Americas delivers a strong sales growth surprise
Legrand''s Q2 Sales came in 3% ahead of Consensus. The standout is North and Central Americas, where organic sales growth accelerated to 5.4% in Q2 vs. Cons at just -1.1%. Q2 Operating profit was also 3% ahead, thanks to strong margins in Europe and RoW. Despite its sales beat, North and Central Americas missed our margin estimate. This was because the region took a EUR30m restructuring charge in the quarter. If we assume half of this was ''unusual'' and normalise, then the Group level EBITA beat would be closer to 7%. Group FCF came in at EUR322m, 14% ahead of Consensus but down -34% YoY on lower profit generation and with actions needed to support rapid growth within the Datacentres subsegment. Datacentre sales grew c. 10% pa in Q2. The CEO sees this rate of expansion as sustainable. The North and Central Americas Non-resi construction exposed sales grew a little in Q2, thanks to ''technical factors.'' Basically, Legrand''s US non-resi business suffered destocking in Q2 2023, an easy comp that allowed it to grow YoY in Q2 2024. There was no suggestion of a sequential improvement. The CEO stated that Legrand''s Commercial and Office related US business is now down c. 40% from 2019 levels. While he did not expect a strong recovery, he also stated that it cannot fall much further either.
Guidance unchanged, but Consensus likely to edge higher
FY24 guidance was left unchanged, and we would highlight Legrand rarely changes its guidance so early in the year. Guidance for full year organic sales growth implies H2 OSG of c. 2% - 3%, slightly higher than that achieved in Q2. The first half Group headline margin of 20.7% was already at the top end of FY24e guidance before considering that above the line restructuring charges were elevated in H1. If excluded, H1 underlying profitability is likely higher than the top-end of full year guidance. Supportive of Consensus upgrades to at least the top of the guided for range.
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