Legrand Earnings: Uncertainty in End Markets Keeps Full-Year Guidance Unchanged Despite Strong Start

Narrow-moat Legrand LR delivered organic revenue growth of 7% during the first quarter, which was entirely driven by pricing (8% higher year over year), helping to offset marginally lower volumes. Similar to other capital equipment peers, the spillover effect of price increases already implemented also supported margin expansion. Operating margin expansion of 230 basis points to 22.6% from higher pricing reflects the group’s brand reputation and close relationships with distributors and installers, which has allowed its pricing to stick despite a deteriorating macroeconomic environment. While first-quarter operating performance was ahead of management’s expectations, full-year guidance was kept unchanged due to uncertainty in the outlook for its end markets (which is heavily weighted towards residential and office buildings) and limited backlog visibility. We maintain our EUR 83 fair value estimate and view shares as fairly valued.

Weaker volumes compared with ABB and Schneider, which both reported volume growth, can be attributed to Legrand’s more sizable exposure to residential end markets, where higher interest rates and inflation have detracted from new-build and renovation activities. Legrand’s product ranges also tend to have shorter lead times. Full-year organic revenue growth guidance between negative 1% and 3% remains unchanged, which includes a full-year pricing impact between 2% and 4%. Adjusted operating margin of 22.6% during the first quarter is comfortably above the group’s 20% target, helping to support reinvestment in longer-term growth, which is reflected in our 5% organic outlook over the medium term.

Legrand’s balance sheet remains comfortable, supporting its acquisition strategy within existing verticals and a 15% dividend increase to EUR 1.9.