Deutz with Record Values, but Cautious Future Outlook

The German engine manufacturer Deutz achieved new record levels in sales and operating results in the past fiscal year. Despite these successes, the company faces challenges due to a subdued economic outlook and a significantly reduced order backlog. Rising interest rates are contributing to investment restraint, so the risk of a recession later in the year cannot be completely ruled out. In the stock market, this uncertainty was reflected when Deutz shares suffered a significant drop, plunging by 17 percent around midday, leading to a temporary trading halt. Although the stock did recover somewhat, it still ended with a substantial loss of nearly eight percent. CEO Sebastian Schulte outlined the heterogeneous demand situation in a conference call: While there is high demand for infrastructure projects in the USA, business in Europe, particularly with smaller construction machinery, is proving to be more challenging. A possible interest rate cut in the summer could stimulate demand. In China, Deutz has been waiting for a market revival for some time. For 2024, Deutz expects revenue between 1.9 and 2.1 billion euros, which would indicate stabilization at the previous year's level. The expected EBIT margin after adjusting for special effects is projected to be between 5.0 and 6.5 percent – a target that analysts consider ambitious. No longer included in the forecast is the subsidiary Torqeedo, a manufacturer of electric boat engines, which has been sold to Yamaha Motor. This transaction is expected to be completed after Easter and therefore end the financial burden from the unprofitable Torqeedo business for Deutz. In the finish of the past year, Deutz was able to report an operating result of 120.4 million euros against revenue growth of eight percent, which represents a significant increase. Without Torqeedo, the growth was even at about 39 percent. The net surplus, however, only increased marginally due to higher financing costs and taxes. In light of the solid performance, Deutz plans to increase the dividend to 17 cents per share. Traditionally a manufacturer of combustion engine-powered machinery for construction and agriculture, Deutz has expanded its portfolio into electric motors with the acquisition of Torqeedo. However, the newly released figures reveal the deficits in this segment. According to its own statements, Deutz employs around 5300 people, of whom about 3000 are based in Cologne.