Austerity program enters into force: Schaeffler exits the red – stock sells | Message


After a difficult first half of the year, preliminary data for the third quarter once again give hope to auto and industry supplier Schaeffler, shaken by the Corona crisis. Above all, a better-than-expected sales development in the important Chinese market gave further impetus in the third quarter to the SDAX group in Herzogenaurach in Franconia. However, on Monday evening after the market closed, Schaeffler pointed out that the market environment was still characterized by uncertainty.

On the capital market, the news provided only brief relief. Shortly after the start of XETRA trading, Schaeffler’s preferred stock rose by around 4.7% but then lost their profits again and eventually lost 3.76% to EUR 5.37. In the current year the stocks have lost 40 percent of their value, in the last five years it looks even worse with less than almost 60 percent.

On a currency-adjusted basis, sales fell 2.6% year-on-year to approximately € 3.4 billion. However, they showed a clear recovery from the first half of the year. The profit margin before interest and taxes (EBIT margin) adjusted for special items was 9.4%, 0.3 percentage points higher than the previous year. Schaeffler, in addition to the positive development in China, justified this with the fact that the savings measures introduced at the beginning of the year following the pandemic were taking effect.

In both the first and second quarters Schaeffler closed in the red due to the effects of the pandemic and in the second quarter of the year it also slipped operationally into the red. Schaeffler initially did not provide any information on the surplus between July and late September; the Swiss francs want to release their full data for the third quarter and first nine months on November 10, as planned.

While free cash flow prior to inbound and outbound payments for M&A businesses was clearly negative in the second quarter as well at minus 285 million euros, Schaeffler managed to get back into positive territory for this figure with plus 333. million euros. However, the free cash flow is lower than the previous year’s figure of 362 million euros. The indicator is particularly important for investors and analysts as it provides information on a company’s financial strength. If it is negative, the money will be burned.

From the perspective of US bank JPMorgan analyst Jose Asumendi, strong free cash flow was the ray of hope within the quarterly report. He expected only 250 million euros. This now supports his assessment that business development will also ensure strong free cash flow throughout the second half of 2020 and beyond.

Meanwhile, Deutsche Bank expert Tim Rokossa made it clear that the high expectations Schaeffler had surpassed were due to high margins in the automotive sector. The Franconians thus joined a number of car suppliers who soon released figures and with them exceeded expectations. According to the good numbers, Schaeffler shares should develop better than the overall market, Rokossa believes.

In the automotive sector, by far the largest division in the Group, Schaeffler was able to curb the decline in sales with a sales reduction of 1.1%; the adjusted EBIT margin for special items was 8.3%, even higher than 7.0% the previous year. In the industrial sector, however, sales and EBIT margin decreased significantly.

Schaeffler is in the midst of an expensive conversion and savings program. By the end of 2022, the Swiss francs want to cut thousands more jobs, mostly in Germany, and Schaeffler employees have violently protested against the plans. Furthermore, the company has recently created the conditions for a possible capital increase.

Even before the pandemic, the weakness of the auto industry was evident in the Herzogenaurach-based company before the virus crisis hit the supplier hard in the first half of the year. Schaeffler suspended its forecast for the current fiscal year due to the pandemic in the spring. Ahead of the third quarter, CEO Klaus Rosenfeld was cautiously optimistic in mid-August. Although the crisis is not over yet, the manager speculated that the low point had been passed.

/ eas / men / stk


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Image sources: Schaeffler Group

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