Deutz maintains profit in first half despite market weakness

Despite economically challenging market conditions, Cologne, Germany-based drive systems manufacturer Deutz AG said it remains profitable, as evidenced by its first half 2024 results. While it saw a decline in revenue, the company reported an EBIT before exceptional items of €50.1 million, with an adjusted EBIT margin of 5.7%. The margin is virtually unchanged from the same period in 2023 (6.1%), which Deutz attributes to the company’s resiliency and the success of the ongoing optimization of its portfolio.

Dr. Sebastian Schulte, CEO and chairman of the Board of Management, Deutz AG

Deutz cited the weak economic environment in nearly all end customer markets as leading to a decline of 18.1% in new order sales to €791.0 million. The company also saw unit sales decrease 18.9%, with 74,162 engines sold in the reporting period compared with 91,451 in the prior year period. All application segments except Material Handling (+14.1%) saw a decrease in unit sales.

The revenue decline to €875.5 million was less severe at 12.6%. The company said contributing factors included measures implemented to optimize costs and boost performance, as well as the ongoing expansion of its service business, which saw revenue increase 6.5% to €252.9 million compared to first half 2023.

“Our business performance shows that we are not immune to what happens in the market. Unlike in the past, however, we are operating profitably and earning money during this phase,” said Deutz CEO Dr. Sebastian C. Schulte. “This is thanks to the operational measures that we have implemented and the strategic milestones that we have reached. They are enabling us to put Deutz on a broader and thus more future-proof footing.”

Such milestones include the expansion of the service business – including the acquisition of Diesel Motor Nordic (now Deutz Nordic) in the second half of 2023 – and the acquisition of U.S.-based generator manufacturer Blue Star Power Systems, completed at the beginning of August 2024.

Milestones such as the acquisition of Diesel Motor Nordic, now Deutz Nordic, helped increase service revenue by 6.5% in the first half of the year. (Photo: Deutz)

According to Deutz, the Blue Star Power System acquisition will allow it to make further progress in its transition from component manufacturer to system provider; provide access to new, complementary business models; and enable it to tap into a familiar, fast-growing and less cyclical market. It is expected to provide Deutz with additional profitable revenue ranging from more than US$100 million (in the medium term) to more than US$150 million per year.

Building on this acquisition, revenue in the energy business as a whole is expected to increase to approximately €500 million by 2030 through both organic growth and growth by acquisition.

Deutz is continuing to expand its Classic business, as well. It noted the completion of its transaction to take over Rolls-Royce Power Systems’ sales and service activities for heavy-duty and medium-duty Daimler Truck engines, which is expected to generate roughly €300 million in additional annual revenue. In early July, the company also announced an alliance with Indian agricultural machinery company TAFE, which is primarily aimed at expanding the internal combustion engine business by providing access to the Indian market and allowing Deutz to carry on manufacturing with a competitive cost structure, it said.

For its full-year outlook, Deutz anticipates it will reach the lower end of its forecast range for unit sales of 160,000 to 180,000 engines in 2024, with revenue expectations within a range of €1.9 billion to €2.1 billion. The forecast for adjusted EBIT margin is unchanged at between 5.0% and 6.5%, with free cash flow (before potential M&A activities) in the mid-double-digit millions of euros.