Morningstar | Jungheinrich Lowers Outlook for 2019; Long-Term Opportunity Remains; Shares Cheap
Jungheinrich lowered its mid-point guidance for 2019 orders and EBIT by 5% and 12%, respectively, because of a significant drop in orders in June and with weakness expected for the rest of the year. Revenue guidance remained unchanged, putting revenue growth just shy of 4% at the mid-point of guidance. Operating leverage combined with the added costs to keep up with unusually high demand in the past few years has worked against margins more severely than our expectations. We plan to lower our 2019 EBIT margin forecast, currently at 7.4%, about 100 basis points above the new mid-point guidance of 6.4%. However, we do not see an impairment to our mid- or long-term outlook for the company's core product, electric forklifts, with warehouse expansion supporting sales. During past peaks and troughs in the cycle, the company's SGA costs have oscillated while the gross margin has been fairly stable. Last year's margin was 7.3% and we see mid-cycle margins at close to 8% for the company. As such, we expect the company to recover margin, likely through SGA cuts, in 2020. We are maintaining our EUR 36 fair value estimate and would take advantage of any sell off to pick up shares.We had already been expecting a slowdown in demand and revenue growth in 2019, with 3.7% revenue growth forecast. The company has had an impressive 10% annual average revenue growth rate for five years. The company's nearly 4% growth this year (which is also our mid-term forecast) is still above the gross domestic product growth rate. We expect e-commerce and e-procurement led warehouse demand to continue to underpin demand for electric forklifts, Jungheinrich's core product. We expect demand to slow for forklifts with a macroeconomic slowdown but would expect greater demand resiliency than other capital goods, which do not have the same structural demand drivers. The company reports full second-half results on Aug. 8.
Jungheinrich is engaged in the development of new trucks and logistics solutions. Co.'s operating activities are divided into two segments: Intralogistics, which is engaged in the development, production and sale of new trucks including logistics systems as well as the mail-order business, short-term hire which include the rental of new and used material handling equipment, reconditioning and sale of used equipment and the provision of after-sales services including the maintenance, repair and spare parts businesses; and Financial Services, which encompasses the usage transfer and sales financing of material handling equipment and warehousing technology products.
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