GEA Group Aktiengesellschaft (G1A) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the GEA Group AG Pre-Close Call Q3 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Oliver Luckenbach. Please go ahead.

Thank you very much, Heidi, and good afternoon, ladies and gentlemen. Welcome to our Q3 2026 pre-close call. My name is Oliver Luckenbach. I'm the Head of GEA Investor Relations team, and I'm joined by my colleague, Rebecca and Edward. As today's call will contain forward-looking statements, it will be conducted according to our disclaimer. I will not read the disclaimer, but please be aware of the cautionary language that is included in our safe harbor statement, which is part of our presentations. You can find on the Internet. We will now address certain topics, which we also discussed during recent conferences and roadshows. And afterwards, you will have time to ask questions. First topic, our guidance. We confirmed our group guidance for fiscal year 2026, which we raised in July. We expect organic sales growth between 6% and 8% and EBITDA margin before restructuring expenses, 17% to 17.4% and return on capital employed between 36% and 40%. The Second topic, customer industries. Let me start with food. The business is looking good overall with projects and sub industries like the poultry business showing strength. On beverage, here, the picture is strong, especially on the project side. Dairy processing, the pipeline continues to show activity across both projects and components. There's ongoing good market development in both areas. One of the drivers is the demand for protein-rich products, and we expect this trend to continue for the next 2 years or so. Dairy farming, in terms of the market outlook, we see that the general market sentiment is okay with ongoing good demand, especially from large farms. Pharma continues to look good.I We see good potential for our continuous tablet presses. That brings me to the third topic, order intake. We are very confident that 2026 will be again a good year for GEA in terms of order intake with a growth rate which will ensure the Mission 30 organic sales growth target of more than 5% per annum over the next years. The pipeline looks very promising and in addition, we see a good baseload business as well. This supports our confidence that we will see good order good growth in order intake for full year 2026 despite the fact that we are running against very high comps in the fourth quarter, where we had an order intake volume of EUR 1.8 billion last year in Q4, including more than EUR 400 million in large orders. We had a strong first half with an organic order intake growth of 10.7%, and we see no reason why this trend shouldn't have held up in the third quarter. Regarding the third quarter. In addition to a healthy development in base orders, we have seen several large orders. So orders above EUR 15 million with a combined volume in the low triple-digit million euro in the quarter whereas the previous year quarter saw the third quarter 2025 contained 3 large orders with a combined volume of [ EUR 64 million ] . Topic #4, sales. In the first half of 2026, we achieved an organic sales growth of 8.2%. For the full year, we are guiding organic sales growth to be between 6% and 8%. Topic number 5, EBITDA margin before restructuring expenses. Our raised EBITDA margin guidance of 17% to 17.4% clearly indicates that we want to make further progress with regards to our profitability in fiscal year 2026. After an already good first half with an EBITDA margin before restructuring expenses of 16.8%, we expect further progress in Q3 2026. The last year's Q3 EBITDA margin was 17.0%. That's it from my side, and I will now pass over to Rebecca.

Thanks, Ali. Let me continue with topic #6, which is our cash flow. So what to keep in mind for the cash flow in the third quarter. So CapEx, just as a reminder, we expect CapEx of around EUR 240 million for the full year 2026. And in H1, we had EUR 72 million. So as in previous years, we expect CapEx to ramp up in the second half of the year. Net working capital to sales. As you know, our target corridor is 7% to 9%. Q3 will most likely be within this corridor. Cash outflow. So let me give you an update on our share buyback, which we started in August this year. So the cash outflow for the share buyback as of last week Friday, second of October, we bought back 955, 764 shares for an aggregated volume of EUR 62.5 million since the start of the program. Let me continue with Topic #7, the additional financial information, depreciation and amortization before restructuring expenses. For the full year 2026, we are guiding around EUR 230 million. In the first half of this year, we had EUR 107 million. Financial results, we have a guidance here for the entire year of minus EUR 30 million. And in the first half, we had minus EUR 16.7 million. The tax rate is guided to be between 28% and 30% for the fiscal year 2026. And in the first half, we had 29.7%. And last but not least, the R&D ratio for the fiscal year we are 3%, and in the first half, we had 2.4%. And with that, I hand over back to Heidi for the Q&A session. We are happy to take any questions you might have.

We will now begin the question session. [Operator Instructions] We will take our first question, and the question comes from Sven Weier from UBS.

Yes. There are 2. The first 1 is on order intake, please. Oliver, you said the H1 trend of around 10% organic growth should also hold true for the third quarter. So did you mean the positive trend or also with regard to the growth rate? That's the first question.

Yes. You can also translate this that it's also with regards to the growth rate we have seen in the first 6 months of the 10.7% I've mentioned also the triple-digit number [ million euros ] . So several large orders we have seen so from that perspective, all we can see as of today is also another strong quarter also for order intake yes.

And I think Stefan in investor meetings, he said he expects significant order intake growth for the year as a whole. Can you confirm that?

Yes, I can confirm this. We know you know that Q4 will not be an easy quarter with EUR 1.8 billion in front of us. But given the comments of what we see so far in Q3 is that Q3 should be a very good quarter in terms of order intake. So let's say, EUR 6 billion more than EUR 6 billion in terms of order intake this year. That is something I think one can expect, yes.

Sorry, could you just repeat the latter the pipeline?

So overall, we had EUR 5.9 billion of order intake last year. So if we talk about further progress here also on order intake, so the full year number will most likely be more than EUR 6 billion. That is what we are expecting yes.

Understood. Yes, because, I guess, significant means more than 5% growth. Otherwise, it would be slight, I guess. And then just on revenues, just to follow you there, did you say that Q3 should grow in line with the full year guidance between the 6% and 8%.

I haven't said this. And as you know, overall, in Q2 or in the second half, we are running against tougher comps in Q3 last year, organic sales growth was 7.2% in Q4, but we have raised also our guidance for full year for the organic sales growth to 6% to 8%. And so yes, 6% to 8% is probably also range for Q3. Yes.

Because I remember you originally saying that the backlog had a phasing that is skewed to the second half. And I guess, especially on the project side, obviously, I guess that's still true, right?

It is true, but also in the current backlog, and that is also explaining by already today, so positive for 2027 and probably also 2028. I the overall backlog was up more than 13% at H1 so also most likely at the end of this year, we will go with a very strong order backlog already into next year because a lot of the especially very large orders like a that will also help us growing top line next year and probably also in 2028 yes.

Is there anything that has changed on the beverage side? Because I'm not sure what you said in Q2, but at least when we look at it from what Krones has been saying that the momentum on the beverage side was a bit of warm. And I think you said it's strong. Has that changed in the last couple of months? Or did you say the same in Q2.

Yes, we have this mixture between the service business, which is relatively stable, and also growing business, then we have the components business and the project business. And it's always the project-driven every quarter can be different regarding are we able to book also bigger projects here and what we have seen, at least in the third quarter is also a good development on the project side, yes.

And I mean we mentioned also with the Q2 call then if you might remember that for pure flow processing that actually beverage was also one the growth contributors of their order intake in the second quarter.

[Operator Instructions] Will our next question, and the question comes from Klas Bergelind from Citi.

Yes, I had a couple of questions. First, on base orders, it looks like these are down slightly quarter-on-quarter, if I assume I don't know exactly the , but you said low triple digit, let's say, EUR 120 million of large orders and then they're up high single digit organically. The comp is a little bit easier here compared to where we stood in the second quarter. . And I was just wondering, is there anything changing on the base order side. Obviously, large orders are obviously picking up where the sort of the base order see some slowdown, if there was some preordering second quarter, that means that we're slowing them on base. Nutrition was very strong on base. Anything going on there Oliver.

No, not really, class, to be honest, for sure, it's still relatively early now to have so we do not have all these kind of details. But at least what we have seen so far and what we have also heard so far there's no big disruption or downward trend or even though slightly, a slight downward trend we are currently seeing here. So we also need to look then into the final numbers but also in these lower order categories, we see a continuous good demand across the different businesses.

And then back to the large orders, the customer industries, where they tilted towards when they're picking up?

Yes. Here, we need to look into the details. But when we talked about the customer industries, I've already mentioned I've mentioned here beverages we talked since quarters, we talk about very strong dairy business, especially on the processing side. Also pharma here, and I mentioned the tablet presses, that these are good businesses and where we see a very good demand here from our customers.

Okay. Then my final one on the sales growth that you're alluding to sort of midpoint 6% to 8% around 7% then for the third quarter. If you think about margin here. So yes, I mean no surprises up 80 to 90 basis points year-over-year, a bit similar to the second quarter, similar pace sequentially. Is that how to think about it, which is brought in line with consensus or anything going on from a price cost point of view, mix that we need to think about this quarter.

No, no. So if you look at what we have achieved in the first half, it was 16.8%. Last year, we had 17.0% in the third quarter. And as I've mentioned, and we need and want to go to the corridor of 17% to 17.4% for the full year. So there also needs to be some further improvement in terms of margin than also in the third quarter and driven by what I've talked or we talked about in terms of sales growth and also a certain leverage that can be expected for sure, obviously, to look into mix then a little bit later once we have the numbers. But yes, overall, you can also expect good margin development in Q3.

[Operator Instructions] We will take our next question the question comes from the line of Ben Fielmann from Bernstein.

Can you hear me?