Krones AG: A Compelling Case for Capital Appreciation in a Volatile Global Market

In a world where macroeconomic headwinds—from inflationary pressures to geopolitical tensions—threaten to erode corporate margins, Krones AG stands out as a rare beacon of resilience. The German capital goods manufacturer, a leader in the food and beverage industry's bottling and packaging solutions, has consistently outperformed expectations through disciplined pricing, operational efficiency, and a fortress-like order backlog. For long-term investors seeking a defensive yet high-conviction play, Krones offers a compelling narrative of strategic execution in a volatile market.

Strategic Resilience: Pricing Power and Operational Discipline

Krones' ability to expand margins despite a challenging economic environment is rooted in its strategic discipline. Over the past two years, the company has systematically raised prices to offset rising input costs while maintaining its competitive edge. This pricing power, combined with cost optimization measures—such as lean production practices and supply chain rationalization—has driven a remarkable 140 basis point improvement in EBITDA margins, from 8.9% in 2022 to 10.1% in 2024.

The company's Return on Capital Employed (ROCE) has similarly surged, climbing from 14.1% in 2022 to 18.2% in 2024. This metric, a critical indicator of capital efficiency, underscores Krones' ability to generate value for shareholders even in a low-growth macroeconomic climate. The 2025 first-half results further validate this trend, with ROCE reaching 19.0% and EBITDA margins hitting 10.6%, well within the company's guidance range.

A Fortress of Backlog: Securing Future Growth

One of Krones' most underappreciated strengths is its robust order backlog. At €4,293.4 million as of mid-2025, the backlog ensures stable revenue visibility through the middle of 2026. This backlog has grown consistently over the past three years, reflecting the company's dominant market position and the inelastic demand for its capital-intensive solutions. Unlike cyclical industries, the food and beverage sector's need for bottling and packaging infrastructure remains resilient, even during economic downturns.

The backlog also acts as a buffer against short-term volatility. For instance, while 2025 H1 order intake dipped 2.2% year-on-year, this was largely due to an exceptionally high 2024 baseline. The current backlog level still reflects strong customer demand, with production capacity utilization locked in for the foreseeable future. This provides Krones with pricing stability and operational leverage, further reinforcing its margin expansion potential.

Defensive Characteristics in a High-Conviction Play

Krones' business model combines the defensive traits of a utility-like sector with the growth potential of a capital goods innovator. The food and beverage industry's reliance on automation and sustainability-driven packaging solutions ensures long-term demand for Krones' offerings. Additionally, the company's strong balance sheet—highlighted by a net cash position of €375.2 million as of June 2025—provides flexibility to navigate macroeconomic shocks or pursue strategic acquisitions, such as its 2024 acquisition of Netstal Maschinen AG.

Critically, Krones has demonstrated a commitment to shareholder returns. The 2023 dividend increase from €1.75 to €2.20 per share, coupled with a robust free cash flow of €292.5 million in 2024 (excluding M&A), signals a company that rewards long-term investors.

Investment Thesis: A Dual-Engine Growth Story

For investors, Krones represents a dual-engine growth story: defensive cash flow from its order backlog and expanding margins driven by pricing discipline and operational efficiency. The company's 2025 guidance—7% to 9% revenue growth, EBITDA margins of 10.2% to 10.8%, and ROCE of 18% to 20%—is not merely aspirational but firmly grounded in its recent performance.

In a market where many capital goods firms struggle to maintain margins, Krones' ability to outperform expectations is a testament to its management's strategic foresight. The company's focus on high-margin project business and its integration of advanced manufacturing technologies position it to capitalize on the next phase of industry transformation, particularly in sustainable packaging and digitalization.

Final Thoughts: A High-Conviction Long-Term Play

Krones AG is more than a capital goods manufacturer—it is a masterclass in strategic resilience. By leveraging its pricing power, operational agility, and a fortress-like order backlog, the company has insulated itself from macroeconomic headwinds while delivering consistent margin expansion. For long-term investors, this is a rare combination of defensive characteristics and high-conviction growth potential.

In a volatile global market, where uncertainty often drives capital into risk-free assets, Krones offers a compelling alternative: a company that thrives in adversity, rewards patience, and builds enduring value. As the food and beverage industry continues its shift toward automation and sustainability, Krones is not just surviving—it is leading the charge.

Investment Recommendation: Given its strong balance sheet, expanding margins, and robust demand visibility, Krones AG merits a long-term position in a diversified portfolio. Investors should monitor its 2025 full-year results and the integration of Netstal Maschinen AG for potential upside catalysts.