Shares of bathroom products maker Geberit sink after guidance downgrade

By Noele Illien and John Revill

ZURICH (Reuters) -Geberit shares fell 7% on Thursday after the plumbing supplies maker reported a drop in third quarter sales and cut its full-year profit margin guidance.

The maker of bathroom piping, ceramics and shower toilets has been hit by a stronger Swiss franc as well as a fading away of the recent home improvement trend as homeowners become concerned about tighter budgets and more expensive mortgages.

Wholesalers had also held off new purchases and were destocking to avoid price increases brought in by Geberit to offset more expensive raw materials and energy costs.

"The third quarter results fell far short of expectations in terms of sales and margin due to the unexpected sharp drop in volumes," said Zuercher Kantonalbank analyst Martin Huesler.

"The high level of uncertainty and especially increase in energy prices is having an unprecedented impact on Geberit as well as on the entire construction supply sector in general," he added.

During the three months to the end of September, Geberit sales fell 7.5% to 790.7 million Swiss francs ($788.33 million). Core operating profit (EBITDA) fell 23% to 206 million francs with a margin of 26.1%.

Inflationary pressure continued in the third quarter of 2022, the company added, with energy being almost three times more expensive than it was a year earlier, although this was offset to some degree by price increases of 10%.

"In contrast, the margin was negatively impacted by volumes declining due to the reduction of inventories at wholesalers and costs returning to normal levels after the COVID-19 pandemic," Geberit said.

The company, seen as a proxy for the broader construction sector, also said it now expected a full-year core operating profit margin of around 27%, down from its August view of 28%.

It also tweaked its sales outlook lower, now expecting growth in the mid to high single-digit percentage range, down from its previous outlook for a high single-digit increase.

"This prudent outlook is shaped by the prevailing high macroeconomic uncertainties," Geberit said.

($1 = 1.0037 Swiss francs)

(Reporting by Noele Illien; editing by John Revill and Kim Coghill)