Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fuchs SE (FUPBY, Financial) reported a 9% year-over-year increase in EBIT, despite lower sales driven by price adjustments due to lower raw material prices.
- The company achieved a significant improvement in EBIT margin, reaching 12.4% compared to 11% the previous year.
- Earnings per share increased significantly year-over-year, and the company is close to completing its share buyback program.
- The LUBCON acquisition was successfully closed, adding a valuable addition to the portfolio and expected to contribute positively to future results.
- All regions contributed positively to EBIT growth, with notable performances from EMEA, China, Australia, India, the US, and Mexico.
Negative Points
- Sales were slightly down year-over-year, primarily due to price adjustments and adverse currency effects.
- Free cash flow was lower than the previous year, attributed to net working capital buildup.
- The Americas region showed a high negative currency impact, particularly from the Argentinian peso.
- Freight and energy costs were lower, but the company faced high labor cost growth rates over the last two years.
- CapEx was lower year-over-year due to timing, although the company expects to meet its investment targets by year-end.
Q & A Highlights
Q: Can you shed more light on the key drivers behind the EBIT recovery in India despite flat organic sales?
A: Isabelle Adelt, CFO: The recovery is driven by a diverse customer base beyond just OEM business. EMEA volumes are up year-over-year with contributions from various countries like Germany, Poland, Italy, Spain, and South Africa. The automotive aftermarket and other industries have also contributed significantly.
Q: How sustainable is the strong performance in the Americas, and what are the key contributors?
A: Isabelle Adelt, CFO: The performance is sustainable, driven by the specialty business, including Nye and Ultrachem, and strong management in Mexico. The region has returned to good margins, benefiting from better procurement conditions and a broader geographical distribution.
Q: What is the outlook for the third quarter, considering typical seasonality?
A: Isabelle Adelt, CFO: We expect a ramp-up throughout Q3, similar to previous years, with a weaker Q4 due to holidays. The trend of volume growth is expected to continue, supported by favorable developments in order books and market conditions.
Q: Can you explain the regional trends in EBIT margins from Q1 to Q2 and the outlook for the second half?
A: Isabelle Adelt, CFO: The margin improvement in EMEA and the Americas was due to normal seasonal effects. APAC was slightly down due to the strong Q1 performance in China. We expect a similar development to previous years, with a step-up in Q3 and a weaker Q4 due to holidays.
Q: How do you see the market and order intake developing in Q3?
A: Isabelle Adelt, CFO: The trend from Q2 is continuing into Q3 with good order intake across all regions. The specialty segment, including semiconductors, medical technology, and aerospace, is performing well. The LUBCON acquisition will also contribute positively.
Q: What is the impact of raw material prices on your business, and can we expect stability?
A: Isabelle Adelt, CFO: Raw material prices have stabilized compared to the volatility seen in 2021 and 2022. We expect a more normal development with slight upticks but no significant spikes. The current trend is expected to continue, making earnings more predictable.
Q: Can you provide more details on the exposure to the automotive industry and the performance of the aftermarket business?
A: Isabelle Adelt, CFO: Approximately 40-45% of sales are to the automotive industry, with half of that to passenger cars and heavy-duty vehicles. The aftermarket business has performed well, compensating for weaker OEM business. The diverse geographical presence also helps mitigate the impact.
Q: How do you see the APAC region contributing to your midterm EBIT target, especially considering consumer behavior in China?
A: Isabelle Adelt, CFO: The APAC region, including China, India, and Australia, is expected to contribute positively. In China, the strategy of "In China, For China" is paying off with new domestic business. India is the fastest-growing market, and Australia's mining activity remains strong.
Q: What are your thoughts on the potential impact of extended summer shutdowns by German auto OEMs on Q3 production rates?
A: Isabelle Adelt, CFO: While the atmosphere is cautious, we do not see significant reductions in volumes yet. The order books are still filled well, and the aftermarket business remains strong. The market is in good shape overall.
Q: Can you explain the mechanics behind the contribution of holding consolidation and its impact on profitability?
A: Isabelle Adelt, CFO: The higher elimination of inter-company profits in inventories was due to the internationalization of the Nye business. This impact is expected to come down by year-end as local management teams take more charge.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
