Q1 results a little better than forecast but significant changes to FY expectations unlikely; stock continues to look fully valued
26 April 2012
FACTS: Geberit has announced (April 26th) Q1 results. Revenues for the quarter rose 1% year-on-year (yoy) to CHF 568.9m and were up 6.6% on a constant currency basis, EBITDA fell 5% to CHF 149.9m and diluted EPS fell 6% to CHF 2.90. Management's view on its prospects for this year is unchanged.
ANALYSIS: Even though profits declined in the first quarter, Geberit's earnings (net income of CHF 111.7m) have come in 5% ahead of market expectations and 4% ahead of our forecast. That said, it is unlikely there will be material changes to full-year estimates at this juncture.
Constant currency growth in Q1 was a very robust 6.6%, the run-rate a little ahead of our full-year forecast of c.4%. Europe was Geberit's best market with constant currency growth of 7.1% (further detail is awaited on the conference call). Elsewhere, the Q1 constant currency performance was as follows: North America +3.3%; Middle East / Africa 2.6%; Far East/Pacific -3.4%. The decline in the latter is attributable to weaker project business.
Despite the good increase in underlying revenues, Geberit's Q1 EBITDA margin fell from 28.1% to 26.3%. The decline is due to higher sales discounts (80 bps higher); increased staff costs (up 90 bps); and other (up 30bps). Cost of materials as a percentage of revenues actually fell slightly, from 26.9% to 26.6%. The rise in staffing costs was at least partly due to organic growth initiatives.
As noted, there is no change to management's expectations for this year. It expects the European residential construction sector to grow, with non-residential weaker. In North America, residential activity is also expected to recover slowly.
DAVY VIEW: We downgraded our Geberit rating from 'outperform' to 'neutral' following the group's 2011 results announcement in March. Our view was that Geberit looked to be up with events and that upgrades were needed to make the stock's rating more attractive but that upgrades of any significance were unlikely. This view looks to be consistent with the Q1 results. Geberit is clearly a quality business but looks fully valued at 18.5x our current year EPS forecast.