Geberit (SIX Swiss: GEBN) Q3 2026 Earnings Call

0:00 Thank you for the introduction and good morning, ladies and gentlemen. Welcome to Gebrit's nine-month results conference call. We will start with the third quarter figures, then comment on the nine-month development and finish, as usual, with an outlook. Gebrit delivered strong results in Q3. Let me start with the key statements for the third quarter. First, a net sales growth in local currencies of 5.2% driven by all three product areas. Second, an APTA merit margin only slightly below previous year despite substantial higher direct material and energy price. And third, a strong EPS growth of 6.7% in local currencies and 8.5% in Swiss francs.

0:52 Let me now give you some comments on the sales development in the third quarter. Net sales in Swiss francs increased by 5.3% and reached 824 million Swiss francs. For the first time in five years, we did not have a negative currency effect on net sales. In local currencies, group net sales increased by 5.2%, supported by a sales price effect of around 3%. Let me turn to the regional development, again in local currencies. In Europe, net sales increased by 4%, driven by strong growth in most markets. In particular, we achieved very strong growth of 8% in our core markets, Germany and Switzerland.

1:44 Outside Europe, net sales increased in Middle East Africa by 23%, driven by strong double-digit growth in the Middle East, despite the ongoing conflict in the Gulf. Net sales in the Far East Pacific grew by 16%, with growth in all main markets, including China. Net sales in America increased by 12%, supported by easier comps in the previous year period. I continue with the sales development of the product area, ECU3, again in local currencies. Picing systems grew by 6%, insulation and flushing systems by 5%, while bathroom systems increased by 4%.

2:30 The relatively strong growth of piping systems was supported by the stronger extraordinary price increase in this product area. Let me now turn to the operating and financial results in Q3. We managed to grow all bottom line results from ABTA down to EPS both in local currencies and in Swiss francs. The APTA margin reached 30.2%, which represents a slight decrease of minus 40 basis points despite the significant increase of input prices. Direct material prices were with 8% significantly higher than in Q3 last year. Energy prices were even up 33% in Q3 compared to Q3 last year.

3:21 However, in absolute terms, APTA still increased. both in Swiss francs and in local currencies and even when adjusting for the one-time costs in the previous year. Net income increased disproportionately in local currencies by 5% and the net income margin reached 20.1%. Earnings per share reached 5 Swiss francs per 13 and grew in local currencies stronger than net income by 7% Thanks to our shared buyback program. Let me now continue with a review of our net sales development in the first nine months of the year. Net sales increased by 3.6% to 2.53 billion Swiss francs, negatively affected by strong currency effects. Negative currency effects led to a net sales loss of 52 million Swiss francs, or minus 2.1%.

4:24 In local currencies, net sales increased by 5.7%, driven by an improved market environment in Europe and strong demand for our products across most markets and all three product areas. The top-line growth was driven by volume with a growth rate of around 3.5%. Increased sales prices contributed around 2% to top-line growth. This brings me to the regional net sales development in Europe in the first nine months. Again, all growth figures refer to growth in local currencies. All main countries and reporting regions, except Western Europe, delivered strong growth. In Switzerland, net sales increased by 9%, supported by a base effect and strong market demand.

5:16 In Benelux, net sales grew 6% with growth in both countries, Belgium and the Netherlands. In Eastern Europe, net sales grew by 6% with particularly strong growth in the Adriatic region and Poland. In the Nordic region, net sales grew by 6% in an improved market environment. Net sales in Germany increased by 5% despite a strong comparison base. Over the last three years, we achieved a cumulative sales growth of 14% in Germany, despite the significantly declined market. Net sales in Italy increased by 4%, despite the softening market. In Austria, net sales grew by 3%, despite a very strong comparison base, with a growth rate of around 10% already last year.

6:11 The only region in Europe where sales stagnated was Western Europe, with strong growth in Iberia partially offset by market-driven declines in France and the UK. Let me now turn to the regions outside Europe. In the Middle East Africa region, net sales increased strongly by 20% despite the ongoing conflict in the Gulf. Net sales in Far East Pacific grew by 9% with double-digit growth in India and Australia, partially offset by the continued but fading market decline in China. In America, net sales were flat, with the previous year being distorted by extraordinary growth following the tariff announcements.

6:58 Let me now comment on the sales development by product area, again in local currencies. Installation of flushing systems as well as piping systems grew by 6%, while bathroom systems increased by 5%. All three product areas benefited from strong growth with established and new products. I'll continue with the operating and financial results in the first nine months. All operating and financial results grew, even in Swiss francs and even when adjusting for the one-time costs in the previous years. I'll start with the discussion of the ABDA development. ABDA increased in Swiss francs by 3% and in low currencies by 6%. The ABDA margin reached with 30.7% almost previous year's levels, supported by a base effect from last year's one-time costs.

7:55 Excluding the one-time effects in the previous year, the ABDA margin decreased by 70 basis points, We managed to mitigate these negative margin drivers with the following levers. First, Our efficient and flexible production network, coping with the strong volume growth, while at the same time keeping costs under control.

8:41 Second, a positive safe price effect of around 2%, and thirdly, further efficiency gains in production and logistics. Thanks to our long-term oriented natural currency hedging strategy, the significant currency losses had no material impact on our operating margins. EBIT grew in the first nine months by 4% in Swiss francs and by 7% in local currencies. The EBIT margin increased by 10 basis points and reached 26.0%. The net income margin increased even by 70 basis points due to an improved financial result and reached 20.9%.

9:27 This led to a net income growth of 7% in Swiss francs and 9% in local currencies. Earnings per share increased by 8% and reached 16 Swiss francs 23. In local currencies, EPS increased even by 10% versus previous year, disproportionately higher than net income thanks to the accelerated share buyback program. The share buyback program launched in September 2024 was completed ahead of schedule in early June. Under this program, a total of 560,000 registered shares were repurchased for a total of 300 million Swiss francs since September 2024.

10:13 We launched a new share buyback program directly thereafter. The new program with a maximum volume of 300 million Swiss francs runs for a period of maximum two years. In total, under the completed and the newly launched share buyback program, we repurchased in the first nine months 509,000 shares for a total amount of 269 million Swiss francs. This brings me to a few comments on CapEx and free cash flow in the first nine months of the year. CapEx increased by 20 million or 21% to 112 million Swiss francs driven by higher investments notably in logistics. Free cash flow decreased slightly by 3% to 449 million Swiss francs primarily due to higher paid capex.

11:08 Let me now comment on our market outlook for the full year 2026. Our view has not changed since our H1 communication in mid-August. Shared political risks and the associated macroeconomic uncertainties remain high. However, we continue to expect for the full year 2026 a slight growth of the European building construction industry but no broad recovery yet. The new build sector, we see positive momentum emerging as indicated by the ongoing turnaround of building permits, which grew in Europe by 5% in the second half of last year and by 6% in the first half of this year.

11:53 In particular, the residential building permits in Germany are recovering with a growth rate of 13% over the last 12 months. In the renovation sector, which accounts for 60% of our business, we expect the positive dynamics to continue. Outside Europe, we foresee a mixed picture for the building construction industry. Some markets see good demand, for example India. Other markets continue to decline, for example China, due to the collapse of the renewable sector. However, at a slower pace than in previous years. On the supply side, we expect sequentially for Q4 slightly higher direct material prices and higher energy prices compared to Q3.

12:41 Let me now briefly comment on the gathering priorities this year. We continue to have a strong focus on new products. For example, the new shower solution launched in April, but also important new products introduced over the last year, like the new DuoFix, Flowfit, Maples Therm, or the shower toilet also. Other important initiatives this year include new marketing initiatives and further efforts in the area of IT, digitalization, and AI. We are increasing our operational expenditures by 20 million sales francs this year for these initiatives. Let me continue with our full year guidance. Under the assumption of no material changes to the current market environment, we expect for the full year a net sales growth in local currencies between 5 and 6% and an APTA margin around previous year's level.

13:42 Please keep in mind that we are facing somewhat more challenging top-line comparables in Q4. In line with that, we expect sales development in October to be weaker than in Q3. For CapEx, we expect around 200 million Swiss francs this year. Let me close our introduction with a short summary. Gebraert delivered very strong results in the first nine months of 2026. with a net sales growth in local currencies of 5.7%. These were the strongest first nine months of the year since the COVID-related boom four years ago. Despite the sharp increases in direct material and energy prices since Q2, as well as higher OPEX related to various strategic and operational initiatives, we managed to keep like-for-like operating margins almost on previous year's levels.

14:41 Earnings per share grew strongly by 8% in Swiss francs and by 10% in local currencies, supported by the accelerated share buyback program. For 2026, we continue to expect slight growth of the building and production industry in Europe and a mixed environment overseas. But irrespective of the market environment and geopolitical and macroeconomic uncertainties, we continue to invest in sales and marketing initiatives, innovation, Thank you for your attention. We are now ready to answer your questions. We will now begin the question and answer session.

15:28 Anyone who wishes to ask a question or make a comment may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Elodie Rall from JP Morgan. Please go ahead.

15:55 Hi, good morning. Thanks for taking my questions. First of all, on cost, we took you for. What kind of evolution are you seeing and could you remind us the composition of your cost especially in terms of energy cost exposure? You've done a great job it seems in Q3 in terms of maintaining that as low as possible and only up sequentially versus Q2 but you're gating for cost to increase a little bit also just in Q4 so if you could give us some color there about the composition. and my second question which is related to that is your margin guidance for the year implies if I'm not wrong a 20 bps increase in Q4 but in Q3 you had a margin decline in Q4 you're getting for cost up and maybe some weakness in volumes so how do you get margin up in Q4 does it take some does it require some further actions Thank you, Elodie.

17:05 First of all, on energy, if I got the first question right, it's the usual mix of gas and electricity that we're having, and we've weighted on electricity. We have no hedges. and therefore, as indicated, we expect some higher costs on electricity. But overall, energy makes only roughly 2% of our bills or in percent of net sales. When it comes to Q4 margin, indeed you mentioned the most relevant points. Pricing, we expect a very strong contribution.

17:50 We then also have in the first nine months a great weighing of the 20 million of the additional OPEX that is mostly due to the B2C campaign that we launched during summer and that was predominantly active within Q3.

18:13 Okay, thanks. The next question comes from Martin Huisler from ZKB. Please go ahead.

18:22 Okay. Good morning, everyone, and thank you for taking my question. So the first question on personnel expense in Q3. I think it was flat year over year, even though we had 1% more FTEs and obviously a certain labor cost inflation. Probably, yes, we had a bit of a base effect with Basel last year, but do we already see some first positive trends from the closure of Basel? That's my first question.

18:52 Concretely on Basel, no, not yet. That is really expected for next year, where it will be fully positively impacting the full year.

19:07 So why was personnel cost then in absolute terms on same levels as last year only?

19:15 We had a relatively low wage inflation in Q3 and then we had also reduced pension costs that contributed in that case with a higher interest rate that reduces the personnel cost that was in that quarter a significant driver.

19:40 Thank you for that. And then maybe on a smaller market, China, but still I think that sounds promising that in third quarter you saw more or less a slight growth, if I understood correctly. Can you maybe give us a view that you have on China? I assume that it's mostly new build where you are selling your products to. First of all, is this right? And what do you see in the underlying markets?

20:08 So first you are right, we are predominantly in the new-build sector, but we shifted that already one, two years ago towards more renovation, also driven by the market, because the new-build market collapsed. And we had the first quarter with a positive sales growth in China, but don't put too much emphasis on a quarterly figure in China, because it's still very much project-related. All in all, we are still not positive for the market in China. We still think that the market is declining over this year, however, at a slower pace. And don't put too much emphasis on just one quarter where we had quite a good number.

20:43 Okay, thank you. The next question comes from Manuel Lang from Fontobel. Please go ahead.

20:54 Good morning, everyone. I have a question on Germany. You've reported there very nice growth acceleration. Just wondering if you saw this rate also continuing in October or what you can share of October would be nice to hear. And does this change your view on the German construction market also going forward? Then the second one would be on free cash flow. This was up in the third quarter, but you mentioned also timing effect of tax payments. So maybe you could share some details on how we should think about the fourth quarter. Should we expect a reversal of the trend? Because consensus, what I see is currently implying a sharp decrease in the fourth quarter as well. Thank you.

21:38 I take the first question about Germany and the second one will be answered by Tobias. We are indeed very satisfied with our development in Germany with the 5% growth in the first nine months, but we will not comment on the business in Germany which went into October. And also there, even Germany is a large market, don't put too much emphasis on just one quarterly number. The quarterly strong growth of 8% in Germany is not related to a quarterly change of our view on the market. but in general we have a slight positive view on the German market this year as already mentioned with H1 results.

22:19 When it comes to tax, we reiterate our guidance of 18% to 19%. H2 is normally always a bit higher due to semisomality and also some expected less favorable development of tax provisions, which will likely increase then the tax within the given bracket for the full year.

22:42 Okay, but on the fourth quarter drivers, do you think we could extrapolate the trend we've seen now in the third quarter in terms of free cash flow? Because I think, or if I recall correctly, you were still targeting 200 million capex for the full year, right?

23:01 No. which will be reversed in the full year. Okay, thank you. The next question comes from Arnaud Lehmann from Bank of America. Please, go ahead.

23:38 Thank you very much and good morning, gentlemen. Firstly, just a couple of follow-ups. Just on Q4, you mentioned a little bit of incremental inflation. Are you planning any extraordinary price increase in Q4 or are we now talking about Q1 2027 in terms of adjusting for sequential inflation? That's my first question. And just maybe following up on your comments on Germany. I mean, still a good performance even. I appreciate your comment about, you know, just looking at one quarter is not necessarily a trend. But do you mind splitting maybe pricing and underlying volumes and market share gain or at least a little bit of color to understand how you're performing so well in Germany?

24:24 Thank you so much.

24:26 The first question, we are not planning any extraordinary price increase as of now. As we said already in the first quarter, we implemented an extraordinary price increase to compensate for the absolute impact of the raw material prices and energy price increases which we have seen, but also with the current level which we see now, we are not planning any extraordinary price increases at the moment. The second question, the volume price effect in Germany is pretty much similar to what we communicated to the group. So in other words, we have a price effect in the first nine months of around 2%, and that also applies to Germany.

25:10 Thank you very much. The next question comes from Martin Schlückiger from Kepler-Schöbre. Please go ahead.

25:22 Morning gentlemen, thanks for taking my questions. I've got three actually. I'd like to start off with your strong performance in Switzerland in Q3. Could you elaborate a little bit what was driving that? Does it have anything to do with the changed regulations regarding taxation in Switzerland as of 2028, if I remember correctly? That's my first question. I'll go one at a time.

25:52 Yes, this is one of the reasons we believe that is pulling forward some demand, the change of the tax regulation as of 2029. Secondly, in general, an improved market environment, and thirdly, successful sales with our new products, for example, our shower toilet, Album, but also other products which have been perceived very well in the market.

26:16 Okay, that gives me the bridge to my next question. I was going to ask you about the new products. So shower toilets apparently in Switzerland had a good run. I suppose, and please confirm, was that the case throughout Europe for shower toilets but also for the other products in piping systems and the remaining product categories? That would be helpful.

26:41 Your hypothesis is correct. That applies also for the other markets, especially on the shower and toilet side. We are growing the first nine months with our shower and toilet double digits in volumes and in net sales. and especially substantial double-digit growth still with Alva now in the third year. More than 50% of our shower toilets which we have sold in the first nine months are Alva shower toilets. That applies pretty much across countries, not specifically only in Switzerland.

27:12 Okay, and still no cannibalization with Mera, for instance?

27:16 Not even. Mera is nicely growing in the first nine months, even slightly double-digit.

27:25 Okay, that's helpful, thanks. And my last question would be with regards to the expected net price effect in Q4 at the EBITDA margin level. If I saw this correctly, your EBITDA margin took a 30 basis points hit from the net price effect. Does that mean still a neutral price-cost effect in Swiss francs? That's question A. In question B, what are you guiding for the net price effect impact at the margin level for Q4? Thanks.

28:06 Yeah, well, in Q3, we had indeed 30 basis points negative. Price effect is still ramping up in Q4, like the answer which I gave Elodie. So we expect that the price effect will be nicely positive or stronger in Q4 when it comes to the implementation of the price increases. So that part is still ramping up.

28:35 Okay, so if I understood you correctly, the net price effect in margin terms is going to be slightly positive, not in absolute terms, right?

28:43 No, I have not commented in margin. As you know, we said it will go slightly up as well, the raw material, and I let you do there the calculation. I would not like to be more precise than that. Okay, thanks so much. The next question comes from Patrick Raffais from UBS. Please go ahead.

29:09 Thanks. Good morning, everybody. Two or three questions from me. Maybe the first, just a clarification. You talked about a slower October than Q3 and you also mentioned tougher comps in Q4. I'm just wondering, because from memory the tough comps were mostly in December due to the strong wholesale channel rebate benefits, so were the comps also tough in October or were these two separate comments?

29:44 So the comment I made referred to the Q4, because Q4 last year was the strongest growth with 6.4%, driven by a strong October but also a strong year end.

29:59 Okay, understood, thanks. And then, again, a follow-up on pricing. At H1, you indicated that the full-year pricing should be around 2.5. And now with prices ramping up in Q4 further, is that still the right way to think about it?

30:20 We expect a full year price effect of maybe 2 to 2.5%. Also the price effect in the third quarter with 3% was technically seen a bit lower than what would have been expected because we still have some deliveries as usual in July on all the prices. Therefore we expect the 2.5% full year price effect more in the upper end of the range.

30:46 Okay. Understood. Then the next one on the Q3 EBTA margin bridge. I'm just wondering if you can split the 90 bps of other cost impact. I mean, you talked about wage inflation being a bit lower, so I assume growth investments and energy and freight were the two main drivers here?

31:10 So, indeed, energy and freight prices made the predominant impact of that. And then we have as well, as mentioned before, the investment in marketing, IT and digitalization, roughly on the same level. And the reminder then being the wage inflation. We had on the rest even a positive effect. So these three were negatively contributing and the rest were slightly contributing positively. Summarizing again, energy, trade, and the investment roundabout on the same level, and then as to the effect of the wage inflation.

31:55 Super. And then the last one for me is just on the Western European region, which was flat in local currency. Are still UK and France the drag here and should we assume Iberia for example is growing?

32:13 This is correct, Iberia is growing nicely and the sales in France and UK are slightly down. Very much driven by we think weak market environment and declining market environment.

32:28 Super, thank you very much for this. The next question comes from Chase Cooglen from Kempen. Please go ahead.

32:38 Hi, good morning all, and thank you for taking my questions. Maybe starting off in terms of volumes, so second quarter, you know, volume mix effect was around 7.5%, now Q3, give or take 2%, and I think I heard you say that October was sort of slightly down versus Q3. Could you help me understand that direction of travel? Is that just pre-buying at Q2 and then some normalization or is that just underlying market changes? Could you help me understand that sequential decline?

33:08 The main dynamic for volume this year is driven by a base effect. We had a very strong volume growth in the second half of last year. The volume was at 5% and this is the main reason why we have seen and also expect for Q4 a slowdown of volume growth this year.

33:25 Yeah, okay, that's clear. And then I suppose a follow-up on that, you've touched on it already, but Q4 last year, December, you had the rebates, which creates a tough comparison. Is there sort of an expectation also to stock the channel quite a bit into December this year, or just nowhere near as much as what we saw last year?

33:42 No expectation about that, because you just don't know. That depends, obviously, on the individual decisions and behaviors by the whole system.

33:51 And then final question from my end. You've touched on the tax payment that supported free cash flow a bit in Q3. Could you quantify how large that was actually?

34:02 It was around 20 million.

34:07 Okay, perfect. Thank you very much, gentlemen. The next question comes from Cedar Ekblom from Morgan Stanley. Please go ahead.

34:18 Thanks very much. My follow-up question is about what you can do on the cost side below gross margin. I think the business continues to show a pretty high degree of ability to variabilize costs that we would traditionally think are more fixed in nature. I think that example of your personnel costs being flat in absolute terms even though having higher FTEs is one of these points. So with the price-cost spread becoming more of a challenge in the fourth quarter, can you talk about the initiatives you might take on your operating expenses or personnel expenses outside of energy or outside of traditional raw material costs that could help us understand the resilience of margins? Thank you very much.

35:06 So we do not take any specific initiatives to save costs. or to protect margins in Q4. That would be the absolute wrong decision. We have taken a pricing decision in the second quarter, which we have implemented now since June, that will accelerate. In other words, you have a pricing effect of around 3.5% in Q4 versus 2% in the first nine months. That will obviously help. And we always said We want to compensate in absolute terms and not in relative terms because pricing is not about margin protection only. It's also about customer relations and also about competition. And there's a good example in Switzerland that you also can be too aggressive with pricing at the moment. And I think we find the right balance and we will definitely not take any cost saving measures in the fourth quarter.

36:04 As a reminder, if you wish to register for a question, please press star followed by one. Our next question comes from Charlie Fehrenbach from AWP. Please go ahead.

36:14 Good morning and thank you. I have one clarification question. Did you say sales in October 26 were lower than October 25 because of the high demand? My second question is, you had a huge growth of more than 20% in the Middle East Africa area as well in Q3. Don't you see still any no negative effects at all through the war or was the contribution to the sales more coming from Africa? Thank you.

37:00 To the first question, sales development in October was weaker than in Q3 this year. Okay. And the second question, we have not seen any material impact on our top line in the region, in the Gulf region in the third quarter. Obviously, it has been affected at the beginning, basically in March and April quite severely. But we catch up relatively fast, especially in the Gulf region, and the Strait of Hormuz is not a restriction anymore because we are delivering to the markets at the Persian Gulf now through truck deliveries and not through ship deliveries to the Strait of Hormuz. So in other words, we are not affected at the moment. We do also not expect at the moment to be affected, but I want to be very careful with any forward-looking statements in the region for obvious reasons.

37:55 Thank you very much. For any further questions, please press star followed by one. Our next question comes from Yacine Touari from Onfield Investment Research. Please go ahead.

38:08 Yes, good morning. Thank you very much for typing in my question. Again, a question on the margin outlook for the first quarter. So if I understand, you're expecting pricing to be a bit better in Q4 than in Q3, but cost will also be somewhat higher. Energy is remaining a headwind and you will have lower marketing expenses that should provide an offset. And volume at the same time are facing tougher comparable. So my question is that is it fair to assume that margin expansion could be challenging unless activity is particularly strong in November and December? And could this mean that your full year EBDA margin guidance of around last year's level could be interpreted as a range of let's say 29 to 29.5% rather than the margin exactly in line with last year.

38:58 So, starting with the end, no change in the guidance, so it's a round, and we're not getting more precise. Then, indeed, calculations of what is known today is correct, but in Q4, there's always a high level of uncertainty, and also the weight of Q4, obviously, is less strong than the other quarters. and all that contribute then to us reiterating the margin gate guidance we gave in August.

39:36 Thank you very much. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Buhl for any closing remarks.

39:47 Thank you for your participation and your questions. We wish you all a great day. Goodbye.