Investing.com — Shares of Rexel were down on Wednesday following the company’s latest trading update, which posted challenging market conditions and a cut to its full-year margin guidance.
At 8:02 am (1202 GMT), Rexel was trading 3.3% lower at €25.44.
The electrical supplies distributor reported a 2.1% like-for-like decline in third-quarter sales, falling below consensus estimates, and downgraded its adjusted EBITA margin forecast for 2024.
Rexel now expects a margin of 5.9%, down from its previous guidance of 6.3%-6.6%. This sharp cut prompted UBS analysts to revise their 2024 and 2025 adjusted EBITA estimates downward by 7% and 5%, respectively.
Key factors contributing to the disappointing results included weakening demand in the DACH region (Germany, Austria, and Switzerland) and China, alongside pricing pressures in Europe, particularly in solar-related products.
In Europe, prices turned negative, intensifying the company’s margin struggles.
Despite the company’s efforts to streamline operations, including further headcount reductions, Rexel’s profitability took a hit due to a combination of negative pricing, product price normalization, and inventory impacts.
UBS analysts flagged the surprisingly strong margin pressure, even as the company reported a gradual month-on-month sales improvement throughout the quarter, with September coming close to break-even on a year-on-year basis.
Rexel’s guidance revision also indicated broader market implications. The downgrade is seen as a negative signal for suppliers of low-voltage equipment, such as Legrand, Schneider Electric (EPA:), and ABB (ST:).
Industrial automation suppliers, including Siemens, also face potential downside risks, particularly given the weak performance in China’s industrial automation sector, where the electric vehicle and battery segments have struggled.
Despite this, Rexel upgraded its free cash flow guidance, raising its cash conversion target for the year to over 65%, up from a previous estimate of 60%.
This improvement comes amid cost-saving measures and lower-than-expected capital expenditure, which provided some relief against the overall weaker trading conditions.
While Rexel’s management remains hopeful that the third quarter dip will not lead to a structural downturn, the company’s sharp margin cut, alongside challenging market dynamics in key regions, leaves investors and suppliers alike cautious in the near term.
