Deutz shares sink 6% as earnings drop due to weak economy
Deutz AG, a German engine manufacturer, has recently faced financial challenges due to a weakening global economy, leading to a decline in its share price.
Financial Performance and Market Reaction:
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2023 Performance: Deutz concluded 2023 with record sales and operating profit. However, concerns arose as the company anticipated a potential recession, leading to a cautious outlook for 2024. This announcement resulted in a significant drop in Deutz's share price, with intraday losses reaching up to 17%, before stabilizing at an 8% decline to €5.38.
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First Quarter of 2024: In Q1 2024, Deutz reported a 10.3% year-on-year decrease in revenue, amounting to €454.7 million. Despite the revenue drop, the company maintained a stable adjusted EBIT margin of 6.1%, indicating resilience amid challenging economic conditions.
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First Half of 2024: The economic downturn led to an 18.1% decrease in new orders and an 18.9% drop in unit sales during the first half of 2024. Nevertheless, Deutz's revenue decline was less severe at 12.6%, totaling €875.5 million. The company's service business contributed positively, with a 6.5% increase in revenue to €252.9 million.
Revised 2024 Outlook:
In response to the declining demand, Deutz adjusted its 2024 financial guidance:
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Revenue Projection: Lowered to approximately €1.8 billion from the previous range of €1.9 billion to €2.1 billion.
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EBIT Margin: Revised to a range of 4.0% to 5.0%, down from the earlier estimate of 5.0% to 6.5%.
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Unit Sales: Expected to fall below 150,000 engines, a decrease from the prior guidance of up to 160,000 engines.
Strategic Measures:
To address these challenges and position for future growth, Deutz has implemented several strategic initiatives:
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Cost Reduction: Plans to reduce costs by €50 million by the end of 2026, including potential job cuts and increased production flexibility.
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Long-Term Goals: Aiming for revenue between €3.2 billion and €3.4 billion by 2028, with an adjusted EBIT margin of 8% to 9%, and targeting approximately €4 billion in revenue by 2030.
Despite the current economic headwinds, Deutz remains committed to its long-term growth strategy, focusing on operational efficiency and market adaptation to navigate the challenging environment.
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