Sartorius Earnings: Weak Demand Period May Be Short-Lived, With Sales Growth Expected To Return Soon

Second-quarter results for wide-moat companies Sartorius AG DIM and its bioprocessing subsidiary, Sartorius Stedim Biotech, came in about as expected after a preliminary announcement last month. We already adjusted our near-term forecasts after management lowered full-year guidance in June, as the softening demand after the pandemic-era buildup weighed on sales for longer than management initially anticipated. However, on the call, management highlighted visibility into an expected rebound in orders later in 2023. Since we already saw this weak demand as temporary after the June update, we plan to maintain our fair value estimates. The potential for demand to rebound later this year sent share prices up for both names, which now appear to be trading in roughly fair territory.

In the second quarter, client demand declined after the pandemic boom years, and the roughly mid-30s drop in order intake year over year carried over from the first quarter. This volume drag weighed on sales growth, which slid by a mid- to high-teens percentage year over year at the firms. EBITDA margins contracted year over year too, as negative leverage on the reduced sales volume could not be fully offset by cost-saving initiatives. Similar to management’s guidance, our model assumes that these trends turn around later this year, driven by a pickup in orders, and we intend to maintain our recently updated forecasts.

Although we lowered our initial 2023 forecasts following the June update, our 2024 forecasts already reflected a rebound in demand, which would keep the companies on track to hit management’s maintained goals for 2025. Overall, our 2025 and longer-term estimates are intact. We believe the companies will return to higher growth after this bump in the road, driven by long-term, expected biopharmaceutical growth trends and related demand for their tools.