Cushman & Wakefield Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Results: Concluded 2024 with highest capital markets revenue growth since Q1 2022, five straight quarters of leasing revenue growth, highest free cash flow conversion percentage in company history.
• 2025 Outlook: Leasing revenue growth to remain solid with green shoots in office and improving net absorption; industrial normalizing but growth engines strong; capital markets not expecting hockey stick recovery but expecting good bounce.
• Investment Strategy: Multifaceted approach including talent retention and recruitment, funding organic expansion, and strategic tuck-in growth. For example, Myles Treaster brought in ten new capital markets professionals.
• Financials: 2024 fee revenue $6.6B (+1%), adjusted EBITDA $582M (+3%), EBITDA margin 8.8%, adjusted EPS $0.91 (+8%), free cash flow $167M. Q4 revenue $1.9B (+4%), adjusted EBITDA $222M (+6%).

Segment Performance

• Leasing: Americas leasing grew 12% in Q4, second straight quarter of double-digit growth; APAC leasing was stable with strong results in Australia and India offsetting challenges in China; EMEA leasing contracted 15% in Q4 due to tough comparison.
• Capital markets: Americas up 33% in Q4 fueled by industrial deals and strong office activity; EMEA up 20% led by France and Eastern Europe; APAC up 92% driven by Japan and Australia.
• Services: Americas services revenue increased 3% in Q4 excluding divestiture; APAC Services declined 7% due to prior year one-time project revenue but ended the year up 3%; EMEA Services returned to growth in Q4 rising 1%.

Guidance

• 2025 leasing growth expected to remain mid-single digits, supported by resilient US economy and return to office trends.
• Capital markets growth expected to accelerate from mid-single-digit rate in 2024, but not a hockey stick recovery due to likely high interest rates.
• First-quarter margin expected to be relatively flat vs prior year due to increased investment spend.
• Expect improved EPS growth in 2025 vs 2024, with accelerating earnings growth in 2026 and 2027.

Risks

• Macroeconomic environment uncertainties, including interest rate volatility.
• Policy uncertainty in industrial sector affecting transaction activity.
• Tighter lending conditions impacting earnings from equity method investments as seen in Greystone joint venture in 2024.

Question and Answer

Q: Rough framework for margins in 2025?

A: Michelle MacKay and Neil Johnston discussed that first quarter margin will be flat due to it being the smallest quarter, with focus on balancing investment spend with growth and expecting to outpace 2024 EPS growth of 8%.

Q: Pipeline and early 2025 activity in capital markets?

A: Michelle MacKay mentioned a pause in January execution but strong pipeline, with shift to more institutional investors and recent $950M financing.

Q: Leasing outlook by property type and geography?

A: Michelle MacKay noted office net absorption improving, sublease space trending lower, return to office increasing; industrial normalizing with strong long-term engines; strong markets like Brooklyn, Tampa, Baltimore, San Francisco, Dallas, DC.

Q: Investments and margin headwinds?

A: Michelle MacKay explained investments in talent, organic growth, and strategic tuck-in growth create margin headwinds as they are long-term investments for sustainable growth.

Q: Industrial policy uncertainty impact?

A: Michelle MacKay stated policy uncertainty is fluid, but property has navigated changes historically, and advisory business can help clients solve issues during uncertainty.

Q: Transaction activity catalyst in higher rate environment?

A: Michelle MacKay mentioned cap rates calibrated, leverage neutral to positive on most assets, with levered players able to return to capital markets, and cap rates and borrowing costs in different sectors.