Company Knorr-Bremse faces increased challenges
In a recent financial update, German braking systems manufacturer Knorr-Bremse reported a decline in operating profit for the first half of the year, primarily due to adverse currency effects, a weak North American truck market, and restructuring costs. Despite maintaining a high order backlog, the company has lowered its profit targets for the full year.
The strong euro negatively impacted revenues, causing Knorr-Bremse to revise its sales target for 2025 from €8.1-8.4 billion to €7.8-8.1 billion. However, the company confirmed its earnings and cash flow outlook. The Commercial Vehicle Systems (truck) division faced a sluggish market in North America, resulting in lower revenues and reduced operating EBIT. The Rail division, on the other hand, showed strong revenue growth and profitability that helped offset the weaker truck business.
Analysts have reacted cautiously but recognised the company's underlying structural strengths and strategic resilience. Knorr-Bremse missed earnings and revenue expectations in Q2 2025, but the company demonstrated resilience through efficiency gains, a robust aftermarket business, and strategic investments in AI and rail expansion. This led to a market reaction with only a modest stock price drop, viewing the earnings miss as a short-term issue rather than a long-term problem.
Deutsche Bank Research advised "hold" for Knorr-Bremse due to disappointing profitability and free cash flow. Swiss bank UBS, however, maintains a "buy" rating for the company with a price target of 101 euros. Hauck Aufhäuser Investment Banking downgraded Knorr-Bremse stock to "hold" with a price target of 61 euros. Warburg Research lowered its price target from 63 to 53 euros but maintained a "hold" recommendation.
CEO Markus Weber attributed the decline in profit to the withdrawal from Russian activities and the difficult market situation in China. The company's revenue remained at the previous year's level at 3.4 billion euros, while orders increased by 12 percent to 4.1 billion euros in the first half of the year. Knorr-Bremse stock was down two percent on Friday morning.
It is worth noting that the company's operating margin shrank to 10.5 percent in the first half of the year, and decreasing rail investments were reported due to the corona situation. The new margin outlook is worse than feared, as stated by Swiss bank UBS. The cut annual target and adjustments for Knorr-Bremse were largely expected, as reported by Hauck Aufhäuser Investment Banking.
In summary, the profit decline despite a strong order backlog is mainly due to currency headwinds, regional market weakness in trucks, and restructuring expenses. Analysts generally see Knorr-Bremse's performance and strategy as resilient post-announcement, with the potential for recovery in the second half of the year.
Despite the revenue decline due to adverse currency effects, a weak North American truck market, and restructuring costs, Knorr-Bremse is maintaining its earnings and cash flow outlook in the financial sector. The company is still seeking growth in the AI and rail expansion areas, as demonstrated by strategic investments in these fields.
