Geberit Earnings: Pricing Power Offsets Lower Volumes and Supports Impressive Margin Expansion

Wide-moat Geberit GEBN delivered solid first-quarter results, which were supported by the group’s strong pricing power underpinned by its brand reputation and close relationships with key intermediaries of sanitary products. The spillover effect of price increases already implemented managed to offset volume declines and help support 220 basis points of EBITDA margin expansion, to an impressive 33.1%. While demand remains under pressure because of the macroeconomic environment, we believe that Geberit will be able to maintain its current level of pricing, which will support profitability in the future as raw material costs decline against a high comparable. Consistent with our investment thesis, capital returns remain a key priority for Geberit. Share repurchases of CHF 63 million during the quarter helped deliver a disproportionate 8.6% growth in constant-currency earnings per share compared with net income growth of 4.9% (also in constant currency). We maintain our CHF 510 fair value estimate and view shares as fairly valued.

Organic revenue growth declined by 4.3% in constant currency during the first quarter as price increases of 12% were unable to offset a 16% decrease in volumes. While demand for sanitary products remains under pressure, we expect that volumes are likely to have troughed as the destocking of inventories at wholesalers appears to be complete and the group also laps a high comparable period. We also expect that Geberit will be able to utilize its scale to gain market share against smaller and indebted competitors. EBITDA grew 3.9% in constant currency driven by the spillover effect of price increases combined with lower energy prices, and the company managed to offset negative operating leverage from volume declines.