Company Reports

We will discontinue analyst coverage of Kion Group on or about Feb. 28, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Kion Group largely underperformed expectations in the third quarter, despite broad-based year-on-year improvement. Shares are down 4.1% in early trading.

Kion Group has excellent growth prospects. Its main challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.

Kion Group posted strong second-quarter results due to favorable supply chain developments and agility in their operations. The stock is up in early trading.

Kion Group has excellent growth prospects. Its main challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.

Following Kion's full-year 2022 results, we are maintaining our narrow moat rating and fair value estimate of EUR 50. Our valuation includes rolling our model forward, incorporating the time value of money, but offset by lower-margin forecasts. We believe Kion's competitive positioning remains intact, but that it faces cyclical headwinds and continued weak margins in the near term. We accept that cyclical factors and supply chain issues are at play, but we also think margin management remains a weak spot for the company. We previously reduced our long-term margin forecast due to concerns over cost management. We have, once again, lowered our margin forecasts and are below management's adjusted EBIT margin target of at least 10% in 2027.

Kion Group has excellent growth prospects. Its main challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.

We are lowering our fair value estimate for narrow-moat Kion Group to EUR 50 from EUR 62 per share after the company issued a profit warning including an expected free cash flow loss of EUR 700 million to EUR 950 million for the full year. This includes cancellations from two customers for warehouse automation equipment. The company is drawing down on financing facilities to fund the loss, which it believes should turn positive with order execution, currently delayed by supply chain shortages. While we accept that cyclical factors and supply chain issues are at play, we also think margin management remains a weak spot for the company. We previously reduced our long-term margin forecast due to our concerns over cost management. In this forecast adjustment, we mainly factored in greater near-term working capital needs and slower revenue growth this year and next year in the face of macroeconomic headwinds.

Kion Group has excellent growth prospects. Its main challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.

Kion Group posted poor second-quarter results with the unfortunate timing difference between price increases and order book execution partly to blame. Revenue growth was just 1% on an organic basis based on our calculations. While the company has been putting through price increases, the second-quarter margins did receive the benefit with revenue generation coming from the 2021 order book that the company is still working through. The group adjusted EBIT margin was down 450 basis points in the quarter to 5%, contributing to a negative free cash flow of EUR 159 million. We recently lowered our forecasts and fair value estimate, now standing at EUR 62 to reflect our waning confidence in execution particularly on margin management. Early this year, Kion management withdrew its full-year guidance due to the uncertain market environment, while the group's CFO left in March. The CEO, who just started his position in January of this year, is acting in both roles while the CFO search continues. We maintain our narrow moat rating.

Kion Group has excellent growth prospects. Its main challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.

We are reducing our fair value estimate for Kion Group to EUR 80 from EUR 95 per share with the main drivers being a more pessimistic long-term margin outlook and to a lesser extent near-term cost inflation pressures. We maintain our narrow moat rating. Comparing our new and previous forecasts, the changes to our operating profit are an 8% decrease on 2022 and approximately 2% lower on every year thereafter. For 2022, we lowered our EBIT margin forecast by 100 basis points to 7.7% as management indicated cost inflation beyond current order execution pricing levels and a lag before orders with higher pricing would convert into revenue generation. However, we have also lowered our long-term margin assumptions by 30-40 basis points as Kion continues to disappoint on margin management and we have less confidence that management restore margins to 9.9%, our previous long-term forecast. The company faces margin pressure from underutilization of new plants, including two in China, and seems to suffer from complexity in its pricing strategies making it difficult to achieve stable margins. In addition, for 2022, we have increased working capital needs as Kion, like other companies, is building higher inventories in order to meet customer demand. We forecast 2022 free cash flow of just under EUR 100 million, down from our previous assumption of EUR 500m. We have left our longer-term revenue assumptions relatively unchanged. While on its earnings call, management cited some customer-driven delays on SCS (warehouse automation equipment), we believe this will be temporary and that the long-term demand picture remains robust.

Kion Group has excellent growth prospects. Its primary challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.

Kion wrapped up 2021 with a continuation of double-digit order and revenue growth helped by e-commerce warehouse expansion, but also posted historically low margins. Relative to our forecasts revenue and profitability were roughly in line. Orders were up 32% year over year, spurred by above-market growth in the industrial trucks and services (forklift) division and beat the company-provided consensus forecast. Shares were up 5% at the time of writing, partially rebounding from underperforming the German DAX Index year to date. We see further upside potential relative to our EUR 95 fair value estimate. With 2022 EBIT guidance somewhat more optimistic than our forecasts, implying a greater margin recovery, we expect to make changes to our forecast but not enough to materially change our fair value estimate. Our narrow moat rating remains intact.

Kion Group has excellent growth prospects. Its main challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.

Kion saw exceptionally strong demand for both its ITS (forklifts) and SCS (warehouse automation equipment) divisions. Management expects demand to hit the high end of its guidance range for the 2021. Shares look fairly valued after a 5% increase at the time of writing. Our narrow moat rating remains intact. ITS orders were up 20% and SCS 58% in the quarter. Demand for both divisions has been bolstered by the whipsaw rebound in the economic recovery this year as well as labor shortages in the warehouse sector. For ITS, we expect order growth to normalize again in the near term, whereas SCS has more structural tailwinds from increasing warehouse automation equipment adoption as well as growth in e-commerce globally.

We were somewhat surprised by the choice of Rob Smith from KoneCranes as Kion Group's new CEO starting in January 2022. While Smith has capital goods and European experience, he lacks a long-term track record as a CEO. He also seems to have little experience with logistics and warehouse end markets, automation technologies, and China as a market, which are all three long-term value drivers for Kion. Smith is currently CEO of KoneCranes but held that position for just eight months before the announced merger of KoneCranes and Cargotec, which will see the current Cargotec CEO will take over as CEO of the combined company. Before joining KoneCranes, Smith spent six years at farming equipment supplier Agco as a senior vice president and general manager for Europe, Middle East, and Africa. Kion services a different end market, warehouse/logistics, and its long-term upside lies in its warehouse automation equipment (SCS division). However, the current head of SCS, Hasan Dandashly, has been in that position for three years with the business executing well. We maintain our narrow moat. Shares look fairly valued relative to our EUR 90 fair value estimate.

Kion Group reported full second-quarter results after releasing high-level results and revised guidance earlier. We are maintaining our fair value estimate and narrow moat rating. The second quarter was noisy against easy year-ago comparisons, with customer prestocking ahead of price increases, a tight supply chain, and raw material increases. As a result, we don't read too much into revenue and order growth for this quarter. However, the business continues to show reinvestment needs to support growth but also continues to keep a lid on margins and returns. Management lowered expectations for 2023 ongoing savings by EUR 15 million to a minimum of EUR 80 million with more support for selling, general, and administrative expenses necessary.

We do not expect to make changes to our fair value estimate on the back of Kion Group's increased 2021 guidance. Short-cycle product demand seems to be the main driver behind the upgraded outlook, with a 17% increase in expected orders for the ITS (forklift) division. The SCS (warehouse automation equipment) guidance change was more modest. Orders were left unchanged and revenue guidance increased 6% at the midpoint, in line with the group and ITS divisions. Notably, management increased group projections for orders, revenue, and EBIT but left free cash flow expectations unchanged. We note the company is the midst of building out capacity in China and may have allocated more cash to that project. We retain our narrow moat rating.

Kion Group has excellent growth prospects. Its main challenge will be investing efficiently to support growth without undercutting the business' potential to reach optimal margins and returns. Kion's opportunity lies with the growth in e-commerce and e-procurement, which is driving demand for warehouse equipment, including forklifts, but even more so warehouse automation equipment. Despite rapid growth, e-commerce still accounts for well below half of global retail sales, around 15% in the United States, 20% in the United Kingdom, and roughly 25% in China. The low penetration levels suggest a long runway for growth, as we believe demand for forklifts and warehouse equipment will naturally follow the expansion of warehouses needed to support an e-commerce supply chain.