GEA Earnings: Weak New Orders in Late 2023 Likely to Weigh on 2024 Performance; Shares Attractive

GEA’s G1A new order intake continues to underwhelm in late 2023, with the third-quarter organic order intake falling 1.7% year on year, and marking the second consecutive quarter of soft new orders for the wide-moat food and beverage equipment supplier. For context, year-to-date new orders have grown just 1.6% organically, comparing unfavorably with our long-term top-line revenue expectations of about 4.5%, and GEA’s medium-term annual revenue growth target of 4%-6%. Still, GEA’s soft new order intake chimes with the recent performance of a number of its peers—including wide-moat Alfa Laval and other European food processing players–that have reported a similar soft order intake in late 2023, citing lower spending on capital projects amid the present uncertain economic conditions. While we expect the present new order malaise to weigh on organic sales growth in 2024, our longer-term outlook for GEA remains unchanged as does our EUR 43 fair value estimate. GEA shares screen attractively, trading at a 21% discount to our unchanged valuation.

Our long-term expectations remain unchanged despite organic growth remaining subdued in late 2023. Indeed, we continue to expect GEA’s earnings will benefit in the long term from increasing demand for packaged and ready-to-eat foods from an ever-growing, more urbanized global middle class. Secular trends toward greater consumption of alternative sources of protein should also help to boost GEA’s medium-term growth, supporting our unchanged 5-year EBIT and EPS CAGRs of about 5% and 4%, respectively.

Separately, GEA Group also announced a EUR 400 million share buyback program. We think share repurchases are opportune, putting GEA’s free cash flow generation to good use at a time when GEA’s shares trade at a discount to our valuation. We expect GEA to retain a net cash balance sheet position despite the announced share buyback.