Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GEA Group AG (GEAGF, Financial) delivered organic sales growth of 1.6% in Q2 2024, driven by a strong service business.
- EBITDA before restructuring expenses increased by 4.7% year over year to EUR 201 million, with a significant margin expansion to 15.2%.
- The company raised its EBITDA margin and ROCE guidance for the full year 2024, indicating strong confidence in achieving financial targets ahead of schedule.
- GEA Group AG (GEAGF) was recognized as one of the world's most sustainable companies, ranking 33rd globally and 3rd in Germany by TIME and Statista.
- Positive credit rating changes from Fitch and Moody's, with Fitch raising the outlook from stable to positive and Moody's upgrading the long-term rating from Baa2 to Baa1.
Negative Points
- Order intake declined by 6.7% year over year to EUR 1.29 billion, impacted by postponements of larger orders and CapEx restraints from customers.
- Return on capital employed (ROCE) decreased slightly from 33.8% to 32.3% due to higher capital employed.
- Net liquidity decreased by EUR 33 million year over year to EUR 32 million, despite significant cash outflows for dividends and share buybacks.
- Translational FX effects negatively impacted order intake by EUR 44 million, particularly due to a strong euro against emerging market currencies like the Argentine peso and Turkish lira.
- New machine sales declined organically by 4.1% year over year, reflecting a decrease in order intake over the last four quarters.
Q & A Highlights
Q: My first one is on the order pipeline. We obviously had this issue with larger orders not coming through because of high interest rates among other things. Now that beat my forecast, but we know also more widespread weakness across the midsized orders essentially confident and as I understand it, that second half orders can be higher in the first. Do you think, Stefan, large orders from our [EUR15] million will now come through even more into the second half? Or is this going to be more broad based also on an inside level, midsized here? And was that just an anomaly in the quarter?
A: First of all, I think what I can tell you is that we expect a second half of the year, which will be bigger in order intake than the first half of the year. And we are also very confident that it will be also above the last year's second half of the year. I think this is quite a clear message. We also have a lot of interesting large projects in the pipeline and it is like sometimes quite difficult to predict. Is it now that Q3 or Q4? When we will see this order coming in? Or might there be also a risk to be postponed to '25? But I can tell you and confirm you that there are many interesting projects around and we are optimistic that we also see in the second half of the year interesting large orders kicking in. And also mid-sized orders, we have an interesting pipeline. So as I said, we are looking cautiously optimistic to the second half of the year. The environment is not the best all over the world. It's very clear but what we see here in our pipeline is quite promising. We will see a higher order intake compared to the first half year and also compared to the last year, second half of the year.
Q: And my second one is on the margin in SFT. It's a very solid development there. Obviously, the service growth came back here following the logistics issues in the first quarter, which obviously improved the mix, but also, Bernd, you talked about the new machine business that's all embedded margin. One thing that's becoming apparent is reporting season among the industrials. We see companies starting to talk about pricing running through the cost inflation and that this can normalize into the second half. And in some cases, we see it already come to. The [overearning effect normalizing weighing on EBITDA. I guess the service expansion, I can understand] (technical difficulty) (multiple speakers)--
A: I mean, the price increases we have been able to make during the last months are not in that magnitude like we could increase prices in the last two years, let's say where we had the high inflation rate. And it was also not as necessary as it was during that period of time. So the performance you see also in SFT is not really based on pricing. That's really efficiency measures and of course, also a little bit of catch-up effect from the missing service business, which we saw in Q1.
Q: My very final one, if you can hear me is on tariff thinking ahead of the year with elections there in November. Can we talk about your sourcing strategies at this point now where you're more local-for-local versus sourcing components from China into the US, in particular?
A: I mean what the good message is here. I mean, you might remember that we are informed also very often that we have quite a broad range of suppliers almost everywhere, which is a potential which we also could use during the last years to improve our purchasing policy. But the positive thing is that we are not depending on certain regions or certain areas. So we always would have a choice and even if geopolitical tensions would increase, I can say that we are not depending here on similar markets.
Q: The first one is following up on Klas's question on the orders and looking a little bit beyond what you see in the second half because we are -- you've reached the obviously out this year the 15% margin target already. And the other aspect of the guidance of 4% to 6% organic growth. I think we're all conscious of the fact that probably the orders need to improve also after the second half. So I was just wondering what do you see as the pipeline beyond second half is as promising, I guess so but maybe you can add a few words on this one.
A: I mean, I just can repeat what I said. We expect the second half, which will be better than the first half and will also be better than the -- compared to the last year's second half. The pipeline is interesting. The pipeline is there. The environment is like it is but we also see a little bit of trend already in the early cycling business that this is picking up. So let's see. I mean, the world is volatile. Like we all know, especially when we look at the last few days, but it is -- I mean, the good thing -- you know our business very well, Sven, and we are very resilient business. So as long as they are human beings on the planet who need to eat and drink something, sooner or later, our customers have to order, especially when we see a growing world population that makes me very optimistic that we also -- we'll see quite a solid second half of the year when it is about order intake.
Q: The second one is also a follow-up on pricing because more on the project business side because we had obviously the update from Krones last week and they said that clients are more proactively asking for pricing discounts, obviously also seeing the some cost deflation. They say they will be very disciplined about it. But I was just wondering if that is also maybe something that stretched us the project decision-making a bit further because clients are a little bit more price aware on the project side?
A: Yeah. I mean, clear price is becoming a bigger issue than maybe two years ago where everybody was in that after COVID cycle and having a need to order. That's -- I mean in the machine building business as we always have a little bit cycles so but we keep our prices stable. There is also -- I always say no market ever was growing by decreasing prices. And that is a question of discipline and we are quite optimistic that we also will keep our margins here while getting also interesting orders in the future.
Q: And the final question I had was just on farm tech because there you kept the organic revenue guidance unchanged at plus 2% to 6%. So should we assume that the dip we saw in Q2 orders is just the dip and you see that coming back in the second half? Or any other reason why you keep being confident on the 2% to 6% for farm tech?
A: So I think in farm tech, we are still confident that we need for full year indication which we have given. So therefore, for us, there was no reason to adjust this. We only changed for the reasons we've just highlighted
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
