Legrand Earnings: Declining Volumes in the U.S. Lead to Disappointing Sales Growth and Guidance

Having recently raised its organic revenue guidance in the previous quarter to between 3% and 6%, it was somewhat disappointing to see management guide for the low end to be achieved during the full year. Third-quarter organic sales growth of 2% was considerably lower than comparable segments at ABB and Schneider. Legrand’s large exposure to residential and commercial office construction, which are more sensitive to higher interest rates, means its top-line performance has lagged peers. Mid-single-digit volume declines in the U.S. more than offset sequential improvements in Europe, which can largely be attributable to Legrand’s exposure to a weak U.S. residential and office market. We have cut our organic sales growth estimate to 2.9% from 4.6% due to the underperformance of its Americas segment but maintain our EUR 87 fair value estimate. Legrand’s narrow moat remains firmly intact as evidenced by its impressive operating margin, which was guided upward for the full year. Shares are currently fairly valued.