Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Knorr-Bremse AG (KNRRY, Financial) reported strong order intake of over EUR 1.9 billion, with a book-to-bill ratio of 1.02, indicating robust demand.
- The company successfully issued a dual tranche bond amounting to EUR 1.1 billion, including its first green bond, which was four times oversubscribed.
- The Rail Vehicle Systems (RVS) division saw a 7% increase in revenue, driven by strong performance in the Asia Pacific region and North America.
- Knorr-Bremse AG (KNRRY) increased its guidance for 2024 following the successful acquisition of KB Signaling in North America.
- The company demonstrated innovation and quality at recent industry fairs, receiving positive feedback for its sustainable and green mobility solutions.
Negative Points
- The Commercial Vehicle Systems (CVS) division experienced a 9% decline in revenue due to weak truck markets in Europe and North America.
- Truck production rates in key markets like Europe and North America declined year-over-year, impacting the CVS division's performance.
- The company faces ongoing challenges in the truck market, with expectations of continued weakness into the first half of 2025.
- Despite strong order intake, the CVS division's operating EBITDA margin decreased by 60 basis points to 10%.
- Supply chain issues with specialist suppliers in the rail industry persist, affecting inventory levels.
Q & A Highlights
Q: Why didn't Knorr-Bremse narrow the margin range for 2024 if confident about reaching the midpoint?
A: Frank Weber, CFO, explained that while they are confident about reaching the midpoint, uncertainties remain. The company prefers to maintain a range to account for potential fluctuations, acknowledging that they might not hit the lower or upper ends of the guidance.
Q: How does Knorr-Bremse plan to accelerate progress towards the 2026 margin target for CVS?
A: Frank Weber noted that while the truck margin target is aspirational, Knorr-Bremse is confident in achieving the overall company target. They are focusing on efficiency measures and cost management, acknowledging that rail might outperform while trucks could underperform relative to targets.
Q: What is the expected drop-through rate for the truck business in Q4?
A: Marc Llistosella, CEO, mentioned that while the drop-through rate was strong in Q3, it might be slightly weaker in Q4 due to diminishing price support measures. The company remains focused on maintaining resilience.
Q: Can you clarify the expected margin growth for 2025 in rail and truck divisions?
A: Marc Llistosella clarified that "solid growth" in rail margins means an increase of over 50 basis points, while "flat to slight growth" in truck margins indicates up to 50 basis points. These projections are based on organic growth without factoring in disposals.
Q: How is the integration of KB Signaling progressing, and are there any expected synergies?
A: Marc Llistosella stated that the integration is going well with a motivated team. While synergies were not the primary goal, potential efficiencies, such as plant consolidation, may be realized over time.
Q: What is the current status of Knorr-Bremse's Chinese rail business, and how has it grown in 2024?
A: Marc Llistosella reported that the Chinese rail business is performing better than expected, with revenues above EUR 700 million. Growth has been driven by high-speed train demand and strong aftermarket performance.
Q: How is the pricing environment for new orders in the CVS division given the current market conditions?
A: Marc Llistosella noted that while it's more challenging to negotiate price increases in a declining market, Knorr-Bremse remains firm on maintaining prices achieved through previous negotiations.
Q: What is Knorr-Bremse's strategy regarding potential tariffs on imports to the US?
A: Marc Llistosella emphasized Knorr-Bremse's commitment to high local content in the US, which provides a competitive edge. The company is prepared to adapt to any regulatory changes, maintaining a decentralized and locally focused production strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
