Geberit Earnings: Strong Performance Demonstrates Its Quality and Importance of Growth Investments

Wide-moat Geberit delivered strong second-quarter results, broadly in line with company-compiled consensus. EPS grew 7% year over year in constant currency, primarily driven by impressive 5% revenue growth with incremental contributions from EBIT margin expansion and share repurchases, offsetting a higher tax rate. Full-year guidance of flat revenue year over year and a 29% EBITDA margin appear somewhat conservative and below consensus. We believe the soft guidance is behind the 4% share price decline intraday, but should not be viewed negatively by long-term investors. Geberit earned a very impressive 30.3% EBITDA margin during the second quarter, despite increasing investments in growth initiatives, which might undermine short-term profitability, but underpins its long-term pricing power as well as its ability to grow ahead of peers. We maintain our CHF 510 fair value estimate and view shares as fairly valued.