KONE's Q2: Robust Orders Mask Inflation Drag on Margins
Order growth remains strong, but inflationary cost pressure is leading to a slight margin decline in order intake, while service growth moderates and the TKE deal progresses.
KNEBV.HE · Earnings Call · 2026-07-22
Order Growth with a New Caveat
KONE reported a solid Q2 2026 with comparable order growth of 10.9% and a 40bps adjusted EBIT margin expansion, but the call revealed a fresh tension: order margins dipped slightly due to inflationary pressures. “Our orders margins declined slightly year-on-year as a result of the inflationary pressure we've seen.” — Ilkka Hara, Chief Financial Officer · 2026-07-22 This marks a change from prior quarters when order margins were stable, and it sets up the narrative for the rest of the year. The company highlighted Order margins as a key theme, with management acknowledging the impact of geopolitical-driven cost increases and committing to broad price actions to counter them. Philippe Delorme emphasized the strength of the order book: “Orders grew by almost 11% in a quarter. What I find particularly encouraging is both the breadth and the quality of that growth.” — Philippe Delorme, President and Chief Executive Officer · 2026-07-22 Modernization was a standout, growing by well over 15%, and the company continues to accelerate in this space. However, the margin pressure on orders is a new wrinkle, and CFO Ilkka Hara noted that the decline is not pricing-driven but rather increased costs, with pricing actions still feeding through: "We've actually increased prices in all of the businesses in all of the regions... but the impact in Q2 was mainly because of the tender to order lag." The company is leaning on fixed costs discipline to offset the inflationary pressure. Ilkka Hara said, “There's clearly opportunity to continue to drive more leverage through fixed cost.” — Ilkka Hara, Chief Financial Officer · 2026-07-22 This is a recurring theme from prior calls, but the urgency is higher now given the cost environment.Service Growth Moderates on One-Offs and China
Service growth decelerated to 5.6% in the quarter, below the strategic high-single-digit target. Philippe attributed this to a high base in China, a deliberate slowdown in M&A, and execution hiccups in the repair business: “First of all, we are very confident on our growth potential, let's say high single-digit growth in service.” — Philippe Delorme, President and Chief Executive Officer · 2026-07-22 He stressed the confidence remains intact, with the slowdown being temporary. This contrasts with the prior quarter (Q1 2026) when service growth was also challenged, but the reasons are now more clearly articulated. The company's keyword trajectory shows Service growth as a central topic, and the moderation is a key watch item for investors. In the prior call (February 2026), Philippe had noted the China pruning was largely done: "We made a choice in '25 to prioritize differently in China to privilege cash margin." (component 1692704517348529382). This quarter, the China comparison base is expected to ease in H2, providing some relief.TKE Combination on Track
The strategic combination with TK Elevator (TKE) continues to progress as planned. The extraordinary general meeting in June saw nearly 100% shareholder support, and regulatory filings are underway. Philippe expressed confidence: “We are very well engaged in our major jurisdiction” — Philippe Delorme, President and Chief Executive Officer · 2026-07-22 and reiterated the EUR 700 million cost synergy target, net of any divestments. The collaborative spirit between the teams was a repeated theme. In the prior quarter, the deal was already a focus, and the company remains confident. The integration planning has begun, and management emphasized the potential for this transformational move.Outlook and Risk
KONE left its 2026 guidance unchanged: comparable sales growth of 3%-6% and adjusted EBIT margin of 12.3%-13%. The company is banking on strong modernization and service growth, while navigating China's NBS decline ( -10% expected) and inflationary headwinds. The order margin decline is the most immediate risk, but the company's targeted pricing and cost actions are expected to stabilize it.Overall, KONE delivered a solid quarter with strong order growth, but the margin on new orders is a new concern. The company's focus on fixed cost leverage and price discipline is aimed at preserving margins amid a challenging inflationary environment. The TKE combination adds strategic optionality, but execution remains key.I would say we are running on both cylinders, and we are growing very well in China on the modernization side, and we are pretty happy with where we are.