Schneider Electric (XPAR:SUNV, Financial), a 2.2% position in the Fund, is a global leader in electrical products, systems, and services such as low- and medium-voltage gear, factory automation equipment and systems, and uninterruptible power supply solutions for data centers. While incorporated in France, Schneider derives only 27% of its revenues from Western Europe and more than 40% of its sales come from emerging markets. Thus, Schneider is a prime example that a company’s domicile does not always reflect its true revenue exposure. Schneider’s stock performed poorly in 2015 (down 21% in U.S. dollars) due to lower than expected construction and industrial activity, driven in large part by a slowdown in China, Russia, and Brazil.
Despite these end-market headwinds, Schneider has high-quality business franchises with number one or two market positions in over 75% of its revenues and attractive returns on tangible capital. We believe the company can grow given its exposure to megatrends such as global electrification, energy efficiency, and factory automation. We have had numerous conversations with management and confirmed they are proactively managing the company’s cost structure, portfolio of businesses, and capital. Management recently initiated a EUR 1.0-1.5 billion share buyback program. Schneider has a strong balance sheet and trades at 13 times estimated forward earnings, a discount to its peers and the market.
From Dodge & Cox International Stock Fund year-end letter 2015.
