.
Alex Jones (Analyst)
Good morning. Thanks very much for taking my questions, two if I can, please. First, on cutting tools, you called out a benefit from pre-buying for the last few quarters, but you talked in the prepared remarks in China as though that’s unwound a little bit given the stabilization in tungsten prices there. With European tungsten prices now also seeming to have stabilized, are you seeing any signs of the pre-buying outside of China slowing, ending, or even unwinding?
Or if not, is that something that you would expect to happen in the coming quarters, please? And then secondly, just on the large orders in Mining, I think if I take the past four quarters, it’s averaged just over 1 billion SEK per quarter. How should we think about that run rate moving forward? And does the pipeline give you confidence that that could be similar or potentially even higher as we move into Q4 and 2027? Thank you.
Stefan Widing (President & CEO)
Thank you. On the cutting tool and pre-buys, yeah, we saw as I said in this quarter about a 2% sort of boost from pre-buys driven by price increases in the quarter that didn’t fully unwind within the quarter. I mean the Chinese impact was, if we talk about the pre-buy effect back in the first half of the year, significantly larger. It was very, let’s say, unusual type of pre-buy numbers there. I think it’s very clear that the purchasing decisions and tactics there are very, very different.
So if we look at China year to date, it’s still a good positive figure. But a lot of pre-buy in the first half and then starting to, or to a large extent unwinding now for a couple of months. The pre-buy effect we have seen outside of China has been much more limited. And if you recall in Q2 we said that orders and revenues and so on, they were fairly balanced. We still carry sort of a pre-buy effect orders versus revenues from Q1 that have sort of we’re still having with us. So I mean I cannot fully predict, I think to some extent some of this will stay at higher inventory levels as we are also seeing an underlying demand pickup. It’s quite usual that we see that in an upcycle.
Maybe some of it will slightly unwind. That is a possibility, but nothing we sort of can predict. But again, it’s not very big numbers we are talking about here. So I’m not so concerned about it. On the large orders in Mining. Yeah, I mean the reason we call out the large orders is because they are a little bit lumpy quarter by quarter. We had in the previous, in Q2 it was 1.6 or so if I remember correctly. Now it was 700 million. You talked about the average around a billion plus. I mean I see, no, I will not guide going forward, but I see, I mean we continue to see high commodity prices, very strong demand underlying in the way our equipment is being used, customer activities, order pipelines and so on.
I see no reason for why current demand picture will change and therefore on average why sort of large orders would sort of go in any negative direction. But again, it’s not the guidance, it’s just what we see in the market right now.
Alex Jones (Analyst)
Thank you.
OPERATOR
The next question is from Kim Jong, Deutsche Bank. Please go ahead.
John Kim (Analyst)
Hi, it’s actually John Kim from Deutsche. Thanks for the opportunity. You previously spoke about seeing some better activity potentially in downstream. I’m wondering if you could flesh that out a little bit. And I have another question.
Stefan Widing (President & CEO)
Yeah, this is. I mean we know downstream is a little bit more late cycle. Typically customers are running the processing plants at a lower utilization rate than sort of max capacity, which means that when things are picking up they can do without investments, incremental investments, for a while. They also tend to make those investments in larger chunks. So I mean with mining equipment upstream you can add one or two or three loaders or drill rigs.
When you come to the processing plants you need to take bigger steps, which means that they take a bit longer before they are ready to commit to that. But we are seeing, in terms of how we look at RFQs, customer engagements and so on, that we feel that the engagement is picking up and it should be supportive going forward even though we didn’t see it in the order intake in this particular quarter. No, not really. I mean we have always for some years seen the Chinese here and there, but quite limited outside of China, and they are competing in the mid-market. We tend, as you know, to be primarily in the premium segment. In the mid-market there’s always been sort of a price-driven competition, so this is nothing new. I cannot say that we are seeing things getting better or worse from this dynamic at the moment.
OPERATOR
The next question is from Claes Berglin Franchitti. Please go ahead.
Claes Berglin Franchitti (Analyst)
Hi, thank you. Hi, Stefan and Cecilia. So my first question is on the tungsten impact, which came in at 100 million versus 200 million guided, and you guide for a flattish impact into the fourth quarter. I had a question on the absorption impact. The profitability in the mine at these prices is good. You get good fixed-cost absorption in powder. Now with scrap prices coming down and we start to see APT leveling off a bit as well, how should we think about this line going forward?
Your margin is still 25% underlying, including this effect, but curious what could happen here ahead. I’ll start here. Thank you.
Cecilia Felton (Chief Financial Officer)
Yeah, here as you say, tungsten prices came down slightly towards the end of the quarter. That resulted in the inventory revaluation effect. And in Q4 we’ve got a limited temporary impact. Then of course, depending on how tungsten price develops going forward, it impacts the profitability in Powder Solutions. But we also have offsetting impacts in the cutting tool business over time, and that’s how we also create resilience across the group. Then it is a bit of a complicated picture because, as you know, for our production we use virgin material from our own mine, we source material externally, we also source scrap material, and we also buy back from our customers used cutting tools for recycling. So you need to take all of these factors into consideration. But overall we see that we have good margin resilience across the Powder Solutions business and the cutting tools business.
Claes Berglin Franchitti (Analyst)
That leads me into my second question on price/cost in cutting tools. Then you talked, Cecilia, about the resilience. The pricing on orders, when I back it out, was up around 11% in machining, not too different versus the second quarter. But we understand that you’re now raising prices quite a lot more than that as the tungsten impact in cutting tools starts to now increase here a lot given the nine-month lag from when tungsten increased a lot in November last year.
So how should we think about pricing in the P&L in the fourth quarter? I mean I calculate that we could be up 15–20%. You raised prices a lot here at the end of the quarter on orders, and then thinking about when you guide flat impact overall in the fourth quarter. So price/cost positive in absolute terms against powder weakening and offsetting that. Any more clarity on price/cost and prices would be very useful. Thank you.
Cecilia Felton (Chief Financial Officer)
Yeah, sure. So we made, as you said, a price increase towards the end of the quarter, and with this price increase now set it will offset the impact of the current tungsten price levels. Then it’s of course also just like usual, when we make price increases we also look at how we think more general inflation will develop going forward. And there typically we have a slight accretion initially when we make price increases, as we have this temporary timing impact between price and the normal inflationary development coming into our P&L. Then in terms of breaking this down further, we are a bit careful with doing that for commercial and competitive reasons. So the best guidance we can give is that net we see a limited impact in the fourth quarter in terms of what should be considered a temporary effect. So no temporary boost or the opposite in Q4.
Claes Berglin Franchitti (Analyst)
Okay. Absolute final one on mining. On the aftermarket, the 16% growth, still very strong numbers. You have a big mine planning business, digital Deswik, where growth should be linked to the strong exploration activity. I think you also have some tungsten pass-through in steel and rock tools. If we zoom in on just parts and rebuilds, which are more comparable to some of your peers, Stefan, what was the growth in these segments on orders, and did growth here accelerate versus the second quarter?
Thank you.
Stefan Widing (President & CEO)
Yeah, I mean I think all components of aftermarket actually this quarter were growing at a relatively similar pace. So parts and services were also up there in the high teens.
Claes Berglin Franchitti (Analyst)
Okay, that’s great. Okay, thank you.
OPERATOR
Thank you. The next question is from Chief Sinha, JP Morgan. Please go ahead.
Chief Sinha (Analyst)
Yeah, hi, good morning, Stefan and Cecilia. I just have a follow-up on the pricing dynamics in machining, please. So I just wanted to know broadly, how are customers reacting to prices falling, and do you see your ability to retain pricing into ’27 as unchanged, obviously in the scenario that prices keep falling? Thank you.
Stefan Widing (President & CEO)
Yeah, I can take that one. I mean customers are never happy when you raise prices. But I would say this has been one of the more straightforward ones. It was the same in May because it’s very clear, the underlying reasons, and we are not alone either, we can say. So I think this is something that the industry recognizes, that the reasons are clear and therefore they also accept these increases. And this is of course why we are so clear and focused on that we do this to protect our margins, but we are not doing more than that, even though there is currently to some extent a shortage of tungsten.
So yeah, that’s how it went down now. And for that same reason, we don’t see why in general price increases are not sustainable. Of course it will depend on what happens with tungsten prices. But if we assume kind of a main scenario there, we see no reason why these prices are not sustainable.
Chief Sinha (Analyst)
I’m sorry, if I could follow up. Do you expect maybe competitors to lower their pricing in order to get market share gains? Is there any sign of that that you’ve seen so far? Or do you see any risk of that kind of behavior?
Stefan Widing (President & CEO)
I mean, I cannot really comment on what they might or will do. But let’s remind ourselves that from a competitive position, we have the best competitive position here with our own mine and over 50% of the input material coming from scrap. Scrap prices are lower than virgin material prices since there’s a limited recycling capacity, especially outside of China. So that builds a further competitive position for us. And on top of that, at least publicly traded competitors don’t really have a margin profile that means that they can sacrifice further margin to try to gain market share, especially knowing that our cost base is probably the most competitive across the board. So I feel quite confident that the competitive situation is to our favor rather than the other way around.
OPERATOR
Very clear, thank you. The next question is from Magnus Gruber, Nordea. Please go ahead.
Magnus Gruber (Analyst)
Hi, Stefan and Cecilia. Magnus Gruber from Nordea. A couple of questions from me. You will be opening up the books for 2027 on powders in the fourth quarter, and given the momentum we have in the pricing within there, could you comment a little bit on the mix impact on pricing we could see in machining in Q4, or potentially at least help us explain what the mix was between powder orders and cutting tool orders in Q4 last year?
Cecilia Felton (Chief Financial Officer)
Oh, that we probably have to come back to. I actually don’t remember the split in Q4 or how much we disclosed back in Q4 before. So we’ll have to come back to that.
Magnus Gruber (Analyst)
But is the thinking right? You should probably have a positive mix impact in Q4, at least from a pricing perspective in machining.
Stefan Widing (President & CEO)
You mean from the fact that we’re going to open up the books for orders for powder? Yeah, yeah. I mean that I cannot really guide on. But let’s comment a little bit broadly on that. I mean, as we have stated in previous quarters, the order intake that you see also this quarter in powder is primarily then a re-evaluation of the order book to the price levels we actually deliver on, while the actual orders were booked in Q4 or to some extent Q1, typically then a 12-month order. And then we have kept the order book closed now for a couple of quarters because of this dynamic.
We want to make sure that we take the learnings from this year and, as we open up the order books, that the price models and everything is aligned with how the market operates currently. And it’s true, yes, we will then open it up in Q4, but I expect also there to be conversations with customers on sort of updated maybe pricing models or what have you. So I think it’s a little bit uncertain how much will end up in Q4 and how much will end up in Q1. And it’s not only that we don’t guide for that — I don’t know how it will land. We will of course make sure first of all that we protect the business by making sure that we get quality orders into the order book, even if it takes a little bit longer to have those conversations.
So I can only say it’s going to be tricky to predict that element in Q4, unfortunately.
Magnus Gruber (Analyst)
Okay. Finally, could you explain a little bit the year-over-year delta, the magnitude of that, within the cutting tools part of machining specifically? It could be very helpful to see what’s going on there.
Cecilia Felton (Chief Financial Officer)
You mean pricing versus the tungsten development?
Magnus Gruber (Analyst)
No. Yes, the margin delta year over year, if you can scope that to some degree in cutting tools.
Cecilia Felton (Chief Financial Officer)
Yeah, if I take machining as a whole and then I will also cover the cutting tools there. I mean the key drivers for the margin improvement are good leverage in the cutting tools business. Also we have the ongoing savings program. Then we have good profitability in Powder Solutions sort of underlying at these tungsten levels. And then it’s the temporary timing impact. Those are really the biggest drivers for the margin improvement year over year.
Magnus Gruber (Analyst)
Got it. Thank you so much.
OPERATOR
The next question is from Ed Hutzi, UBS. Please go ahead.
Ed Hutzi (Analyst)
Hi Stefan and Cecilia, thanks for taking my questions. Just two from me, maybe just taking them one at a time. So the first question is just on metal cutting volumes. Earlier in the call I think you were referring to a kind of net pre-buy effect. So just on that, if we think on a monthly basis, does that mean that you had a pre-buy positive effect in the first two months and then a negative volume effect in the third month? Is that the way to think about it?
Stefan Widing (President & CEO)
Yeah, basically, yeah. Because you get the pre-buy up until the price increase and then you see a little bit of a drop afterwards. But the net 2% we refer to is simply then that our estimate of what the drop should be, based on the pre-buys in the first couple of months, was not fully compensating for what we consider to be the pre-buy component.
Cecilia Felton (Chief Financial Officer)
Yeah, I mean here, the picture that we show in the appendix, first of all, it’s a bit of a simplified model. It’s the best that we can give you. But we’re talking about averages on the one hand. Then for cutting tools internally, you also need to remember the moment of pricing. It’s both the APT price and scrap price developments that we need to take into consideration for how we do pricing. That’s also true when we look at this from an internal perspective.
And I mean, ultimately, I think the best way I can answer this: what we’re aiming to do is to offset, to sort of protect the margin, and that’s how we have set the price increase now in the third quarter. Then it’s impossible to get the timing exactly right because we cannot make price increases every month. So sometimes we can be a little bit ahead and sometimes we can be a bit behind. But with this price increase that we’ve done now, that should protect our margin for the cutting tools at current APT price levels. I think that’s the best answer I can give.
Stefan Widing (President & CEO)
Yeah, absolutely. And just to comment on—you referred to, let’s call it, the first price increase here, or actually at end of 25. I mean, we usually have a cycle where price adjustments are done in the beginning of the year. Now, coming up to the fall of 25, I mean, tungsten prices started to increase late spring, early summer, actually last year, even though most people didn’t notice unless you were in the industry, because the levels were not, you know, at the level they are now.
So we could already in the fall see that we need to compensate for these higher tungsten prices. And then the question is, do we wait until the normal cycle or do we pull it in earlier to not be exposed unnecessarily? So that one we pulled in earlier, and then that one is also then containing, as Cecilia mentioned, maybe compensation for general inflation expected and so on. So that was our best guess for what we needed to do to compensate in 2026.
And then, of course, they continued to go up. So therefore, we have then subsequently done additional price increases, but always with the intent that we try to hit this—you know, let’s compensate and protect the margin as good as we can predict.
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