Legrand SA Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Daniela Costa - Goldman Sachs Group Inc - Analyst : Daniela Costa AnalystSo I'll start with the first one and then a follow-up. But first, can you maybe help us out on free cash flow? I think sort of it's been disappointing at least versus the market expectations for quite a few quarters now. Can you guide us again through what is structurally there of maybe perhaps a higher working capital level for longer versus what is temporary? And how quickly can we see a recovery?

Question: Daniela Costa - Goldman Sachs Group Inc - Analyst : And then maybe for my follow-up, if I could ask sort of what prompted you on the margin guidance change, both changing it from before to post M&A? And then also, it sounds like reducing it slightly. Is it just mix because of the Europe trend? Or is it something else?

Question: Daniela Costa - Goldman Sachs Group Inc - Analyst : Yes.

Question: Max Yates - Morgan Stanley & Co - Analyst : Max Yates AnalystJust my first question is just around the European margin. So 20% this quarter looks like it's taken kind of quite a big step back versus the first half. And then I guess also year-on-year when you look at the decline in sales, it's quite a high drop through to get that margin decline. So I just wanted to understand, could you give any color for kind of exactly what is happening here in Europe? I mean, obviously, volumes is one element, but is this -- is there something to do with kind of a particularly profitable region within that falling? Just any color around that European margin would be helpful.

Question: Max Yates - Morgan Stanley & Co - Analyst : Okay. And maybe just a quick follow-up on data centers. I mean, obviously, it sounds like that's accounted for a lot of your US growth. Could you just give us a feel or maybe a number on kind of what the datacenters grew at? And also whether your book-to-bill this quarter? And any view on kind of how far ahead your orders are the revenues as well would be useful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 7:30AM, LEGD.PA - Q3 2024 Legrand SA Earnings Call

Question: George Featherstone - Barclays PLC - Analyst : Just a follow-up on datacenters. I wondered if you could talk a little bit about the competitive landscape you have now in red or heat exchanges in particular. Obviously, there's been a bit of consolidation in that part of the market. So it would be good to get your thoughts on the outlook there and the competitive landscape?

Question: Gael de-Bray - Deutsche Bank AG - Analyst : Could you elaborate a bit more on the margin bridge this quarter? I mean, volumes were up, the price cost equation appears to be positive. So what drove the margin down on a year-on-year basis? And in relation to this, really, as you narrowed a bit the margin outlook, what surprised you the most -- was there an unexpected deterioration in any specific category or segment? Or was it just the magnitude of the decline in Europe?

Question: Martin Wilkie - Citigroup Inc - Analyst : It's Martin from Citi. Just a couple of questions on your US business. So it sounds like the business, excluding datacenter, still negative. But if you could just talk sequentially about the nonres market in the US. Obviously, you said Europe is deteriorating. Is the US stable relative to what you saw in the second quarter? Are there some signs of improvement even though it's still negative. So that was my first question.

Question: Martin Wilkie - Citigroup Inc - Analyst : And if I could follow up on the US. Could you remind us your sourcing into the U.S? I think some components have in the past come from China and how that was offset in previous ways of tariffs, particularly if we think back to 2018, 2019. And I appreciate it's obviously we do to understand how tariffs may change in 2025, but you must have some thoughts already about how you might offset that. So intrigued to hear what you might think. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 7:30AM, LEGD.PA - Q3 2024 Legrand SA Earnings Call

Question: Alasdair Leslie - Bernstein AG - Analyst : Maybe a couple of questions, one on a follow-up. If I could just start on datacenters. So very good growth in Q3. It looks like a strong sequential acceleration. I was just wondering if there's any kind of comp effect that might help there and whether you can remind us as well of the kind of basis of comparison for Q4 because obviously heading into Q1, you're going to have a very easy comp given the flat growth earlier in the year? And then I've got a follow-up. I'll ask that in the second, okay.

Question: Alasdair Leslie - Bernstein AG - Analyst : Great. And then just a follow-up, it's on the subject of projects, I suppose. You previously highlighted in the gray space in Europe. I think you've won some projects there, some reference projects, I think France is all Switzerland. Are you delivering and executing on many of those now. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 7:30AM, LEGD.PA - Q3 2024 Legrand SA Earnings Call Can you say anything about sort of whether your win rates are now increasing on the back of those reference projects? And I think also broader portfolio with power control, et cetera.

Question: Eric Lemarie - CIC Market Solutions - Analyst : Yes, yes. I got a question on the US. What about your strategy to rebalance your US volumes in other nonresidential verticals there? I know you regularly mentioned it, but do you return you could achieve positive results in Q4 or next year regarding this strategy? And still in the US, do you have any fresh news or fresh comments to make on the recent the office issue in the US? Have you noticed any change recently?

Question: Eric Lemarie - CIC Market Solutions - Analyst : And back to, maybe a follow-up. I asked the question, but acquisition of Schneider Electric. Did you look at Motive as well?

Question: Delphine Brault - ODDO BHF SCA - Analyst : I will ask them one at a time. Coming back on your gross margin that has deteriorated in Q3, but also by several tens basis points over the first 9 months. Can you provide a bit more granularity? What is behind? Is it mix -- is it lack of pricing versus input costs? And what will be your strategy as regard to gross margin in the coming quarters? For how long are you ready to to accept a small pressure on gross margin?

Question: Delphine Brault - ODDO BHF SCA - Analyst : And then can you provide a bit more granularity on the trend by country in your Rest of the World segment?

Question: William Mackie - Kepler Cheuvreux SA - Analyst : My question, Benoet, would be around your thoughts around the evolution of your organic investment not really so much CapEx, although that would be interesting, but more restructuring. You talked about restructuring. I think it's up 25% year-on-year in the first 9 months EUR50 million or something. What are your thoughts running into the year? Where are you adjusting the balance of capacities across the business and perhaps on the R&D side, whether you see scope to accelerate the innovation?

Question: William Mackie - Kepler Cheuvreux SA - Analyst : One short follow-up, I think it's short. It relates to your M&A strategy and your financing. Clearly, you benefit from very strong cash generation. But I'm just thinking when you look at leverage, how far up would you take leverage in the pursuit of deals in the near term? Would you go up as high as 2.5 or something?