Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cushman & Wakefield PLC (CWK, Financial) reported its third consecutive quarter of leasing revenue growth.
- The company has reduced interest costs twice this year on outstanding term loans, exceeding their plan.
- Year-to-date free cash flow improved by over $130 million compared to the prior year period.
- Adjusted EBITDA margins for the first half of 2024 are up over 40 basis points compared to the same period last year.
- The sale of a non-core asset will provide proceeds to reduce leverage and fuel growth.
Negative Points
- Fee revenue for the second quarter was down 2% versus the prior year.
- Adjusted EBITDA for the second quarter was down 4% compared to the prior year.
- Capital markets fee revenue declined 14%, with America's capital markets revenue down 19%.
- Greystone joint venture experienced a $6 million year-over-year decline in equity income contribution.
- The company expects third-quarter expenses to be $25 million to $30 million higher than last year due to resetting of incentive compensation.
Q & A Highlights
Q: Can you talk about your producer capacity and how it positions you for leasing and capital markets as industry activity recovers?
A: We don't report producer headcount, but we are up from last year. Our leasing talent is performing exceptionally well, especially in larger deals. In capital markets, we have a program to lock in key talent. (Michelle MacKay, CEO)
Q: What are you seeing in terms of winning new large contracts in services?
A: To win large contracts, you need a global platform and integrated solutions. We've had significant wins like Standard Chartered and DTCC, which require a multi-pronged approach including financial analysis, workplace experience, and tenant representation. (Michelle MacKay, CEO)
Q: Can you elaborate on your expectation of flat organic revenue growth in services for 2024 and mid-single-digit growth in 2025?
A: APAC is strong with 8% growth. EMEA has seen restructuring and margin improvements. The US facility services business is expected to grow mid-to-high single digits. Our global occupied services business has had big wins, and short-term challenges in property management are expected to improve. (Neil Johnston, CFO)
Q: What are you seeing in capital markets, and when do you expect a turnaround?
A: We believe the uncertainty around rates and inflation is moving into the rear-view mirror. Better inflation data and a resilient economy are positive for capital markets. We expect rate cuts to signal market engagement, with significant activity likely in early 2025. (Michelle MacKay, CEO)
Q: How do you feel about the full year 2024 compared to last quarter?
A: We are ahead of plan through the first six months. Leasing exceeded expectations, and capital markets grew sequentially. We are seeing a broadening of the leasing market and strong pipeline building. (Neil Johnston, CFO)
Q: How should we think about margins for the full year?
A: We saw margin improvements as expected in the first half. We anticipate incentive compensation differences in Q3 but expect efficiencies to offset growth investments. We aim to balance accretive growth with intentional spending to position for recovery. (Neil Johnston, CFO)
Q: Have you noticed a pickup in lower-tier office space leasing, or is it still mainly high-quality products?
A: High-quality products continue to perform well, but we are seeing a pickup in smaller and mid-sized deals, indicating a broadening leasing market. Companies are now planning for space needs as work-from-home stabilizes. (Neil Johnston, CFO)
Q: What are your capital allocation priorities for the back half of the year?
A: We are focused on growth while managing the balance sheet. We plan to pay down $50 million in debt this quarter and are doing well on free cash flow, allowing for potential M&A and organic investments. (Michelle MacKay, CEO)
Q: How has the capital markets environment progressed through July, and when do you expect an inflection point?
A: We won't comment on July specifically, but the inflection point will be when the Fed makes its first rate cut. We expect significant activity to begin late this year and into early 2025. (Michelle MacKay, CEO)
Q: Have you seen any points of strength in gateway office markets?
A: We've seen strength in New York and other gateway markets. Even areas like San Francisco are showing positive progress. (Michelle MacKay, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
