Weg SA (WEGZY) Q3 2024 Earnings Call Highlights: Strong EBITDA Growth and Strategic Acquisitions

GuruFocus News
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Release Date: October 31, 2024

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

Positive Points

  • Weg SA (WEGZY) reported a 29% growth in EBITDA, with the margin improving to 22.6% compared to the same period last year.

  • The company saw strong sales growth in the air conditioning and motor pool pump segments, as well as in the paints and varnishes sector, particularly in the Mexican operations.

  • Weg SA (WEGZY) announced the acquisition of Volt Electric Motors, a Turkish manufacturer, which is expected to enhance their industrial and commercial electric motors segment.

  • The company is expanding its production capacity, with significant investments in Brazil and Mexico, particularly in the motor and transformer factories.

  • Positive outlook for the T&D market in North America and good performance in the generation business, contributing to revenue growth.

Negative Points

  • There was a drop in revenue from wind turbines and solar segments due to reduced order books and lower solar panel costs.

  • The company experienced increased SG&A expenses, partly due to the consolidation of Marathon's industrial motors and generators.

  • Freight costs have been rising, impacting overall sales expenses.

  • The effective tax rate is expected to remain higher as the one-off benefits from Switzerland last year will not be repeated.

  • Margins were slightly impacted by the integration of Marathon businesses, which have lower margins compared to Weg SA (WEGZY)'s average.

Q & A Highlights

Q: Can you discuss the long-term momentum for the domestic market, especially in industrial sectors, and the dynamics for SME and other segments? A: The domestic market for electric electronic equipment showed growth, with short-cycle equipment like gearboxes and automation products performing well. Long-cycle equipment saw a slight drop due to project concentration last year. We expect positive growth in short-cycle equipment in the coming months, while long-cycle equipment should improve next year. (Respondent: CEO)

Q: What are the expectations for profitability, particularly regarding COGS and product mix? A: The main factor affecting COGS is material costs, which have been stable. The product mix, especially the reduction in solar generation, impacts margins. T&D equipment demand is improving, which should positively affect profitability. We are also developing battery solutions, which have a positive outlook. (Respondent: CFO)

Q: Could you provide insights into CapEx expectations and competitive dynamics in the T&D market in the US? A: We plan to maintain CapEx between 3% to 5% of revenues. The T&D market is growing, especially in North America, with positive demand for transformers and related equipment. We expect this trend to continue, supported by a strong order book. (Respondent: COO)

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