Legrand Q2’22 Analysis: Experiencing Considerable Growth in the First Half of 2022, Legrand Increases Its 2022 Full-Year Target for Growth in Sales

Legrand (LGRDY) reported Q2 and 2022 first-half (H1) results on Friday July 29, 2022 including a Q2 2022 increase in global net sales of 19.2% for revenues of EUR 2.12B ($2.16B) and adjusted operating profit up 9.1% at EUR 436.6M ($445.7M).  Sales increased in all geographical regions in Q2, with the overall 19.2% growth attributed 10.7% to organic, 1.6% to acquisitions and 6% to favorable foreign exchange (FX) effect.  The H1 results (Q1+Q2 2022) show strong growth in sales at +18.5% (10.9% organic growth) and a rise in net profit of 13.9% “despite an unstable and highly inflationary environment.”

The 2 newly announced Q2 “bolt-on acquisitions” (a reference to smaller companies, usually intended to be merged into the purchasing company) are both datacenter-related businesses:

  • USystems, a UK-based 70-employee business with around EUR 11M ($11.2M) annual sales, specializing in cooling systems and racks for reducing datacenter energy consumption and carbon footprints
  • VOLTADIS, a France-based 20-employee business with around EUR 13M ($13.3M) annual sales, specializing in equipment design, supply, installation & commissioning services for datacenters

As noted in earlier articles on Legrand, the company does not break out lighting brands and lighting controls separately.  These lighting businesses are reported within the geographical summary along with Legrand’s other North & Central American businesses in A/V, data communications, critical power & infrastructure, networking, shading systems, wire & cable management and wiring devices.  The North & Central American sales volume includes lighting brands Finelite, Focal Point, Indigo-Clean, Kennall, OCL, and Pinnacle, as well as lighting controls & systems brands Adorne, Radiant, Vantage and Wattstopper.

During the earnings call Q&A, concern was raised over the large increase year-on-year of finished goods inventory, now representing nearly 2 points of revenue.  CEO Benoit Coquart acknowledged that the inventory has increased significantly (from 14.7% of sales at the end of June 2021 to 19.1% of sales at the end of June 2022.   Coquart indicated the inventory investment reflected a 50/50 split – half of it is the inflationary prices of raw materials and electronic components, and the other half is the necessary coverage for Legrand to provide good service to their customers.  He reinforced Legrand’s midterm goal to get back to the historical levels of inventory to sales (13 to 14%).

When asked about the supply situation, CEO Coquart said on electronic components and semiconductors, he did not see any improvement very soon, and not likely before the end of H2 or more likely, in early H1 2023.  He noted that the problems are being faced by all in the market, so it is not impacting Legrand’s market share.  Coquart also noted that the US Legrand business has significant dependence on China sourcing, and that some manufacturing has been moved from China to Vietnam, and some moved from China back to Mexico.

One analyst on the earnings call asked about the exposure to European energy prices and risks of gas supply/rationing over the winter months.  While CEO Coquart noted that Legrand is not a big energy consumer (energy represented 0.5% of Legrand’s 2021 sales, of which gas is less than 20%), the big question is the uncertainty of the global impact the gas shortage would have on the European economy.  He gave an example of potential positive impact on the Legrand business:  the French government met last week on solutions to meet a strategy to cut energy consumption in France by 10% within two years.  Solutions discussed included:  limiting AC setting to 26C (79F), limiting heating to 19C (66F), presence detectors to shut off lighting when people are not there, and smart thermostats. CEO Coquart sees potential for these types of initiatives to spread to other markets over time, creating growth opportunities for Legrand products and systems.

With the strong overall performance turned in for the first 6 months of fiscal 2022, Legrand is raising is 2022 full-year target:  growth in sales is now targeted for the full year between +9% and +12% (compared to +5% and +11% previously).  Targets for adjusted operating margin remained the same as original guidance at about 20% of sales, and Legrand still aims to reach around 100% of its CSR (corporate social responsibility) achievement for the first year of the 2022-2024 roadmap.

Go Deeper:

Legrand Q2/H1 2022 Press Release: https://www.legrandgroup.com/sites/default/files/Documents_PDF_Legrand/Finance/2022/6m/Legrand_Press_Release_Results_H12022_1659004585.pdf

Legrand Q2/H1 2022 Earnings Slide Presentation: https://www.legrandgroup.com/sites/default/files/Documents_PDF_Legrand/Finance/2022/3m/Legrand_Slideshow_Q12022_1651668775.pdf

Legrand Q2/H1 2022 Webcast: https://channel.royalcast.com/legrand-en/#!/legrand-en/20220729_1

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