GEA Earnings: Order Intake Below Midcycle Levels, but Margins and Revenue Growth Exceed Expectations

The quarter was a mixed bag for GEA G1A as organic growth was 2.4%, below the 3%-4% rate we would expect its market to grow at on a midcycle level. The company performed well in other areas, however. Organic revenue grew at 9.4% with especially strong growth in Latin America and the chemical segment. Management confirmed it expects 2023 organic revenue growth above 8%. As we discussed earlier in the year, guidance looks achievable given the usually high degree of visibility that the company’s high order backlog is providing for 2023 revenue. Order backlog rose 2.9% from the previous year, a continued strength for the company providing increased visibility for the second half of 2023 and early 2024. While the book-to-bill ratio fell to 1.03 from 1.1 a year ago, it remains above 1.0, indicating strong demand.

The adjusted EBITDA margin rose again in the second quarter, up 110 basis points year over year to 14.3%. While this is above management guidance of 14%, we expect more margin upside over the next couple of years, as the company’s restructuring program kicks into a higher degree. Management is still targeting an adjusted EBITDA margin of greater than 15% in 2026, while our forecast is slightly more cautious at just below 15%.

Management also reaffirmed its belief that ROCE will be more than 32%, assuming constant exchange rates, and EBITDA margins before restructuring expenses will be at least 14%. Management provided a few further updates to guidance, indicating that EBITDA before restructuring expenses will be at the upper end of its EUR 730 million-EUR 790 million range. We maintain our wide moat rating. Shares are trading in line with our EUR 43 fair value estimate.