DEUTZ Aktiengesellschaft Q2 Earnings Call Highlights

Key Points

• DEUTZ reported strong first-half growth, with orders up 29% to €1.3 billion, revenue up 11% to €1.1 billion and an adjusted EBIT margin of 7.1%, despite continued weakness in the legacy engine market.
• Energy, service and defense operations drove momentum. Energy backlog reached €220 million, service revenue exceeded €150 million in the second quarter, and DEUTZ’s defense unit increased first-half revenue 47% to €52 million.
• The proposed €1.6 billion FFG acquisition would significantly expand DEUTZ’s defense platform, adding more than €1.9 billion in backlog and expected revenue above €1 billion from 2027. Management reaffirmed 2026 guidance of €2.3 billion–€2.5 billion in revenue and a 6.5%–8% EBIT margin.

DEUTZ Aktiengesellschaft ETR: DEZ reported higher first-half orders, revenue and earnings as its expanding energy, service and defense operations helped offset continued weakness in its legacy engine market.

For the first six months of 2026, new orders rose 29% year over year to €1.3 billion, while revenue increased 11% to €1.1 billion, Chief Executive Officer Sebastian Schulte said during the company’s first-half conference call. The adjusted EBIT margin was 7.1% for the period, including a 7.2% margin in the second quarter, up 1.4 percentage points from a year earlier.

“The engine business still remains on a rather low level,” Chief Financial Officer Oliver Neu said. “That means the 7.2% margin we achieved in Q2 is a margin we achieved in a weak engine market.” He said the company has raised margins in six of the past seven quarters through cost discipline, restructuring measures and growth in service, energy and defense.

Energy and Service Drive Growth

DEUTZ said its energy business was its largest absolute contributor to growth among its business units during the first half. The company acquired Brazilian energy company MAXI TRUST during the second quarter, following its acquisition of Frerk Aggregatebau in Germany. It also cited organic growth in the U.S., Morocco and China.

Energy business new orders totaled €55 million in the second quarter, including €10 million from MAXI TRUST’s consolidation. The unit’s order backlog reached €220 million, while its second-quarter EBIT margin recovered to 13.7% from a weaker first quarter affected by consolidation and seasonal effects.

Schulte said DEUTZ is targeting more than €300 million in profitable energy revenue this year, while adding that its current planning indicated a range of roughly €320 million to €330 million. He said the company expects a stronger second half for the unit, partly because Frerk and MAXI TRUST were not consolidated for the full first half and because Frerk’s deliveries are weighted toward the latter part of the year.

Service revenue exceeded €150 million in the second quarter for the first time, supported by the expansion of DEUTZ Power Centers in the U.S. and the acquisition of California-based G&T Truck Repair in June. First-half service order intake rose 16.1% year over year, and the division’s order backlog increased to €57 million from €42 million a year earlier.

Schulte said the service margin was modestly diluted as DEUTZ invests in technicians and additional infrastructure to support future growth. He also said a greater mix of work performed on machines, rather than higher-margin spare-parts sales, contributed to the effect. Nevertheless, he characterized the service unit as margin-accretive at the group level.

Engine Business Improves Despite Soft Markets

In the Engines business, DEUTZ reported a €385 million order backlog, compared with €315 million a year earlier. The company produced about 68,000 engine units in the first half, according to Neu.

Schulte said profitability in the unit continued to recover despite low production utilization relative to historical levels. The division generated EBIT margins of 3.7% in the first quarter and 3.8% in the second quarter. Management cited savings from the Future Fit program, improved production efficiency at its Porz plant in Cologne, and the closure of its Cologne-Kalk facility.

DEUTZ completed the Future Fit savings program and has begun a voluntary program expected to reduce 100 to 120 full-time positions in Cologne production and related overhead functions. Neu said the company recorded a €12.5 million provision for the voluntary program in first-half net income.

The company also said it is relocating certain products from Cologne-Kalk to Spain, reviving a partnership with China’s FAW for lower-cost supply of certain legacy engines, and making progress with its SANY joint venture in China. Schulte said the company is seeing early fixed orders for its new G-Drive engine program, including a 24-liter engine for generator-set customers.

FFG Acquisition Would Expand Defense Position

A central focus of the call was DEUTZ’s proposed acquisition of Flensburger Fahrzeugbau Gesellschaft, or FFG, announced July 9. The deal, which remains subject to shareholder and regulatory approvals, would substantially expand DEUTZ’s defense business.

Schulte said FFG generated about €760 million in revenue in 2025 and has an order backlog exceeding €1.9 billion. DEUTZ expects FFG to generate revenue above €1 billion starting next year and to deliver an EBITDA margin above 20%. FFG provides maintenance, repair and overhaul services, systems integration and armored-vehicle platforms for more than 50 NATO countries and Ukraine, management said.

The €1.6 billion transaction includes approximately €1 billion of secured debt financing and roughly €600 million paid through newly issued DEUTZ shares. The seller families would receive a 29.9% stake in DEUTZ and become long-term shareholders, Schulte said.

He said FFG would operate as a standalone unit within DEUTZ Defense, retaining its management, workforce and customer relationships. The German Federal Competition Authority has already granted an antitrust approval, while DEUTZ expects final approvals and closing by the end of 2026, potentially extending into the first quarter of 2027.

Separately, DEUTZ Defense reported a 47% year-over-year increase in first-half revenue to €52 million, while its order backlog rose to €43 million from €27 million. Growth was primarily driven by defense activities, including drone propulsion systems supplied through its SOBEK operations, the company said.

Cash Flow, Leverage and Outlook

First-half EBIT increased 43.1% to nearly €80 million, and net income rose to €33.5 million. Operating cash flow declined to €32 million, primarily because of higher inventory levels and severance payments. Free cash flow before mergers and acquisitions was negative €29.7 million.

Neu said DEUTZ expects stronger cash flow in the second half, including a €60 million to €70 million working-capital reduction. Net debt stood at €520.5 million, including about €92 million of lease liabilities, while the equity ratio was 43%.

Management reaffirmed its 2026 outlook for revenue of €2.3 billion to €2.5 billion and an EBIT margin of 6.5% to 8%. Schulte said the company expects stronger second-half contributions from energy, defense and service, as well as a modest pickup in engines. DEUTZ plans to update its medium-term targets later this year as it prepares for the potential FFG closing.

About DEUTZ Aktiengesellschaft (ETR:DEZ)

DEUTZ Aktiengesellschaft develops, manufactures, and sells diesel and gas engines in Europe, the Middle East, Africa, the Asia Pacific, and the Americas. The company operates through Classic and Green segments. It offers hybrid, all-electric, and hydrogen drives, including mobile rapid charging stations and related services. In addition, the company provides compact engine systems and engine accessories. The company products are used in various applications, such as construction equipment, agricultural machinery, material handling equipment, stationary equipment, commercial vehicles, rail vehicles, and other applications.

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