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Commercial real estate firm CBRE (NYSE:CBRE) announced better-than-expected results in Q2 CY2024, with revenue up 8.7% year on year to $8.39 billion. It made a non-GAAP profit of $0.81 per share, improving from its profit of $0.64 per share in the same quarter last year.
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CBRE (CBRE) Q2 CY2024 Highlights:
- Revenue: $8.39 billion vs analyst estimates of $8.31 billion (small beat)
- EPS (non-GAAP): $0.81 vs analyst estimates of $0.71 (14.3% beat)
- Gross Margin (GAAP): 19%, down from 20.2% in the same quarter last year
- Free Cash Flow of $559.7 million is up from -$560 million in the previous quarter
- Market Capitalization: $29.65 billion
Real Estate ServicesTechnology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, CBRE grew its sales at a weak 8.1% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. CBRE's recent history shows its demand slowed as its annualized revenue growth of 4.3% over the last two years is below its five-year trend.
We can dig further into the company's revenue dynamics by analyzing its three most important segments: Advisory Services, Workplace Solutions, and Investment Management, which are 26.4%, 70.8%, and 2.8% of revenue. Over the last two years, CBRE's Workplace Solutions revenue (facilities and project management) averaged 34% year-on-year growth while its Advisory Services (leasing, capital markets) and Investment Management (real estate investments) revenues averaged 8.3% and 9.9% declines.
This quarter, CBRE reported solid year-on-year revenue growth of 8.7%, and its $8.39 billion of revenue outperformed Wall Street's estimates by 0.9%. Looking ahead, Wall Street expects sales to grow 10.7% over the next 12 months, an acceleration from this quarter.
Cash Is King Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
CBRE has shown poor cash profitability over the last two years, putting it in a pinch as it gave the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 2.5%, lousy for a consumer discretionary business.
CBRE's free cash flow clocked in at $559.7 million in Q2, equivalent to a 6.7% margin. This quarter's result was nice as its cash flow turned positive after being negative in the same quarter last year, but we wouldn't read too much into it because working capital and capital expenditure needs can be seasonal, causing quarter-to-quarter swings. Long-term trends carry greater meaning.
Key Takeaways from CBRE's Q2 Results It was good to see CBRE beat analysts' Workplace Solutions revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock traded up 1.7% to $99.99 immediately following the results.
