Cushman & Wakefield’s Capital Markets Revenue Was Severely Affected in Q4

No-moat-rated Cushman & Wakefield CWK reported disappointing results in the fourth quarter as rising interest rates weighed on the company’s capital markets business. The company reported adjusted EPS of $0.46 per share in the fourth quarter, 51% lower than the $0.94 per share of adjusted earnings in the fourth quarter of 2021. The companywide fee revenue was down 17% in the current quarter compared with the previous year as it was reported at $1.85 billion. Adjusted EBITDA came in at $220 million, 35% lower compared with the same quarter in the previous year on a local currency basis. This resulted in an adjusted EBITDA margin of 11.9% for the quarter, down 380 basis points on a year-over-year basis. We are maintaining our $20 fair value estimate for the firm after incorporating fourth-quarter results.

Capital markets fee revenue declined by approximately 52% due to higher interest rates and constrained supply of money whereas lower demand for office resulted in a 10% decline in leasing fee revenue. As we have highlighted previously, we expect capital markets revenue to be affected significantly more than leasing revenue. The operating leverage in the brokerage business is the main reason behind the sharp fall in the company’s overall profitability during the quarter. Management said that the challenging macroeconomic environment should continue to adversely affect the brokerage business and they expect brokerage revenue decline in the first half of 2023 to be similar to the fourth quarter of 2022. However, management anticipates sequential improvement in the second half of the current year.

The property and facility management segment remained resilient as fee revenue grew by 8% on a year-over-year basis. The outsourcing business contributed approximately 48% of the total fee revenue of the company in the fourth quarter. Management expects fee revenue in the outsourcing business to grow by low- to mid-single digits in 2023.