Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net operating revenue grew by 13.5% compared to Q2 2023, driven by strong performance in power generation, transmission, and distribution.
- EBITDA reached BRL 2.1 billion, up 15.7% from Q2 2023, with an EBITDA margin of 22.9%, reflecting improved operating margins.
- ROIC increased to 37.4%, up 3 percentage points from Q2 2023, indicating efficient capital utilization.
- Positive demand for long-cycle equipment, especially in electrification and electrical infrastructure projects, is expected to support future growth.
- Successful integration of acquired businesses (Marathon, ROTOR, and Cemp) is contributing positively to revenue and operational efficiency.
Negative Points
- Revenue from distributed solar generation was below the same period last year due to lower prices of solar panels.
- Flat sales volume in commercial motors and appliances in the foreign market, particularly in South America.
- Challenges in maintaining margins due to fluctuations in FX rates, commodity costs, and macroeconomic conditions.
- The wind power segment in Brazil is expected to see a decline in revenue in the second half of 2024 as current projects are completed.
- Integration of Regal Rexnord's businesses may bring short-term margin fluctuations and requires significant time and investment to fully realize synergies.
Q & A Highlights
Q: Could you tell us which are the prevailing forces right now and what is the trend for the margin in future quarters and years?
A: (Andre Luis Rodrigues, Financial Administrative Superintendent, Director) We see resilient margins, especially due to the good performance of long-cycle products. We are not expecting significant changes in the short term. Our objective is to deliver margins above market averages, but fluctuations are common. FX rate fluctuations and commodity costs can impact margins, and the acquisition of businesses from Regal Rexnord may also bring some fluctuations.
Q: What is the rationale and growth prospects for WEG's entry into the US wind power market?
A: (Menegueti Salgueiro, CFO and IRO) This strategy is part of a broader move to internationalize wind generation. We have been developing this in India and now see opportunities in the US due to market size and existing operations in Minneapolis. We plan to start on a small scale and gradually increase business, with the first orders expected in 2025.
Q: Is there any change in demand for short-cycle equipment in the foreign market?
A: (Menegueti Salgueiro, CFO and IRO) Growth in short-cycle equipment has improved compared to Q1, especially in Brazil with positive manufacturing activity. In foreign markets, we see gradual recovery, particularly in oil and gas and water and sanitation segments. Commercial motors and appliances continue to show strong demand.
Q: How do you see the evolution of investment allocation by your customers exposed to commodities?
A: (Menegueti Salgueiro, CFO and IRO) We haven't seen significant changes in customer sentiment. Segments like water and sanitation are performing well, while others like pulp and paper are weaker but expected to resume. Mining shows some oscillations. Overall, no major changes in market dynamics.
Q: Could you give us an update about the integration of Regal's assets?
A: (Andre Luis Rodrigues, Financial Administrative Superintendent, Director) We completed the acquisition in April and started the merger in May. Our focus has been on supporting new employees and understanding customer needs. We are mapping synergies in supplies, manufacturing processes, and commercial areas. The integration process may take three to five years.
Q: What is WEG's exposure to the data center market?
A: (Felipe Scopel Hoffmann, IR Manager) Data centers and AI demand large amounts of electric power, which aligns with our products and solutions. We provide generators, alternators, and cooling systems for data centers. The acquisition of Marathon enhances our exposure to this market, especially in the US.
Q: How long will it take to wind down the wind turbine business in Brazil, and what is the current backlog?
A: (Menegueti Salgueiro, CFO and IRO) We are delivering the last project in our portfolio, with revenue from wind turbines expected to decrease in the second half of 2024. From next year, we have no new projects but will continue to generate recurring revenue from operation and maintenance contracts.
Q: What should we expect for CapEx in the second half of the year?
A: (Andre Luis Rodrigues, Financial Administrative Superintendent, Director) We have approved BRL1.9 billion for CapEx, but we may not execute the entire amount within the year. We expect to invest between BRL1.7 billion and BRL1.9 billion, following the trends in the first half of the year.
Q: How do you see the utilization of Regal's assets evolving, especially with the growing demand for products related to AI and data centers?
A: (Menegueti Salgueiro, CFO and IRO) The utilization capacity for generators is higher than for engines. We have opportunities to produce more and meet new demands. We also have flexibility in manufacturing locations, which allows us to adjust to market needs.
Q: Could you give us an update about the internationalization process of your charging stations for electric mobility?
A: (Menegueti Salgueiro, CFO and IRO) We started with partnerships in Brazil and are extending to other countries in Latin America and Mexico. We are also in the process of certifying our products in other geographies, aiming for a more global exposure.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
