Morningstar | Schindler 1Q Stumbles on Margin While Demand Looks Strong: Shares Modestly Overvalued
Wide-moat Schindler's first-quarter EBIT margin was lower than we and consensus expected. Top-line demand remained strong. As this is just one quarter of margin disappointment, we are not making changes to our forecasts and maintaining our CHF 193 fair value estimate. Shares look modestly overvalued.Schindler's first-quarter EBIT margin contracted by 60 basis points to 10.9% year over year with the company citing a mixture of wage inflation, raw material price increases, and currency effects as the culprits. This was surprising given how much better Schindler was managing cost inflation last year relative to peer Kone. Schindler had been benefiting from not only productivity gains in moving its manufacturing process toward modularization and increasing purchasing scale with suppliers, but also from lower exposure to the fiercely price-competitive Chinese market. Despite this quarter's weakness, we think the company can claw back margin with the effects, particularly with raw material price increases and currency being temporary issues.
Revenue growth was solid, in line with our forecasts and guidance for the full year. Organic orders and revenue grew by 6%, respectively. Factoring in currency headwinds, reported revenue grew by 4%. Demand looked strong across all regions, and we are maintaining our 5% 2019 revenue forecast.
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