• Sales Growth: 0.3% increase over 9 months, with a 2.4% increase in Q3, excluding FX and Russia.
• Organic Sales Trend: -0.8% over 9 months, with a 1.7% growth in Q3.
• Adjusted Operating Margin: 20.6% before acquisitions, 20.5% after acquisitions for the first 9 months.
• Net Profit: EUR 834 million, representing 13.4% of sales.
• Free Cash Flow: EUR 749 million, 12% of sales.
• Net Debt-to-EBITDA Ratio: 1.7x at the end of the period.
• Acquisitions: Seven acquisitions announced, adding around EUR 350 million in annual sales.

• Warning! GuruFocus has detected 5 Warning Sign with STU:UV3.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Legrand SA (LGRDY) reported stable sales for the first 9 months of 2024, with a 2.4% sales growth in the third quarter driven by acquisitions and datacenters.
• The company maintained a solid adjusted operating margin of 20.6% before acquisitions, demonstrating resilience in a challenging market environment.
• Legrand SA (LGRDY) sustained a strong acquisition momentum with seven acquisitions announced, adding around EUR350 million in annual sales.
• The datacenter segment in the US showed significant growth, with sales increasing by approximately 20% in the third quarter.
• The company's free cash flow generation remained robust at EUR749 million, representing 12% of sales, reflecting strong financial management.

Negative Points

• Sales in Europe fell by 3.4% over 9 months due to a persistently tough market, with no immediate recovery expected in the construction sector.
• The company's sales in the Rest of the World declined by 0.9%, with significant challenges in China due to a sharp fall in the construction market.
• The adjusted operating margin was slightly diluted by acquisitions, standing at 20.5% after acquisitions.
• The European margin declined in the third quarter, attributed to lower sales volumes and increased restructuring costs.
• Free cash flow has been below market expectations for several quarters, partly due to higher working capital requirements.

Q & A Highlights

Q: Can you explain the recent performance of Legrand's free cash flow, which has been below market expectations? A: Franck Lemery, CFO, explained that the higher working capital requirement is temporary, driven by inventory adjustments in Europe and extra inventory for the datacenter business. Despite this, the free cash flow at 12% of sales is satisfactory, with cash generation at EUR750 million.

Q: What prompted the change in margin guidance, and is it related to the trends in Europe? A: Benoit Coquart, CEO, clarified that the margin guidance adjustment was to simplify understanding post-acquisitions. The dilution from acquisitions is less than expected, and the guidance remains consistent with initial expectations, with no significant change.

Q: Could you provide insights into the European margin decline and its causes? A: Franck Lemery, CFO, noted that the European margin decline to 20% was due to a 4% drop in like-for-like sales affecting SG&A absorption and increased restructuring investments. Despite this, the margin remains strong.

Q: How did the datacenter segment perform, and what is the outlook? A: Benoit Coquart, CEO, reported a 20% growth in US datacenter sales in Q3, offsetting weaker traditional business. The demand is expected to remain strong, with dynamic incoming orders and a positive outlook for the coming quarters.

Q: What is the strategy for acquisitions, and what regions or areas are you focusing on? A: Benoit Coquart, CEO, stated that Legrand has an active acquisition pipeline with ongoing discussions. The company aims to continue its acquisition momentum, focusing on datacenter and related segments, with a EUR5 billion allocation for M&A until 2030.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.