Cushman & Wakefield Earnings: EBITDA Margins Affected by Lower Brokerage Volumes

No-moat-rated Cushman & Wakefield’s CWK first-quarter results were affected by significant declines in global brokerage volumes. As per JLL research, global direct investment sales were down 54% in local currency during the first quarter, with the Americas down 61%, EMEA down 53%, and Asia-Pacific down 28%. Global office leasing volumes were also down approximately 18% in the first quarter compared with the first quarter of 2022. Gross leasing volumes within the industrial sector have also softened in recent months after a very strong couple of years. Overall, we think that the pressure on the brokerage business will intensify further this year given our macroeconomic outlook and rising interest rates.

The company reported adjusted EPS of negative $0.04 per share in the first quarter, down from $0.48 per share of adjusted earnings in the first quarter of 2022. The companywide fee revenue was down 10% in the current quarter on a local-currency basis compared with the previous year as it was reported at $1.50 billion. Adjusted EBITDA came in at $61 million, 71% lower compared with the first quarter of 2022 on a local-currency basis. This resulted in an adjusted EBITDA margin of 4.0% for the quarter, down 853 basis points compared with the first quarter of last year. The shares were down 10%, which we think is an overreaction by the market. We are maintaining our $19 fair value estimate for the firm after incorporating first-quarter results.

We note that the first-quarter results of Cushman & Wakefield are worse than its larger rivals CBRE and JLL. We think that things will get worse before they start to improve for real estate brokers. Management introduced 2023 adjusted EBITDA margin guidance of 9% to 10%, which was in line with our 9.3% projection. Overall, we believe that the recovery in transaction volumes and margins can take more time than the management is suggesting given our macroeconomic outlook and our view that interest rates will remain higher for longer.