Deutz AG (DEUZF) (Q2 2024) Earnings Call Highlights: Navigating Market Challenges with ...
New Orders: EUR791 million, down 18.1% year-over-year.
Revenue: EUR876 million, down 12.6% year-over-year.
EBIT Margin: 5.7%.
Unit Sales: Approximately 74,000 engines, down 19% year-over-year.
Service Business Revenue: EUR253 million, up 6.5% year-over-year.
Material Handling Revenue: Up 9.2%.
Construction Revenue: EUR212 million, down 26%.
Agricultural Equipment Revenue: Down 32%.
Americas Revenue: EUR240 million, slightly up.
China Revenue: Down 20%.
APAC (excluding China) Revenue: Down 11%.
Operating Cash Flow: Positive, but impacted by a EUR44 million increase in working capital.
Free Cash Flow (including M&A): EUR31.2 million positive.
Free Cash Flow (before M&A): Minus EUR35 million.
R&D Spending: Almost EUR50 million.
Capital Expenditure: EUR45 million, including leasing.
Equity Ratio: Almost 50% as of June 30.
Capital Increase: EUR72 million raised through new shares.
Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Deutz AG (DEUZF) reported a resilient EBIT margin of 5.7% despite challenging market conditions, demonstrating improved operational efficiency.
The service business grew by 6.5%, now representing almost 30% of the overall business, contributing to revenue stability.
The company successfully launched a new, flexible assembly line in Cologne, enhancing production capabilities for both diesel and hydrogen engines.
Deutz AG (DEUZF) completed strategic acquisitions, including Blue Star Power Systems and a transaction with Rolls-Royce Power Systems, expected to positively impact revenue and profit.
The company achieved significant cost savings, including a 25% reduction in packaging costs and a successful pushback on supplier price increase claims, enhancing profitability.
Negative Points
New orders decreased by 18.1% compared to the previous year, with significant declines in construction and agriculture sectors.
Revenue fell by 12.6%, and unit sales dropped by almost 19%, reflecting a challenging market environment.
The book-to-bill ratio remained below 1, indicating ongoing challenges in order intake versus revenue generation.
Working capital increased by EUR44 million due to production adjustments, impacting cash flow negatively.
The green segment reported a loss of EUR17.8 million, highlighting ongoing challenges in achieving profitability in new technology areas.
Q & A Highlights
Q: Can you clarify the cost savings achieved in the first semester? A: Sebastian C Schulte, Chairman - Board of Management: Yes, the cost savings were in the low double-digit million euros.
Q: Regarding the guidance and outlook for next year, should we expect Q3 sales to be similar to Q2 based on current backlog? A: Sebastian C Schulte, Chairman - Board of Management: We expect Q3 to be roughly similar to Q2 on a like-for-like basis, excluding acquisitions. August might be seasonally weaker, but overall, we anticipate a flat development.
Q: What is your view on the order intake for Q3 compared to Q2? A: Sebastian C Schulte, Chairman - Board of Management: We do not see a worsening in order intake at the moment. We expect the low level to continue for the time being, with acquisitions helping us.
Q: Can you elaborate on the mix and average price for the classic segment engines? A: Mark Christian Schneider, Head - Investor Relations, Communications, and Marketing: The average price went down slightly due to a change in product mix, particularly more smaller engines being sold in the US market. However, profitability is not directly linked to engine size.
Q: What is the current status of the genset deliveries to China? A: Mark Christian Schneider, Head - Investor Relations, Communications, and Marketing: The first four gensets have been assembled and are set for a grand opening ceremony in Beijing in mid-September. We are working on producing the next batch.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.