May 1, 2026 -  

• Swedish mining equipment and cutting tools company Sandvik's deleveraging is faster than what we had envisaged, with funds from operations (FFO) to debt reaching 59% at end-2025, from 43% at end-2024. This is mainly due to favorable market conditions, supporting the company's EBITDA and cash generation, alongside moderate acquisition spending.
• Under our revised base case, we anticipate that Sandvik's strong cash flow generation will allow the group to sustain S&P Global Ratings-adjusted FFO to debt above the 50% upside threshold for the rating, despite our anticipation that the group will potentially accelerate acquisition spending.
• Sandvik's solid competitive position, above average EBITDA margin, and end-market diversification also support the rating.
• We therefore revised our outlook on Sandvik AB to positive from stable and affirmed our 'BBB+' long-term issuer credit rating and our issue rating on the company's unsecured debt. At the same time, we affirmed our 'A-2' short-term issuer credit rating and our 'K-1' short-term Nordic scale rating on the company.
• The positive outlook indicates that we may raise the rating within the next 12-24 months, provided that Sandvik, thanks to strong EBITDA margin and cash generation, will be able to retain adjusted FFO to debt above 50%, despite its acquisitive growth strategy. We also expect free operating cash flow (FOCF) to debt will remain in the 30%-40% range. 

S&P Global Ratings today took the rating actions listed above.

Sandvik's financial policy allows for substantial mergers and acquisitions (M&A) spending, but we anticipate the company's credit ratios could remain at levels consistent with a higher rating. The company's financial policy framework allows for a reported financial net debt to EBITDA of up to 1.5x. As of March 31, 2026, the company's reported financial net debt to EBITDA, based on its own definition, reached 0.8x, down from 0.9x at year-end 2025, and 1.2x at year-end 2024. Looking at the last decade, the company's reported leverage peaked at 1.3x at the end of 2022, following accumulated acquisition spending of Swedish krona (SEK) 39.1 billion over 2021-2022, when it closed few larger acquisitions, among them DSI Underground, Deswik, and Schenck, in addition to several CAM (computer aided manufacturing) and metrology acquisitions. The company, in our view, then showed its willingness to restore its financial flexibility through lowering acquisition spending over 2023-2025 (SEK3 billion in 2025, SEK3.2 billion in 2024 and SEK1.9 billion in 2023). With strengthened balance sheet and supportive market conditions, we assume the company could again accelerate its acquisition spending. Sandvik has a target of growing revenue 7% over a business cycle. Its primary focus is to drive organic growth through its leading technological positions, supported by its relatively high research and development investments, typically at about 4% of sales. This will continue to be complemented by value-accretive bolt-on acquisitions. We estimate that Sandvik's reported leverage threshold of 1.5x equals approximately FFO to debt of 43%-46%, which on a prolonged basis would be low for an 'A-' rating. However, we believe that the group, thanks to its strong cash flow generation, will be able to fund its future M&As, alongside gradually increasing shareholder distributions, without increasing leverage to such levels. We therefore believe the company could sustain credit ratios supporting a higher rating, including FFO to debt above 50% (approximately 1.25x-1.30x reported leverage), while sustaining FOCF to debt at 30.0%-40.0% (43.6% in 2025). In our current base case, we assume that Sandvik will operate at a reported leverage of about 0.9x-1.0x (slightly below the average of 1.1x recorded over the last five years), which in our base case would allow for accumulated acquisition spending of about SEK 32 billion over 2026-2027. We assume a dividend payout ratio of 50%, in line with the company's policy, resulting in gradually increasing dividends, of SEK7.5 billion in 2026, increasing to SEK7.8 billion in 2027, from SEK7.2 billion in 2025. Overall, we therefore anticipate FFO to debt at 60%-75% over 2026-2027.

Sandvik is set to benefit from strong market conditions, resulting in record high revenue and improving profitability. Under our revised base case, we expect Sandvik's revenue will reach about SEK140.9 billion in 2026, from SEK120.7 billion in 2025, driven by strong organic growth of about 15%-17%, further supported by forecast bolt-on acquisitions, assumed to contribute another 2% in 2026, assuming minor foreign exchange headwinds. The company continues to benefit from the momentum in its mining business (51% of revenue in 2025), and surging demand for its tungsten powder business on the back of global supply limitations, further benefitting its vertically integrated cutting tools business. Light vehicles (3% of revenue) remains soft, and we assume a modest recovery in infrastructure (9%) and general industry (23%), while macroeconomic uncertainties and heightened geopolitical tensions may continue to represent headwinds. Sandvik had a strong first quarter of 2026, with order intake increasing by 12%, 23% on an organic basis, and revenue increasing by 5%, of which 15% organically. While demand was strong across all business areas, mining continues to be an important contributor, recording 22% organic order intake growth in the first quarter, benefitting from high commodity prices. The order intake in the machining divisions grew by 28%, driven by strong demand from aerospace, defense, and medical, and spurred by strong tungsten powder business resulting from surging tungsten prices. This followed the group's organic order intake increase of 11% in 2025. We expect solid organic growth of 4% also in 2027, with revenue reaching SEK155.9 billion with the contribution from assumed M&As. We now forecast that the EBITDA margin will improve to 24.3% in 2026 and 24.7% in 2027, from 23.0% in 2025, driven by operating leverage alongside realized cost savings within its machining division.

We expect Sandvik's FOCF will remain above SEK15 billion annually, resulting in strong credit ratios despite a potential increase in acquisition spending. We forecast growing revenue and improving profitability will result in EBITDA generation of about SEK34.2 billion in 2026, and about SEK38.4 billion in 2027. We don't expect a need for material capacity investment and forecast capital expenditure (capex) of about SEK4.7 billion in 2026, and SEK5.2 billion in 2027 (including net increase in rental equipment of about SEK725 million), only moderately higher than SEK4.2 billion in 2025. Sandvik is targeting working capital efficiency improvements, but we nevertheless anticipate an absorption of SEK5.2 billion in 2026 and SEK3.9 billion in 2027, up from SEK1.3 billion in 2025, as a result of substantial volume growth. The working capital absorption is expected to result in temporarily lower cash conversion rate, but we still expect FOCF generation of SEK18.1 billion in 2026, increasing to SEK20.2 billion in 2027, up from SEK15.2 billion in 2025. Sandvik's reduced its debt to SEK34.8 billion in 2025, down from SEK42.0 billion in 2024, mainly as a result of solid FOCF generation and lower-than-anticipated acquisition spending of SEK3.0 billion in 2025. This resulted in FFO to debt improving to 58.5% in 2025, from 43.2% in 2024. We now expect FFO to debt above 60% in 2026 and 2027, despite a potential uptick in M&A spending considering the group's growth ambitions and strengthened balance sheet.

Beyond currently favorable market conditions, Sandvik's solid competitive position, above-average profitability, and end-market diversification support the rating. Sandvik derived about 51% of its 2025 revenue from the mining sector, followed by general industry (23%), infrastructure (9%), and aerospace and defense (4%). The end-market diversity compares favorably with other mining equipment companies that we rate, such as Epiroc AB (BBB+/Stable/--), The Weir Group PLC (BBB-/Stable/--), or metal-cutting-tool manufacturers, such as Kennametal Inc. (BBB/Stable/--). Additionally, Sandvik has strengthened its product offering through acquisitions and internal investments in mine planning, electrified and autonomous mining equipment, and round tool and manufacturing software. We believe this will support its long-term earnings profile. Sandvik's operations are well diversified internationally, and its mining and rock processing business areas benefit from a high share of aftermarket revenue, representing about 70% and 60%, respectively. The company also has a track record of maintaining its profitability above the capital goods sector average, with its adjusted EBITDA margin consistently exceeding 18% throughout the cycle. 

The positive outlook reflects our expectation that Sandvik will sustain its strengthened credit ratios, with the FFO-to-debt ratio remaining above 50%, and FOCF to debt at 30%-40% through the cycle. We anticipate Sandvik will show resilience to the cyclicality of its end markets, and that its S&P Global Ratings-adjusted EBITDA margin will remain above average for the capital goods industry. 

We could revise the outlook to stable if Sandvik failed to maintain its FFO to debt above 50% and its FOCF to debt within the 30%-40% range due to significant debt-financed acquisitions or shareholder returns coupled with weaker FOCF generation leading to increased leverage. 

We could raise our rating on Sandvik if we anticipate that the company will build a track record of retaining adjusted FFO to debt above 50%, notwithstanding the market cycle and acquisition opportunities, while maintaining robust profitability and FOCF to debt at 30%-40%.