Dive Brief:
- Schneider Electric reported a solid performance in North America during the first quarter of 2024, led by a strong contribution from its systems business and a robust demand in its data center and infrastructure markets that drove revenue growth in its energy management segment.
- North America revenues climbed 7.1% organically to nearly $3.2 billion (2.99 billion euros) year over year and accounted for 35% of overall first-quarter revenue, Schneider Electric said in an earnings release Thursday. Energy management revenue in the region grew 10.2% organically to almost $2.8 billion in the quarter, while revenue from its industrial automation segment in North America declined 9.9% organically to about $410 million amid weaknesses in discrete automation.
- The company continued to see strong sales and demand in its buildings end-market and benefited from continued exposure to non-residential buildings, particularly “technical buildings like hospitals, schools [and] stadiums,” CFO Hilary Maxson said on an earnings call Thursday. Robust demand in its data center end-market is being driven by strong trends in both traditional and AI-powered data centers, with the firm expecting demand and sales in its distributed IT business to “pick up sequentially,” Maxson said.
Dive Insight:
In its North America energy management segment, product revenues rose by the low-single digits, the company said, noting that supply constraints stemming from an extended period of high demand impacted sales growth, particularly in Schneider Electric’s U.S. systems business and residential buildings market. “This is a top focus across our leadership team for 2024, and we continue to invest in capacity and resilience in North America,” Maxson said on the call.
Field services revenue, which accounted for 11% of first-quarter global revenues, organically grew 12% in the first quarter, driven by performance in both of Schneider Electric’s reporting segments. Energy management services benefited from strong trends associated with data centers and infrastructure as well as non-residential building renovations in mature economies, alongside improvements in discrete and process and hybrid automation segments, Schneider Electric said.
Declining revenues in Schneider Electric’s U.S. industrial automation segment, while driven by higher inventories at discrete automation distributors and original equipment manufacturers, were also impacted by timing issues related to AVEVA, Maxson said. AVEVA, a company that specializes in engineering and industrial software, was acquired by Schneider Electric last year. Despite timing woes, AVEVA continued its transition to subscription during the first quarter and recorded a 13% growth in annualized recurring revenue, as of March 31, Schneider said in the release. This subscription transition led to lower license revenue for the firm’s energy management software business, which still grew 5% organically and made up 19% of overall first quarter revenues, according to the earnings presentation.
The industrial automation segment’s process and hybrid markets saw “good growth,” offset by weak demand from OEMs, which impacted systems sales in the discrete automation, the company said in the release. Maxson noted that process automation saw a continued mid-single-digit growth in the quarter and that the impact of the decline in discrete automation played out as expected.
For the year ahead, the company cited expectations of strong demand for system offerings driven by data centers, grid infrastructure investment and increased investments across the process industries as well as a continued focus on subscription transition in software and growth in services. Schneider also anticipates a gradual demand rebound for product offers toward the second half of 2024, related in part to a recovery in discrete automation and consumer-linked segments, according to its earnings presentation. Against this backdrop, “we expect to be driven by organic growth in our revenues of 6% to 8% and by expansion in our margin of 40 to 60 basis points,” Maxson said.
Schneider Electric is also in preliminary talks with a U.S.-based publicly traded software company, Bentley Systems, regarding a potential transaction, the company confirmed in an April 19 press release. “While there is no certainty that any transaction will be agreed upon, we did want to put this into context of [our] capital allocation priorities…which remain totally unchanged,” Maxson said, declining to comment further on the specifics of the transaction. These capital allocation priorities include strong investment-grade credit ratings, a continued focus on progressive dividends, funding organic growth and “portfolio evolution/share buyback,” Schneider Electric said in its 2023 Capital Markets Day finance presentation.
The company has cited a goal of slashing 50% of scope 1 and scope 2 emissions across its top 1,000 suppliers’ operations by 2025. About 28% of scope 1 and scope 2 emissions have been reducedin the first quarter, according to its Q1 2024 sustainability impact presentation. Schneider Electric also reported that it has helped customers save and avoid 576 million tons of carbon dioxide emissions, with a goal of reaching 800 million tons saved by 2025.
The company’s overall first-quarter revenue organically grew 5.3% year over year to roughly $9.2 billion.
