Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Legrand SA (LGRDY, Financial) reported a solid adjusted operating margin of 20.8% in the first half of 2024, demonstrating resilience despite a decrease in sales.
- The company achieved a strong performance in the US market, with a 7.9% rise in sales in the second quarter, driven by growth in the datacenter segment and non-residential applications.
- Legrand SA (LGRDY) is actively pursuing its acquisition strategy, with five acquisitions announced this year, totaling more than EUR200 million in annual sales, particularly in the datacenter segment.
- The company's balance sheet remains robust with a net debt-to-EBITDA ratio of 1.8, reflecting solid free cash flow generation and a strong pace of acquisitions.
- Legrand SA (LGRDY) confirmed its full-year targets, expecting low single-digit growth for sales, both organically and through acquisitions, and maintaining a high adjusted operating margin.
Negative Points
- Sales in the first half of 2024 decreased by 0.7% excluding exchange rate effects in Russia, with an organic decline of 2.0%, highlighting challenges in the building market.
- European sales fell by 3.2% in the first half of 2024 due to a persistently tough building market in most countries.
- The company's free cash flow margin was lower than in recent years, at 11.1% of sales, attributed to higher working capital requirements, particularly in inventory to support the datacenter business.
- Legrand SA (LGRDY) faced a negative scope effect from Russia, impacting sales by 0.9% in the first half and expected to be 0.6% for the full year 2024.
- The renovation market in Europe remains challenging, with no significant improvement expected in the near term, impacting sales growth potential.
Q & A Highlights
Q: Can you provide a breakdown of your growth in North America, particularly in the datacenter segment? Was there any catch-up from previous quarters?
A: The North American market is diverse. The datacenter market grew double digits in Q2, which we see as a normal pace, not a catch-up. We expect this growth rate to be sustainable. The non-residential market is growing single digits due to easier comparisons from last year, while the residential market is improving but not yet impacting our sales.
Q: Could you explain the lower free cash flow margin and whether we should expect a reversal in the second half?
A: The free cash flow margin is at 11.1%, which is the average of the last seven to eight years. The working capital requirement is stable, but inventory levels are higher to support the datacenter business. We aim for a full-year free cash flow to sales between 13% to 15%, likely at the lower end to support datacenter growth.
Q: What are your expectations for pricing development in the second half of the year?
A: Pricing was minimal in H1 at 0.2%. We plan to do a bit more in H2, expecting to land at a maximum of 1% for the full year. This will depend on the raw materials environment, but we don't foresee exceeding 1%.
Q: Can you quantify the datacenter growth in Q2 and expectations for the second half?
A: Datacenter growth was close to 10% in Q2, with different product mixes in the US and Europe. We expect continued growth in H2, driven by structural market growth and our strong market positions.
Q: How do you see the European building market developing, and when might we see a recovery?
A: The European residential market remains challenging, with no improvement expected in the coming months. We anticipate potential recovery signs between late 2024 and early 2025, depending on interest rate trends. The non-residential market remains flat to slightly negative.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
