GEA Shares Decline as 2013 Forecast Misses Analyst Estima

GEA Group AG dropped the most in more than 16 months in Frankfurt trading as the 2013 profit forecast of the German maker of food-processing equipment missed analysts’ estimates.

The company predicts earnings before interest, taxes, depreciation and amortization to rise to about 700 million euros ($948 million) from 598 million euros in 2012, GEA said today. The average estimate of 23 analysts surveyed by Bloomberg is for 727 million euros. The stock declined as much as 8.8 percent, the biggest drop since Sept. 2011.

GEA, which was founded in 1881 as a metals trading company and today makes milking machines and beer-brewing kit, is facing declining sales in Europe, its biggest market, as clients cut spending amid the region’s debt crisis. Sales in western Europe slipped 1 percent in 2012, while increasing 22 percent in North America and 11 percent in the Asia-Pacific region, according to a presentation on the company’s website.

“The 700 million euros that they’re guiding for 2013 isn’t bad at all, but consensus had crawled ahead of that,” said Eerik Budarz, a Frankfurt-based Westend Brokers analyst who recommends buying GEA shares. The stock may also drop today because it “performed well in recent weeks” and “2012 profitability was also a little bit below the consensus.”

The stock dropped as much as 2.36 euros to 24.61 euros and was down 5.4 percent as of 12:42 p.m. in Frankfurt, valuing the company at 4.9 billion euros. Before today, the stock of the Dusseldorf-based company had risen 10 percent since the start of the year while Germany’s DAX index gained 0.7 percent.

Conservative Forecast

The Ebitda guidance for 2013 is “typically conservative,” Chief Financial Officer Helmut Schmale said at a Dusseldorf press conference. “We don’t want to disappoint the capital markets in the course of the year.”

Ebitda declined 2 percent to 598 million euros last year, missing the average analyst estimate for 646.7 million euros. Operating profit excluding one-time effects climbed 7.1 percent to 562 million euros.

Revenue grew 5.6 percent to 5.72 billion euros last year while order intake rose 5.2 percent to 5.9 billion euros. The company predicted “moderate” revenue growth this year.

The food solutions unit’s sales declined on an organic basis by 12 percent to 332 million euros, while orders declined 8.5 percent in 2012. The segment is in the midst of a restructuring program and will “jump ahead considerably in the coming years,” Schmale said.

Food Acquisitions

Competitor Alfa Laval AB reported fourth-quarter net income that beat analyst estimates yesterday. The Lund, Sweden-based company said orders rose in western Europe even after the 17 countries that share the euro entered a recession in the third quarter. Growth was static in the U.S.

GEA continues to evaluate acquisition opportunities, and is considering 20 food processing segments, including cheese, wine and tea, Chief Executive Officer Juerg Oleas told journalists. Possible targets should add “individual elements to the value generation chain” and will likely have annual revenue of between 10 million euros and 200 million euros, he said.

GEA proposed a dividend to shareholders of 0.55 euros per share. Net debt fell 62 million euros to 326 million euros as of Dec. 31. The company will publish its full annual report on March 11.

Sebastian Growe, a Frankfurt-based Commerzbank analyst, said while GEA’s 2013 profit prediction is about 4 percent below market expectations, the company could raise its forecast.

“As there is still some uncertainty in the macroeconomic landscape despite the recent improvement in sentiment indicators, GEA’s guidance should be regarded as a conservative initial outlook that might be raised during the year,” he said.