C&W Sees 5% Revenue Drop Despite Better News On Leasing And Cash Flow
Cushman & Wakefield ended the second quarter with a revenue drop of 5% compared to the same period last year, led by a sharp decline in its capital markets division and smaller drops in its services and valuations verticals.
But the brokerage was more eager to focus on a global leasing uptick of 2%, its third consecutive quarter of steady growth, and efforts to free up cash flow, including selling off an unnamed business, reducing interest rates on $1B in loans and paying off $45M in loans maturing this year.
“We are getting it done in every aspect of our business every day,” CEO Michelle MacKay said on the earnings call late Monday afternoon.
The brokerage beat analysts’ stock dividend expectations by 1 cent per share and also bested their $1.62B consensus revenue estimate, hauling in $2.29B. But the 5% overall quarterly revenue decline still led its stock to dip roughly 2% in the final minutes of market trading.
Revenue for the company's capital markets, valuations and services divisions declined by 15%, 4% and 3%, respectively, during the quarter.
Its executives were sanguine, however, about the performance, with MacKay and Chief Financial Officer Neil Johnston predicting an expected interest rate cut in September would get things moving for capital markets again.
“It's turning out exactly as we expected,” Johnston said on the call. “We did expect to step back in capital markets ... and then on the leasing side, [we] really exceeded expectations.”
Leasing increased 2% in the Americas, 7% in the Asia-Pacific region and was flat in Europe, the Middle East and Africa. Stateside, New York City has been a leasing standout this year, and other gateway markets are following suit, MacKay said.
“Even in areas like San Francisco, you're starting to see some positive progress there, too,” she said.
Executives highlighted continued progress in getting out from under a mountain of debt, including repricing $1B in term loans due in 2030, reducing interest rates, and prepaying $45M in loans due this year. The brokerage ended last year carrying about $3B in debt, with about $193M expected to mature this year and the rest coming due in 2028.
The move expands on Q1 efforts to lighten its debt load after investors questioned the cost of its debt service. The company pledged a year ago to reduce its leverage by $200M by mid-2025, MacKay said, adding it has cut that by $100M through Q2. It plans to slash another $50M in Q3.
The company also improved its net cash flow from operations and free cash flow by over $130M so far this year compared to this time in 2023. That was driven in part by decreasing its employment costs by about $20M in Q2, according to its earnings statement. Executives didn't expand on how those savings came about on the call, although $1.9M of those cuts were produced by selling part of its business and getting those employees off the rolls.
Cushman & Wakefield last month signed a $165M agreement to sell off a provider of a third-party supplier network supporting some clients in the U.S. and Canada. The sale is expected to generate net proceeds of $135M and close in the third quarter.
Proceeds from the sale will go toward strategic growth investments and paying off more debt, executives said.
“We are in a growth mindset headspace, and we know that we can walk and chew gum at the same time,” MacKay said.
MacKay also said the company believes a majority of the uncertainty around interest rates and inflation is starting to move into the rearview mirror. She predicted the Federal Reserve will cut rates in short order, spurring a “waterfall effect” of transaction activity.
“When the Fed cuts rates, which we believe will be soon, it will signal to the market that it's time to move into commercial real estate,” MacKay said.
Debt load management, the business sale, a boost in leasing services and fewer one-time expenses took Cushman & Wakefield's year-over-year net income from $8.4M to $13.5M, despite revenue losses. The company reported $1.7B in liquidity, unchanged from last quarter.
“We're really looking forward to the market that's coming and have really intentionally set ourselves up really well to take advantage of it,” MacKay said.
