Geberit Earnings: Pricing Power Enables Reinvestment Into Its Moat and Better-Than-Expected Profits

Wide-moat Geberit’s first-quarter results highlighted its strong pricing power through its gross margin expansion of 70 basis points to 73.1%, despite a challenging environment for businesses exposed to construction end markets. Resilient profitability has allowed Geberit to accelerate investment into marketing its recently launched product innovations, which will enable it to continue to extract pricing power and gain market share over its peers. Growth investments and wage inflation contributed to a slight drop in its EBITDA margin to 32.8%, but that still comfortably beat company-compiled consensus estimates by 100 basis points. EBITDA declined by 7% year over year or a mere 0.5% on a constant currency basis. Raw material costs are expected to continue to decline against the prior year, which will protect its profitability and allow Geberit to continue to invest in growth. We maintain our CHF 510 fair value estimate and view shares as fairly valued.