Morningstar | Kion's Warehouse Equipment Pipeline Delivers Impressive 2Q Order Growth; Shares Attractive
Kion's warehouse equipment orders in the second quarter came through with more than 2 times the figure posted in the first quarter, reinforcing the lumpiness of this segment but encouraging relative to the prior quarter. Forklift revenue grew modestly with bottlenecks in the company's suppliers delaying order fulfillment; this should be less of an issue in the second half. Raw material prices and euro strength held back margins. We will make minor adjustments to our forecasts, primarily on margins, but do not expect this to change our EUR 90 fair value estimate. We maintain our narrow moat rating and still believe the market underestimates Kion's competitive advantages in the warehouse equipment sector, which is undergoing a long-term structural change towards automation. Shares are trading at attractive levels.Key figures from the first-half results included negative currency impacts with some reported figures declining, masking the underlying growth: order book--group (up 12% reported, up 16% excluding currency effects); revenue--group (up 1.9% reported, up 6% excluding currency); and EBIT (down 5% reported, down 1% excluding currency). The EBIT margin was also depressed by rising raw material prices, which have been hitting most companies in our capital goods coverage.
We expect second-half underlying revenue growth to improve for warehouse equipment/supply-chain solutions division and forklifts, which each grew 6% excluding currency. Delivery on the part of the warehouse equipment backlog should help supply-chain solutions revenue, while loosening up bottlenecks from suppliers should benefit the forklift division. With this, we think the company can meet the midpoint of its 2018 revenue guidance.
The EBIT margin impact from raw material price increases and currency is greater than we expected with the margin down 60 basis points year over year, while we forecast a 30-basis-point decline for the full year. We will be adjusting our forecast as a result.
Kion Group AG Formerly known as Kion Group AG (Pre-Reincorporation). Kion Group AG is a Germany-based supplier of industrial trucks, related services and supply chain solutions. The activities of the Company are divided into three segments: Industrial Trucks and Services, Supply Chain Solutions and Corporate Services. The Industrial Trucks and Services segment comprises forklift trucks, warehouse technology, counterbalance trucks, towing vehicles, as well as automated trucks and autonomous trucks. It operates through three international brands: Linde, STILL and Baoli, as well as through three regional brands: Fenwick (France), OM STILL (Italy) and OM Voltas (India). The Supply Chain Solutions segment offers integrated technology and software solutions, picking equipment, automated storage and retrieval systems, sorters, and conveyors, marketed under the Dematic brand. The Company is active in more than 100 countries across the world.
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