Hermle AG’s Brutal Guidance: Is There Still a Long-Term Investment Case?
Is Hermle still a high-quality compounder or is this a value trap in the making?
Hermle AG has been one of my most disappointing investments of 2024. Since my initial buy, the shares have dropped 19%. After four separate purchases and factoring in the 4% dividend, my total return is down ~15%.
No investor likes to be wrong. But it’s in these moments that we learn the most—both about the businesses we own and about our investment process. This is a deep dive into what’s gone wrong, whether my investment case still holds and how I’m thinking about their capital allocation from here.
Read my original deep dives here: Business model - Fundamentals and Valuation.
What happened?
Yesterday, Hermle published its preliminary FY24 results and FY25 outlook (full report scheduled for release at the end of April). Unfortunately, the numbers confirm the challenging environment we’re in—and management expects things to get even tougher. The news is only available in German, so I’ll summarize it.
FY 24 Key Figures:
Order intake: Down 8% to 457 million Euros (vs. 495 million in FY23)—better than the sector average, but still a decline.
Order backlog: Dropped from 131 million to 99 million Euros.
Sales: Down 9% to 488 million Euros (vs. 532 million).
EBIT: Down 26% to 86 million Euros (vs. 116 million).
The proposed dividend is down 33% to 10,05 Euros per share (15,05 Euros).
None of this was unexpected—Hermle had gradually revised guidance lower throughout the year. The culprits are familiar:
Underutilized manufacturing capacity
Rising regulatory burdens
Competitive pressures in pricing
Increased wage costs and headcount
Customer reluctance to invest amid macro uncertainty
But it’s the FY25 guidance that really stings.
The FY25 Outlook: Pain Ahead
Management expects FY25 sales to decline by high-single to low-twenties percentages, with EBIT falling disproportionately—by 40% to as much as 90%.
This is mainly due to:
US tariffs, which will hurt an already weak market
Continued customer hesitation to commit to capital investment, not only in Germany but across key markets
A potential negative operating leverage spiral—lower sales with fixed cost structures squeezing margins hard
How I’m Thinking About It
Am I disappointed? Absolutely.
Do I regret my process? Not entirely.
Despite the operating deleverage Hermle is guiding for in FY25, my position is only down ~14% when accounting for dividends. That suggests my valuation process baked in a decent margin of safety. Another silver lining is that Hermle remains profitable, cash-generative and debt-free.
But this is not a time for wishful thinking. It’s a time to:
✅ Reassess business quality
✅ Review long-term fundamentals
✅ Adjust expectations for capital allocation
Is My Investment Case Still Intact?
I’ll break down the long-term investment thesis for Hermle in detail in the premium section, including:
🔸 How Hermle’s capital allocation strategy might evolve
🔸 The balance sheet strength and why that matters in downturns
🔸 An update on Hermle’s quality score
🔸 A valuation update: Have we reached an attractive risk/reward setup?
🔸 My personal strategy: Am I buying more, holding, or trimming?