GEA Group Aktiengesellschaft (G1A) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the GEA Group AG Pre-Close Call Q2 2026. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Oliver Luckenbach. Please go ahead.

Thank you very much, Mel, and good afternoon, ladies and gentlemen. Welcome to our Q2 2026 pre-close call. My name is Oliver Luckenbach. I'm the Head of Investor Relations at GEA. And my colleagues, Rebecca and Eduard joined me for today's call. As today's call will contain forward-looking statements. It will be conducted according to our disclaimer. I will not read the disclaimer, but please be aware of the cautionary language that is included in our safe harbor statement, which is part of our presentations, you can find on the Internet. We will now address topics which we also discussed during recent conferences and roadshows. And afterwards, you will have time to ask questions. Topic number one, guidance. We confirm our group guidance for fiscal year 2026, which we released with our full year 2025 results in March. We expect organic sales growth between 5% and 7%, EBITDA margin before restructuring expenses of 16.6% to 17.2% and the return on capital employed between 34% and 38%. So no changes. Topic number two, customer industries. Food. The business is looking good. It's a broad customer industry with some smaller applications like poultry showing strength. On the beverage side, the picture is improving in both components and projects, alcoholic beer is structurally softer, but we see a good momentum in nonalcoholic beer. Dairy processing. The pipeline continues to show activity across both projects and components, and we see ongoing good market development with a big trend currently in protein-rich products. Dairy farming. The general market sentiment is okay with the U.S. and large farms being the growth drivers. Pharma has been a growth contributor in the first quarter and the business continues to look good, depending on the application. On the new food side, we are optimistic that the positive development continues and we can make further progress later this year. Topic number three, order intake. We are very confident that 2026 will be again a good year for GEA in terms of order intake. The pipeline looks very promising across the board, so in terms of large, medium-sized and base orders. This supports our confidence of a solid order intake in full year 2026. We had a good start into the year with an organic order intake growth of 6.4% in the -- 6.4% in the first quarter. And we see no reason why this trend should have held up in the -- not held -- should not have held up in the second quarter. So regarding the second quarter, in addition to a healthy development in small and midsized orders, we have booked 2 large orders with a combined volume in the mid double-digit million euro. On the translational FX side, you should expect a smaller impact compared to what we have seen in the first quarter. Here, it was minus 3.4%. So we -- for the second quarter, we only expect a slightly negative effect. Topic number four, sales. We started the year with an organic sales growth of 5.3% in the first quarter, and we do expect an acceleration during the year. As with order intake, translational FX effect should have become smaller, Best guess is also here that it remains slightly negative in the second quarter. Also here in the first quarter, as a comparison, it was minus 3.7%. Topic number five, EBITDA margin before restructuring expenses. Our EBITDA margin guidance clearly indicates that we want to make further progress with regards to our profitability in full year 2026. So after an already good start with a margin of 16.2% in Q1, we expect further progress in the second quarter. And just to remind you, last year in the second quarter, so in the second quarter 2025, we had an EBITDA margin of 16.5%. That's it from my side, and I will now pass over to Rebecca.

Thanks, Oliver, and hello, everybody. What to keep in mind for cash flow? So that's topic number six, just as a reminder, we expect CapEx of around EUR 240 million for the full year 2026. And in Q1, we had EUR 33 million. With regards to net working capital to sales, our target corridor is 7% to 9%. And Q2 will most likely be within this corridor. As a reminder, Q1 2026 was 7%. And don't forget our dividend payment, which we had at the beginning of May, where we paid out our annual dividend of EUR 1.30 per share. So the entire cash outflow for the dividend is around EUR 212 million. Number seven, some housekeeping information. Depreciation and amortization before restructuring expenses, we expect for the full year around EUR 230 million. In Q1, we had EUR 53.5 million. With regards to our financial results, we expect for the full year around minus EUR 30 million, and we had in Q1, minus EUR 6 million. The tax rate is expected for the full year between 28% and 30%, and we had in Q1 29%. R&D. For the full year, we expect around 3% of sales as R&D expenses. In Q1, we had 2.4%. And now we are happy to take any questions you might still have. And I hand back for that to Mel.

[Operator Instructions] And our first question comes from the line of Klas Bergelind from Citi.

Klas here from Citi. So my first one is on farm tech. I think you said dairy farming is okay. And you mentioned the U.S. and then Oliver, I think you mentioned larger farms. What's going on in Europe at the moment? Obviously, feed costs are going up. I mean, [indiscernible] ratio is coming down a bit here. Is Europe still holding in or any changes there? That's my first one.

Yes, let me maybe start. Thanks for your question, Klas. Yes, you're right, we have mentioned this. And what we are -- however, what we are still seeing is that also overall the dairy farming business, let's say, overall, it's nothing where we are, let's say, having a lot of headaches about. There are always some dependencies on food -- milk price -- milk to feed price ratio here and there, but nothing that is really right now a concern for us. So overall, what we said it's very healthy and also sound business we are seeing here.

Obviously, you're coming up against a quite tough comp here in farm tech. Do you still think -- I heard what you said that sort of the group order level, but do you still think farm tech can grow in the second quarter?

Yes, at the end of the day, what I said, so we are quite positive. So there's no reason to assume that there's a take that has to stay completely changed to what we've seen so far.

Okay. My second one is on -- obviously, you're still talking about the pipeline looks good, large, medium base orders very confident, and this is sort of mirroring the comments from management during recent investor conferences. But if you look at nutrition and -- and I'm thinking the order pipeline here, obviously, going into the fourth quarter. So looking a little bit further ahead, we're up against a very tough compare, thinking about the [indiscernible] order. Like do you have those sort of like food security, very large orders that are in the pipeline like that kind of size that you think that you can realize later in the year?

Yes. So as I've mentioned at the beginning, so we are actually quite optimistic looking into our pipeline, let's say, across the board, in particular, also with you what we are currently seeing and cutting in terms of large orders that we are quite positive that also 2026, that should be a year with further growth in order intake. For sure, Q4 as a single quarter last year was a very strong quarter. with order intake of more than EUR 1.8 billion. This will be hard, let's say, to top. But you know it's always hard to predict finally, when we will be able to book the orders. But as I've mentioned, a very good pipeline. We have already booked 2 orders in the second quarter. There's most likely more to come in the third quarter and probably also in the fourth quarter. But overall, Q4 is a very high comp. But on a yearly basis, I see no reason why we shouldn't be able to grow our order intake year-over-year.

Yes. Because I mean final point there, you did EUR 73 million in the first quarter. Now you talk about the mid-double-digit large order in the second quarter. I mean larger orders need to ramp a lot here in the second half, but you seem very confident that you will...

Yes, very, very confident on this, yes.

And then absolute final one is a clarification. What did you say on sales growth? I got interrupted a little bit here when you talked about that for the second quarter.

Sure. Yes. After the start with an already good growth of 5.3%, which is already at the lower end, let's say, of our guidance of 5% to 7% we expect that we expected an acceleration during the year. And also we see no reason this shouldn't be also the case then for the second quarter because we want to get to this range of 5% to 7% or, let's say, more in the middle to the high end of this range. So from that perspective, also quite confident what we have seen so far with regards to good order intake growth -- good sales growth.

[Operator Instructions] And our next question comes from the line of Sven Weier from UBS.

Oliver, you talked about beverage that's caught my interest because that's been quite a difficult market for quite some time. and now you start to talk about an improvement here. Can you elaborate a little bit further on what you're seeing there? And what's -- I mean you said the nonalcoholic part is driving it. Can you go into some more detail about that?

Yes. I think also, if you look into the newspaper, you can really read that at least in some regions and in particular in Germany, there's a certain kind of, let's say, lower demand for pycoholic beer, but on the other side, more demand for 0.0 alcoholic beer, so alcohol-free beer. And that is also a trend that, let's say, that we have observed and that's also something we are discussing with our customers for sure.

And maybe just one thing to add here, Sven. If you look at our Q1 results, we highlighted already for the vision pure flow processing in terms of the order intake growth in the first quarter that the growth was also driven by the customer industry beverage. So there are various customer industries, but beverage was one of the growth drivers in Q1 in pure flow processing.

And is the majority of your revenues in beverages from alcoholic -- from beer in general or also nonalcoholic beverages?

Alcoholic beer or beverages make only a small amount for us in beverage. If you can think about it this way, like operated drinks, all that stuff or choices. It's also beverage for us. Innocent is a well-known customer. So this also plays a role in there.

Okay. The second point I had was just on capital allocation. I mean, obviously, share price has been a bit of a rollercoaster during Q2. I was just wondering what management has said during conferences around about capital allocation, we obviously saw them buying shares quite a bit on the management level and also packing order maybe between M&A and buying back shares?

Yes. Yes. Thank you, Sven, for this follow-up question. So regarding uses of cash, we have this clear, let's say, have divided it into 4 buckets. So we said that CapEx is the first one. But you also know that over time, we also want to reduce CapEx as a percentage of sales from currently still more than 4%, down to 2.5% to 3%. We have also, I would say, very interesting and attractive dividend policy. So we want to distribute were about 50% of our net profit to our shareholders as a dividend and due to the fact that we are expecting rising earnings also going forward. This is also an attractive element of our stock then M&A is [indiscernible]. But I think it also tells the story that we haven't done anything because it also means that we are quite strict regarding our criteria. . So we look at our own multiple compared to the multiples of potential transactions and would only, let's say, an M&A deal, an acquisition if we are really convinced that it would also be attractive for our shareholders. And last not least, for sure, we are a cash-rich company. We have a strong balance sheet, and that's also something. So share buyback, we are looking into from time to time. So from that perspective, that is what we are telling here. And yes, some of our Board members, as you have said, they have used the opportunity because we also had no real let's say, explanation for the, let's say, not so positive share price development after the release of our Q1 numbers. So there is the opportunity to buy some shares. That's correct, yes.

And is it fair to say that the lower the share price, the higher the packing order maybe for buybacks then it could change the packing order a bit?

Yes, it's always hard to say. There are many things you need to consider. As you know, I've just described them. But you also know that also in the past, we have not only talked about [indiscernible], we also did them. If we thought it would be the right the right timing. And as I said, this is a topic that is always on a regular basis, also discussed on a board level. But yes, so that is the normal rule, let's say, we are following. But as you know, in the past, in the meantime, we bought back more than EUR 700 million of our shares. So it's also one of the means, one of the potential uses of cash for GEA, yes.

And our next question comes from the line of Min Yang from Goldman Sachs. .

This is Min Ho from Goldman Sachs. I just have one question on the margin side. So historically, if we see the historical seasonality, 2Q tends to be quite strong, but taking into the fact that you said at 1Q call that in the first half is probably more of the delivery of the new equipment sales that you take order in 4Q last year. Should we expect less strong seasonality pickup from Q-on-Q margin-wise?

So as mentioned, the margin of the second quarter of last year. So due to 2025, that was 16.5%. In the first quarter, we have achieved an improvement of around 40 basis points compared to the first quarter the year before. So -- and overall, we want to improve our margin. It is correct that's normally a little bit more weighted towards the second half of the year. But at least it's our -- let's say, our intention is to show some kind of improvements over quarter -- also over the quarter. So from that perspective or from what I said, I think one can assume that the -- that you can also expect some margin improvement in Q2 this year over the second quarter of last year. .

Our next question comes from the line of Adrian Pehl from ODDO BHF SE.

Just a quick question actually on free cash flow. -- thanks for the additional financial information you've been giving usually. I was just wondering if we should besides what you said take something into account in [indiscernible] on free cash flow or does it follow the normal seasonal pattern, i.e., I guess, should be improving over Q1. And the second question very quickly, could you help us a bit with the restructuring amount that is due to the P&L in Q2? And the last one is actually on NPE as obviously, this one was a bit slower, I guess, than generally expected in Q1. So should we take into account that conversion from the backlog is improving already in Q2. So expecting a better quarter from a top line perspective?

Yes. Let me maybe start, maybe also with your last one on NPE. As you said, that was -- let's say, the starting Q1 was okay, I would say. But I think there's room for improvement. And as we said, you can expect that there will be further let's say, conversion of order backlog into sales already also starting with the second quarter and then also going forward in Q3 and Q4. . On the cash side, maybe I would say that, overall, for the full year, we are quite optimistic that we will come out with a similar free cash flow like last year is around about EUR 500 million, that has also to do with large orders where you know where we get a lot of prepayments, and we have talked about the pipeline, which is very promising also for the second half of this year. So from that perspective, I think we can also be quite positive here. And on the restructuring side, we are currently guiding for a level, let's say, around about what we have seen last year. it's hard to say what exactly is going to be booked or has been booked in the same quarter. That's maybe something we can share then on the 10th of August, yes.

And then very quick one half for understanding and half to dig deeper into it. So you did say you booked larger orders with a double-digit million euro amount. So that's specifically referring to the very large orders above EUR 15 million, right?

Yes, correct.

Okay. So it's probably, I don't know, 3, maximum 4 that you probably booked, I guess.