Deutz reports profits despite demand slump
07 November 2024
Deutz engine production line in Cologne, Germany (Photo: Deutz)
Despite the effects of an ongoing fall in demand due to economic headwinds, Deutz has reported profit growth for the first three quarters of 2024.
Unit sales in the reporting period saw a considerable decrease as a result of falling new orders, as reported in previous quarters. Deutz sold 107,350 units from January to September 2024, a drop of 22.0% compared with the 137,559 units sold in the prior year period. The decline in unit sales was attributable to all regions, with the EMEA region recording the biggest decreases.
Revenue declined 13.4% to €1,305.9 million, reflecting the decline in unit sales, as well as the suspension of production at the headquarters in Cologne, Germany, for three weeks during August, the company stated. However, Deutz said the fall in revenue was significantly less pronounced compared to the unit sales decline thanks to market-oriented pricing, active portfolio management and a 5.2% increase in service revenue to €379.4 million.
New orders came in at €1,346.2 million, down 3.8% from the prior year period (Q1–Q3 2023: €1,398.9 million). The fall in demand was only partly reflected in the level of new orders due to the acquisition of U.S.-based Blue Star Power Systems as well as the takeover of the off-highway business for selected Daimler Truck engines from Rolls-Royce Power Systems. Both transactions were completed in the third quarter, with their full effect on earnings to start in Q4.
New orders in the service business rose to €383.3 million, up 6.3% compared with the first nine months of 2023, while new orders in the Miscellaneous application segment increased 12.5% to €59.3 million. In contrast, new orders in the Construction Equipment and Agricultural Machinery application segments fell sharply year on year. New orders in the Material Handling application segment were more or less unchanged over the prior year period due to increased demand in the Americas region, the company noted.
Even given the economic challenges, Deutz reported an adjusted EBIT (EBIT before exceptional items) of €57.3 million and adjusted EBIT margin of 4.4% (Q1–Q3 2023: 7.1%), which it attributed largely to its ongoing expansion of the high-margin service business.
Building resilience
As stated in the adjusted full-year guidance for 2024 issued at the start of October, Deutz expects unit sales of fewer than 150,000 engines and revenue of around €1.8 billion as a result of the fall in demand. This should give an adjusted EBIT margin of between 4.0% and 5.0%.
Dr. Sebastian Schulte, CEO and chairman of the Board of Management, Deutz AG
The medium-term targets for 2028 are an increase in revenue to between €3.2 billion and €3.4 billion, plus an adjusted EBIT margin of between 8% and 9%.
“We are putting Deutz on a progressively broader footing and making ourselves ever more resilient,” said Deutz CEO Dr. Sebastian C. Schulte. “This is not only due to the improved operating performance but also to the development of the portfolio over the past two years, which means that we are able to earn money even during these difficult times.
“By pursuing our updated strategy and the cost program that is now under way,” he continued, “we are laying the foundations for further profitable growth in the years ahead.”
The main updates to Deutz’s Dual+ strategy include increased diversification of the company’s portfolio, a demand-driven approach in the market for alternative drives and a stronger positioning of the company as a solutions provider through its usual value chains, such as the field of energy. The stated revenue target is to reach around €4 billion by 2030.
Deutz has also launched a cost program aimed at permanently lowering costs by €50 million by the end of 2026. The program will supplement the short-term measures already introduced, which are expected to generate savings of €10 million to €15 million as early as the fourth quarter.
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