Brookfield Business Partners L.P. LP Units (BBU) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A session present mixed signals. Financial performance is stable, with strong liquidity and a significant share repurchase program, but growth in some areas is slower than expected. The market strategy and AI initiatives show promise, but uncertainties in the macroeconomic outlook and slower-than-expected contract ramp-ups temper optimism. The market cap suggests moderate volatility, leading to a neutral prediction for short-term stock movement.
Key Financial Performance
Adjusted EBITDA $591 million, an increase from $524 million in the prior period, reflecting improved underlying operating performance, tax benefits, and contributions from recent acquisitions.
Adjusted EFO $234 million, benefited from lower interest expense due to a reduction in corporate borrowings compared to the prior period.
Industrial Segment Adjusted EBITDA $307 million, an increase from $213 million in 2024, driven by $71 million of tax benefits at advanced energy storage operations, contributions from recent acquisitions, and growing demand for advanced batteries.
Business Services Segment Adjusted EBITDA $205 million, an increase from $182 million last year, including the impact of $38 million related to onetime costs at the dealer software and technology services operation.
Infrastructure Services Segment Adjusted EBITDA $109 million, a decrease from $157 million during the same quarter last year, reflecting the sale of the offshore oil services' shuttle tanker operation earlier this year.
Corporate Liquidity Approximately $2.9 billion, pro forma for announced acquisitions and realizations, including the expected redemption value of fund units received in exchange for the sale of a partial interest in 3 businesses last month.
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Operating Highlights
Acquisition of First National Financial Corporation: Brookfield Business Partners (BBU) agreed to privatize First National Financial Corporation, a leading Canadian residential and multifamily mortgage lender. BBU's share of the equity investment is expected to be about $145 million.
Advanced Energy Storage Operations: Strong performance driven by growing demand and increased volumes of advanced batteries, supported by commercial and operational execution.
Electric Heat Tracing Systems Manufacturer: Acquired in January, contributing to the Industrial segment's growth.
Expansion in GCC and India: GCC markets in the Middle East and India remain strong growth economies, contributing to BBU's operations.
European Market Stimulus: Stimulus spending in Europe, including Germany's $500 billion infrastructure fund, is expected to support growth.
Operational Efficiencies at DexKo: Margins increased by approximately 200 basis points due to cost structure optimization and productivity improvements.
Operational Improvements at Clarios: Margins exceeded 20% in the first half of the year, supported by improved service levels, operational effectiveness, and a higher mix of advanced batteries.
Integration of Network International and Chemelex: Integration and value creation plans are off to strong starts for these recent acquisitions.
Secondary Sale of Business Interests: Sold a portion of interests in three businesses to seed a new evergreen fund, receiving units with an initial redemption value of $690 million, representing an 8.6% discount to NAV.
Buyback Program: Repurchased 6.5 million units and shares, returning nearly $160 million to owners since February.
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Risk or Challenges
Geopolitical Conflicts and Trade Tensions: Rising global trade tensions and geopolitical conflicts have introduced uncertainty, potentially impacting operations and market stability.
Tariffs and Inflation: Direct effects of tariffs have impacted operations in select cases, though pricing power has mitigated some effects. Inflationary pressures remain a concern.
European Market Slowdowns: Sluggish capital investment in Europe has affected utilization levels at businesses like Modulaire, though margins have been resilient.
Global Automotive Production Slowdown: Battery volumes at Clarios have been impacted by a slowdown in global automotive production levels, though margins remain strong.
Macroeconomic Uncertainty in Canadian Housing Market: The residential mortgage insurer faces slower revenue recognition due to revised model assumptions amidst macroeconomic uncertainty in the Canadian housing market.
Ongoing Investments in Technology Upgrades: Dealer software and technology services operations are incurring costs for product modernization and technology upgrades, expected to continue for 12-18 months.
Reduced Contributions from Infrastructure Services: The sale of the offshore oil services' shuttle tanker operation has reduced contributions from the Infrastructure Services segment.
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Guidance & Outlook
Revenue and Margin Projections: The company expects to maintain and, in some cases, increase margins despite near-term economic challenges. For example, DexKo has increased margins by approximately 200 basis points since acquisition, and Clarios has maintained margins exceeding 20% despite a slowdown in global automotive production.
Capital Allocation and Investments: The company plans to use cash from the redemption of fund units to accelerate buybacks, reinvest in growth, and reduce debt, which will increase per unit and share value. Additionally, BBU's share of the equity investment in First National Financial Corporation is expected to be about $145 million.
Market Trends and Economic Outlook: The U.S. economy remains resilient with stable GDP expectations, low unemployment, and improving consumer sentiment. Europe is seeing increased stimulus spending, and the GCC markets and India are identified as strong growth economies.
Operational Enhancements: The company is focused on upgrading systems, streamlining operations, and strengthening service models in its acquisitions, such as First National Financial Corporation, to enhance returns and cash flows.
Buyback Program: The company plans to renew its normal course issuer bid, allowing for the repurchase of an additional 8 million units and shares over the next 12 months.
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Shareholder Return Plan
Share Repurchase Program: The company has been actively buying back shares under its repurchase program, returning nearly $160 million to shareholders since the start of the year. This includes $56 million returned during the second quarter. The company plans to renew its normal course issuer bid later this month, which will allow for the repurchase of an additional 8 million units and shares over the next 12 months.
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Key Q&A
Q:How is Scientific Games performing relative to underwriting assumptions, and when will the work being done show up in earnings?
A:Scientific Games' performance is in line with the investment thesis but slightly behind expectations. Hardware deliveries were lower, and there was an impact from a performance penalty at a JV. Adjusted EBITDA performance was flat. The industry remains resilient, but growth has been slower than expected. Digital capabilities are being scaled up, and new leadership has been hired. Digital lottery contracts, including a significant one in the U.K., are ramping up slower than expected but are expected to contribute to earnings and cash flow over the next 12 months.
Q:Can you provide more color on BrandSafway's repositioning towards higher growth markets?
A:BrandSafway is repositioning towards higher growth markets due to lower expected volumes, particularly in the rental business. North American industrials are recovering, but commercial markets remain soft. Management is executing a transformation plan, and there is cautious optimism for growth next year despite current pricing and demand challenges.
Q:Can you elaborate on leveraging AI to improve productivity and margins in your businesses?
A:AI is being used across 700 use cases in the portfolio. Examples include optimizing order intake at Clarios, automating HR processes at Everise, launching an AI virtual assistant at CDK, and reducing manual effort in video segmentation at Nielsen. These initiatives have led to significant cost savings, improved service performance, and enhanced operational efficiency.
Q:What is the impact of the 'big beautiful bill' on your businesses, and what is the status of the 45X tax credit?
A:The 'big beautiful bill' is expected to be a net positive, with benefits like accelerated depreciation, restored R&D deductions, and enhanced interest deductibility. The 45X tax credit filing is still being processed, and no changes to the entitlement are expected. The delay is attributed to slower tax processing this year.
Q:What are your thoughts on the BBUC shares versus unit spread and capital allocation priorities?
A:The IDR is tied to the unit price, and buybacks are being conducted equally for both units and shares. The spread between BBUC shares and units is attributed to market activity and new investors. Capital allocation priorities include paying down corporate leverage, funding growth, and continuing share buybacks, with $160 million already repurchased out of a $250 million program.
Q:How were the three assets chosen for the secondary transaction, and how was the 9% discount to NAV determined?
A:The three assets were chosen based on outsized share through co-investment and equity invested. A special committee oversaw the process, and third-party valuations were conducted. The 9% discount to NAV is considered normal for secondary trades, with discounts varying based on factors like investment age and maturity.
Q:Why was the secondary transaction placed with BAM, and what is the impact of growing secondary demand?
A:The transaction with BAM was opportunistic, offering better terms than broader secondary markets. BAM's brand and reach in retail wealth markets made the deal accretive. Growing secondary demand presents opportunities, but the company was not actively seeking such transactions at the time.
Q:What are the organic drivers of growth in the other Business Services segment?
A:Growth is driven by improved performance in construction operations, with cost overruns from last year resolved. Other businesses also showed marginal improvement, offset by the sale of the road fuels operations business.
Q:What is the status of the $250 million share buyback program and capital allocation priorities?
A:The company has repurchased $160 million out of the $250 million program and will continue after the NCIB renews in mid-August. Capital allocation priorities include paying down corporate leverage, funding growth, and continuing share buybacks.
Q:What is the status of debt maturities and refinancing at operating companies?
A:There are no large-scale debt maturities in the next 12 months. Recent refinancings include extending maturities at Modulaire and Clarios and repricing debt at Chemelex. The average weighted maturity is close to six years, and a significant portion of debt is hedged.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about narrowing the spread between BBUC shares and units, attributing it to market activity and new investors without providing specific strategies to address the issue.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
BBU return
BBU unit
Bank Financial
Bart Dziarski
Chemelex integration
Clarios expectation
Desjardins Securities
Devin Dodge
Division Conference
Division Devin
Equity
Europe
Head update
Inc Research
National
Ranjan Chief
Research Division
asset
case
creation plan
discount
economy
example
fund
infrastructure
interest business
market business
market value
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product service
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secondary
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structure
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update environment
value month
value way
BBU Transcript
Brookfield Business Partners L.P. LP Units (BBU) Q3 2025 Earnings Call Transcript
Positive11-6
The earnings call highlights strong financial metrics, operational improvements, and strategic capital allocation. Management's focus on maintaining margins, reinvesting for growth, and executing a buyback program supports a positive outlook. The Q&A section reveals optimism about market recovery, successful cost management, and strategic investments. Despite some uncertainties, such as the regulatory issue with La Trobe, management remains confident in future growth. The market cap suggests moderate stock movement, leading to a positive prediction within the 2% to 8% range.
Brookfield Business Partners L.P. LP Units (BBU) Q2 2025 Earnings Call Transcript
Unknown8-1
The earnings call summary and Q&A session present mixed signals. Financial performance is stable, with strong liquidity and a significant share repurchase program, but growth in some areas is slower than expected. The market strategy and AI initiatives show promise, but uncertainties in the macroeconomic outlook and slower-than-expected contract ramp-ups temper optimism. The market cap suggests moderate volatility, leading to a neutral prediction for short-term stock movement.
Brookfield Business Partners L.P. (NYSE:BBU) Q1 2025 Earnings Call Transcript
Unknown5-3
The earnings call reveals a mixed financial performance with a significant EPS miss, despite some positive adjusted EBITDA figures. Although there is an ongoing share repurchase program, the Q&A highlights concerns about tariffs and unclear management responses, which suggest potential risks. The market cap indicates a mid-cap stock, which might not react as strongly as a small-cap stock. Overall, the negative sentiment from financial performance and management's lack of clarity is likely to lead to a negative stock price movement.
Brookfield Business Partners LP (BBU) Q1 2025 Earnings Call Transcript
Positive5-2
The earnings call highlights positive financial performance, with an 8.6% increase in Adjusted EBITDA and a substantial share repurchase program, which typically boosts stock prices. The Q&A section reveals proactive management of market challenges, such as tariffs, and strategic investments in digital and financial infrastructure. Despite some vague responses, the company's liquidity and capital return plans are strong. Given the company's market cap, these factors suggest a positive stock price movement, likely in the range of 2% to 8% over the next two weeks.
BBU Report
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