U.S. stocks edge higher; solid earnings season continues
Investing.com -- Shares of Knorr-Bremse AG (ETR:KBX) rose by 5% following the company’s announcement of its 2025 guidance, which was largely in line with consensus expectations and showed a stronger than anticipated free cash flow (FCF) projection.
The German manufacturer of braking systems for rail and commercial vehicles introduced its 2025 targets with expected revenues of €8.1-8.4 billion, closely matching the consensus estimate of €8.305 billion. The forecasted operating EBIT margin of 12.5-13.5% is also in line with the consensus of 12.9%, while the projected FCF of €700-800 million is 7% ahead at the midpoint compared to the consensus of €700 million.
The company’s management highlighted a solid increase in revenues and margins in its Rail Vehicle Systems (RVS) division and anticipates stable revenues with slight to solid margin growth in the Commercial Vehicle Systems (CVS) division, despite recent disposals. Additionally, management mentioned the potential for restructuring costs up to €50 million to adjust its footprint, which will likely depend on the truck cycle’s trajectory and the market’s recovery.
In the fourth quarter, Knorr-Bremse reported orders that were 2% ahead of consensus, with RVS orders surpassing expectations by 5%, while CVS orders fell short by 1%. The order book saw an 8% organic increase in RVS and a 6% decrease in CVS. Revenue for the quarter was slightly below consensus, 1% less than expected, with RVS performing as anticipated and CVS falling 3% short, mainly due to a weaker truck market across all regions.
Operating EBIT for Q4 was reported at €242 million, in line with the consensus of €243 million, resulting in a group operating EBIT margin of 12.2%, slightly ahead of the expected 12.0%. The RVS operating EBIT margin was marginally below expectations, while CVS’s operating EBIT margin was slightly above the consensus.
The company’s FCF for the fourth quarter was stable year-on-year at €482 million, ending the year at €730 million, a 32% increase YoY and significantly higher than the consensus estimate of €602 million. This performance implies a cash conversion rate of 113%. Net debt increased by 45% YoY to €912 million, with leverage at 0.7x, influenced by the acquisition of Alstom (EPA:ALSO) US Signalling.
Jefferies commented on the outlook, stating, "We see a solid guidance for 2025 showing organic growth & margin increase in both divisions despite the weak Truck trends, and strong FCF. Mgmt is also proactive in announcing potential footprint adjustment likely in Trucks, depending on the market recovery."
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