CBRE’s (NYSE:CBRE) Q3: Beats On Revenue
Commercial real estate firm CBRE (NYSE:CBRE) reported Q3 CY2024 results exceeding the market’s revenue expectations, with sales up 14.8% year on year to $9.04 billion. Its non-GAAP profit of $1.20 per share was also 13.2% above analysts’ consensus estimates.
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CBRE (CBRE) Q3 CY2024 Highlights:
- Revenue: $9.04 billion vs analyst estimates of $8.80 billion (2.7% beat)
- Adjusted EPS: $1.20 vs analyst estimates of $1.06 (13.2% beat)
- EBITDA: $688 million vs analyst estimates of $616.3 million (11.6% beat)
- Management raised its full-year Adjusted EPS guidance to $5 at the midpoint, a 4.2% increase
- Gross Margin (GAAP): 19.7%, up from 18.7% in the same quarter last year
- Operating Margin: 4.1%, in line with the same quarter last year
- EBITDA Margin: 7.6%, up from 5.5% in the same quarter last year
- Free Cash Flow Margin: 0%, down from 3.9% in the same quarter last year
- Market Capitalization: $37.09 billion
“Our performance in the third quarter was highlighted by our second-highest third quarter core earnings per share in company history, driven by double-digit revenue and profit growth and significant operating leverage in all three business segments. In addition, we achieved operational gains across key parts of our business and continued to advance our strategic positioning,” said Bob Sulentic, chair and chief executive officer of CBRE.
Company Overview
Established in 1906, CBRE (NYSE:CBRE) is one of the largest commercial real estate services firms in the world.
Real Estate Services
Technology 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 Growth
Reviewing 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 sustains growth for years. Regrettably, CBRE’s sales grew at a sluggish 8.3% compounded annual growth rate over the last five years. 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 4.9% over the last two years is below its five-year trend.
We can better understand the company’s revenue dynamics by analyzing its three most important segments: Advisory Services, Workplace Solutions, and Investment Management, which are 26.5%, 70.2%, and 3.3% of revenue. Over the last two years, CBRE’s Workplace Solutions revenue (facilities and project management) averaged 34.6% year-on-year growth while its Advisory Services (leasing, capital markets) and Investment Management (real estate investments) revenues averaged 6% and 6.3% declines.
This quarter, CBRE reported year-on-year revenue growth of 14.8%, and its $9.04 billion of revenue exceeded Wall Street’s estimates by 2.7%.
Looking ahead, sell-side analysts expect revenue to grow 10.8% over the next 12 months, an acceleration versus the last two years. While this projection illustrates the market believes its newer products and services will spur better performance, it is still below the sector average.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
CBRE broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.
CBRE broke even from a free cash flow perspective in Q3. The company’s cash profitability regressed as it was 3.9 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from CBRE’s Q3 Results
We were impressed by how significantly CBRE blew past analysts’ Workplace Solutions revenue expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 3.2% to $127 immediately following the results.
CBRE may have had a good quarter, but does that mean you should invest right now?We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
