CBRE(US:CBRE)2023-02-23 16:17Financial Data and Key Metrics Changes - The company reported core EPS of $1.33 for Q4 2022, a significant decline from the previous year but slightly above the estimate provided at the end of Q3 2022 [3] - Full year core EPS grew 7% to $5.69, despite challenging macroeconomic conditions, including rising interest rates and a credit crunch [68] - The company expects core EPS to decline by low to mid double digits in 2023, but still anticipates it to be the third highest in its history [92] Business Line Data and Key Metrics Changes - Leasing revenue decreased by 7% globally and in the Americas, with a notable slowdown in office activity in major cities [5] - GWS net revenue grew by 13%, with organic revenue growth contributing half of that increase [32] - Advisory net revenue and SOPs declined by 21% and 33% respectively, driven by a decline in higher margin transactional businesses [93] Market Data and Key Metrics Changes - The company expects significant sales and leasing weakness in the first half of 2023, with Europe and Asia Pacific anticipated to outperform the Americas [60] - The macroeconomic outlook includes a short, moderate recession in the U.S. with unemployment expected to rise to near 5% [33] - Cap rates have increased by 100 to 150 basis points, with expectations for further expansion [31] Company Strategy and Development Direction - The company views 2023 as a transition year, expecting strong core EPS growth in 2024, exceeding 2022 levels [4] - The focus is on resilient business lines, which are expected to contribute more significantly to SOP in 2023 [102] - The company is willing to consider M&A opportunities, with a leverage target of up to two times for transformational deals [19] Management's Comments on Operating Environment and Future Outlook - Management anticipates a mild recession and expects capital markets to recover in the latter half of 2023 [130] - There are positive anecdotal signs in the market, with increased activity in asset sales and leasing expected to improve [100] - The company remains optimistic about long-term growth prospects, supported by a strong brand and market position [97] Other Important Information - The company has implemented a $400 million cost containment program, expecting significant cost benefits in 2023 [72] - The Telford business faced challenges, leading to a $43 million loss in Q4, but management expects improvement moving forward [94][84] - The company repurchased nearly $2 billion worth of shares in 2022, indicating a strong commitment to capital allocation [44] Q&A Session Summary Question: How does the company expect to grow in a shrinking office footprint environment? - Management noted that even with account shrinkage, there are opportunities for project and portfolio management work, which can drive revenue [11] Question: What are the expectations for leasing and transactional business recovery? - The company expects a rebound in transactional business lines starting late 2023 into 2024, with achievable growth targets [18] Question: What are the parameters for potential M&A activity? - The company is willing to leverage up to two times for transformational deals and is building its M&A pipeline [19] Question: How is the company addressing the challenges in the office leasing market? - Management has adjusted its strategy to focus more on industrial assets and expects a shift in income streams from office to industrial [26] Question: What is the outlook for free cash flow conversion in 2023? - The company expects free cash flow conversion to be roughly in line with 2022 levels, around 75%, with potential for mid-80s in a normalized environment [122]