EUR 850.00 For Business Accounts Only

Morningstar | Kion Reports Better-Than-Expected 3Q; Warehouse Equipment Orders See Another Strong Quarter

Kion Group shares are down nearly 40% year-to-date, an unjustified sell-off in our view given the recent strength of the warehouse equipment orders, which we see as key to the long-term outlook of the firm. Warehouse equipment orders grew 21% year over year in third quarter, following the impressive 93% posted in second quarter, putting year-to-date orders around 80% of midpoint of full-year guidance and consensus figures. The company reaffirmed its group and divisional guidance for the year--particularly important this quarter, as some market participants had predicted lower guidance, causing the stock to sell off sharply prior to results. Third-quarter 2018 group figures beat consensus on orders, while revenue was in line and the EBIT below by about 3% on adverse currency, rising raw material prices, and temporary extra costs from supply chain bottleneck. We expect the margin to recover in 2019 as price increases feed through and the company begins to execute on the large order backlog that it is building in warehouse automation equipment, increase assembly plant utilisation rates and margins in that segment. We maintain our narrow moat rating, EUR 90 fair value estimate and believe the shares are undervalued.

The share price decline accelerated after second-quarter results when forklift margins disappointed. Key to third-quarter results are the EBIT margins on the forklifts (industrial trucks) and sustainability of the strength in warehouse equipment orders (supply chain solutions) posted in the second quarter. The warehouse equipment orders have come through nicely in third quarter. Revenue growth in that division will be more backend loaded with the fourth quarter likely unseasonably strong due to the timing of orders, weighted towards second quarter onwards. The forklift margin in second quarter was down 120 basis points year-over-year but just 30 basis points in third quarter. We expect a recovery in 2019 with price increases mitigating cost pressures.