WEG SA

BOVESPA:WEGE3

Earnings Call Analysis

WEG's Q3 2023: Steady Growth Despite Challenges

WEG experienced a quarter of modest growth with net operating revenue increasing by 2.1%, driven by sales of long-cycle equipment, most notably in power generation, transmission, distribution, and wind projects. EBITDA improved significantly, reaching BRL 1.7 billion, a 10.9% jump from last year, while the EBITDA margin rose by 1.7 percentage points to 21.5%, reflecting a healthy mix of products sold and operational efficiency. Return on invested capital (ROIC) also saw an impressive rise to 35.4%, up 7.5 percentage points year-over-year. Despite a global slowdown in industrial equipment demand, WEG remains committed to growth, albeit at reduced levels compared to recent years. The company benefits from its diversified portfolio and has a strong order backlog in long-cycle business, which is expected to support profitability and ROIC throughout the remainder of the year.

Revenue and Profitability Showcase Stability Amidst Slower Growth

WEG S.A. reported a modest revenue growth of 2.1% compared to the third quarter of the previous year, suggesting a period of steadiness rather than rapid expansion. This was supported by continued demand for long-cycle equipment, particularly in power generation, transmission, and distribution within Brazil, and by the contributions of the GTD (Generation, Transmission and Distribution) business in international markets. Despite facing global economic headwinds, the company was able to maintain stability in demand for its products and services.

Operational Efficiency and Margin Improvement

The company's EBITDA rose by a notable 10.9% year over year, reaching BRL 1.7 billion. This increase was accompanied by an improvement in EBITDA margin, which escalated to 21.5%, a 1.7 percentage point rise from the same quarter the previous year. The Return on Invested Capital (ROIC) also saw a healthy uptick, reaching 35.4%, marking an increase of 7.5 percentage points. These figures attest to the company's capacity to improve margins and maintain control over working capital requirements.

Strategic Investments and Expansion Efforts

WEG remains committed to its growth strategy with BRL 431 million invested in the quarter, dispersed between domestic and international production units. Notable moves include the planned BRL 87 million expansion in Itajai, Santa Catarina, the construction of a motor factory in Portugal, and the high-voltage motor and generator factory expansion in India. Moreover, there's the recently announced BRL 400 million acquisition of Regal Rexnord's Industrial Electric Motors and Generators business, reflecting the company's steady pursuit of international and product diversification.

Future Outlook Amidst Global Economic Shifts

As WEG navigates through an environment characterized by reduced global demand for industrial equipment, the company maintains cautious optimism for growth. Although acknowledging potential risks and volatility, WEG leans on its diverse portfolio, particularly in long-cycle equipment, to sustain growth. This diversification strategy is expected to underpin profitability and returns on investment in the face of an anticipated moderation in the pace of growth seen in prior years.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, everyone and welcome to WEG's conference call for the Results for the Third Quarter 2023. Please be advised that we are broadcasting this conference call along with the slides on our Investor Relations website at ri.weg.net. And after its conclusion, the audio will be available once again on the IR website. [Operator Instructions] Any forecast contained in this document or any forward-looking statements that may be made during this conference call regarding future against the business outlook, operational and financial projections and target, as well as, WEG's future growth potential are management beliefs and expectations of WEG management based on information currently available. These forward-looking statements involve risks and uncertainties and therefore depend on circumstances that may or may not occur. Investors should understand that general economic and industry conditions and other operating factors could affect WEG's future performance and lead to results that differ materially from those expressed in the forward-looking statements.As a reminder, this conference call is being conducted in Portuguese, with simultaneous translation into English. With us today in Jaragua do Sul, we have Andre Luis Rodrigues, Chief Financial Officer; Andre Menegueti Salgueiro, Director of Finance and Investor Relations and Felipe Scopel Hoffmann, Investor Relations Manager.Mr. Rodrigues, you may proceed. You have the floor.

[André Rodrigues, executive]

Well, good morning, everyone. It is a pleasure to be with you once again for WEG's earning conference call. We delivered a quarter of positive performance in operating margins and return on invested capital, despite a slower pace of growth compared to previous quarters, good demand for long-cycle products, the mix of product sold and maintaining the operational efficiency of our industrial units continued to contribute to this performance. In this quarter, net operating revenue grew 2.1% vis-a-vis the third quarter '22. In Brazil, good results in revenues from sales of long-cycle equipment, especially in the field of power generation, transmission and distribution with an emphasis on transmission and distribution and wind generation projects.In the foreign market, the GTD business once again made a positive contribution, especially the T&D business. In the other business units, we saw stability and demand for our products and services, with growth in revenues in local currencies compared to the same period last year. EBITDA reached BRL 1.7 billion, up 10.9% vis-a-vis the third quarter '22.The EBITDA margin ended the quarter at 21.5%, an increase of 1.7 percentage points, compared to the same period last year. Throughout the presentation, Andre will provide more details on the performance. And finally, ROIC well will be on the next Slide, reached 35.4%, an increase of 7.5 percentage points compared to the third quarter '22. The improvement in our operating performance supported mainly by the improvement in margins and control of working capital requirements more than offset the increase in investments and fixed assets in the period.I will now hand the floor over to Andre Salgueiro.

[André Salgueiro, executive]

Thank you, Andre. Good morning, everyone. On Slide 5, I present the evolution of the revenue of business areas in markets where we operate. In Brazil, we continue to see good demand for long-cycle industrial equipment, such as medium voltage electric motors and automation panel. For the short-cycle products, we saw a healthy demand for automation equipment and sales of industrial electric motors. In GTD, the TD business posted another quarter with good result, boosted by deliveries in large transformers and sub-stations and the distribution network auctions. We also highlight the wind generation business that stands out.On the other hand, the solar generation business still influenced by the high cost of financing, the change in regulations in the sector and more recently, the reduction in raw material costs, showed a drop compared to the same period last year, impacting revenue growth in this business unit. In commercial engines and appliance despite the drop vis-a-vis the third quarter '22, we saw demand pick-up in relation to the second quarter, especially for the pumps and air conditioning segment.In Paints and Varnishes, we saw demand settle despite the positive activity linked to the oil and gas and maintenance segments. In the foreign market, despite the good performance in local currencies in most of the markets, revenue performance in Reais was impacted by the exchange rate variation in industrial short-cycle product such as low-voltage electric motors and serial automation product. We have the oil and gas and water and sanitation segment standing out for long-cycle equipment such as medium voltage electric motors and automation systems. We continue to see good demand reflecting the order backlog built up in recent quarter.In the [ TT ] area, the [ P&D ] business showed good results, especially in North America with sales of transformers for power stations being particularly strong. In commercial engines and appliance despite the good performance of the commercial and in operations in the U.S., there were fluctuations in demand in Mexico and China, resulting in stable revenue in dollars. The drop in revenue in Reais reflects the exchange rate variation for the period in Paints and Varnishes, revenues from operations abroad also fell impacted by the exchange rate variation and lower export activity from Brazil.In Slide #6, we see the evolution of EBITDA, which grew 10.9%. The EBITDA margin ended the quarter at 21.5%, 1.7 percentage points higher than the same period last year. This is a reflection of the accommodation of cost in recent quarters along with a better mix of product sold.Finally, on Slide 7, we show you the evolution of our investments. We invested BRL 431 million this quarter, 43% in production units in Brazil and 57% abroad. In Brazil, we continue to invest in the expansion of the industrial motor, electric traction motor and battery factories in Mexico, as well as continuing to increase production capacity at the motor and transformer plant. We also announced the acquisition of a new plot of land abroad, we are continuing with the construction of the motor factory in Portugal and the expansion of the high-voltage motor and generator factory in India.That concludes my part. I will return the floor to Andre.

[André Rodrigues, executive]

Now before we go to the question-and-answer session, I would like to refer to our latest achievements and comment on our outlook for the rest of the year. Regarding the achievements, I would like to highlight, we recently announced the BRL 400 million acquisition of Regal Rexnord's Industrial Electric Motors and Generators business in line with our strategy of continuous and sustainable growth. This transaction includes the acquisition of 10 factories in 7 countries, commercial branches in 11 countries and a team of approximately 2,800 employees worldwide. The completion of this transaction is subject to the fulfillment of certain conditions precedent, including the necessary regulatory approvement for the transaction.As Salgueiro mentioned in August, we announced the acquisition of a new plot land in Mexico in an investment of $40 million. The site has a total area of 640,000 square meters is located opposite WEG's largest industrial park in the country and should enable us to gradually increase production capacity and expand. We also have an important project to expand production capacity and verticalization in Itajai, Santa Catarina, Brazil, which will be carried out in the existing manufacturing part and will receive investment of BRL 87 million with completion scheduled for the end of 2024.I would like to speak about the outlook for the rest of the year. We remain attentive to the global macroeconomic scenario and the possible risk and volatilities in our operations. Recent data shows a slowdown in demand for industrial equipment globally. Despite this, we maintain our expectation for growth, albeit at levels below those of recent years. Given our diversification and positive demand in some businesses, especially in the long-cycle equipment, where we continue to have a good order backlog, both in Brazil and abroad for industrial equipment and GTD with an emphasis for transmission and distribution projects.On the other hand, in short-cycle business, we are starting to see some signs of slowdown. We continue to have healthy operating dynamics with a good mix of products sold and maintenance of the operating efficiency. It should continue to support profitability and return on invested capital for the rest of the year. This concludes our presentation.Operator, we can continue on with the question-and-answer session.

[Operator]

[Operator Instructions] Our first question is from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

And I have 2 questions at my end. The first referring to what you just said about the global scenario. When we look at the result of WEG in the third quarter and we see what is happening in Europe, there has been a drop. My first question, if industrial equipment in Europe, well, there has been an impact on Europe as a whole. If you could give us more details on specific sectors, which is the product line and cost. If you could share this information with us? And the second question refers to margins. We have seen a drop in the third quarter and other players of other sectors have signaled that this should continue on in the fourth quarter. If you could also refer to this margin issue?

[André Rodrigues, executive]

The first is you're referring to the drop of revenues in Europe in the third quarter this year vis-a-vis the second quarter. I don't know if you recall in the second quarter, we mentioned we had a specific project for GTD in Europe. It was specific for that quarter and we did not have any recurrency in terms of this project. And this took place exclusively in the second quarter and this is what led to the drop. In the other markets, we see very positive performance above our expectations in some cases.Now when it comes to your second question, referring to margins, during the last quarter, we had 22.4% of margin. And we're always very careful when we speak about margins because we can have oscillations between one quarter and the other. Now because of globalization of cost and much more, we have a return of the margin, but not significant. I think Salgueiro mentioned this in the presentation. We had an increase in revenues for wind energy in the first half of the year. As you know, globally, the wind energy sector has less revenue, less margin than our other businesses. And this also impacted our margin reduction.Now if we exclude this effect of wind energy, even with this, we delivered a margin that is quite reasonable considering the context that we are undergoing at present globally.

[Operator]

Our next question is from Lucas Laghi from XP Investments (sic) XP Investimentos.

[Lucas Laghi, analyst]

And given the acceleration of growth that we're observing, we have been speaking with investors and if we go back to what was said at the end in terms of the slowdown of new orders. I think that for the long-cycle, you have a very strong portfolio that is sustainable. And of course, this should go on in the coming quarters. My question is, how do you see the entry of new orders and the cost in foreign markets? We have truly observed a slowdown in our global peers, especially in terms of orders, of course, you have a backlog, but does this mean you will have a better generation of revenues in the coming quarters? And another point simply to check what is happening domestically. You mentioned that in GTD, the performance is not as good as in previous years, but that you have begun to see a recovery in distributed solar generation in Brazil as well. This is simply to better understand those points that are related to the growth of revenue and of course, the slowdown.

[André Rodrigues, executive]

I'm going to answer part of the question and Salgueiro will complete the answer regarding GTD. I believe that we have to begin carrying out an analysis of what has happened in the last 3.5 years. We went through a very favorable period in terms of demand for industrial equipment. And of course, it was expected that we would have a normalization of this situation and this has begun to happen.Now we have seen increase of demand for some equipment in Brazil, as well as abroad. Messages that regardless of this context in this quarter, we had 2 factors with a significant impact on the performance of our revenue. I'm referring to the exchange rate valuation of the Reais vis-a-vis foreign currencies and the performance of the solar sector quarter-on-quarter, our growth was 2.1%. Now if we exclude these 2 effects, we would have revenues with a growth of very close to 10% of growth for the quarter. And I think that this is reasonable if we think of the restrictive context of global economy.When we speak about revenues, just as an example, the solar energy had two negative impacts. First, an impact on revenue due to the drop that was described and the volumes traded. And secondly, this refers to the reduction in the price of solar panels. We had a drop in the cost of solar panels, panels become ever cheaper and of course, revenues are lower, leading to price variation impacting the revenues for the quarter. Basically, this is what happened.

[André Salgueiro, executive]

When we analyze what happened in this quarter, in terms of revenue performance, this is Salgueiro and simply to add to what was said by Andre and refer to the portfolio. We need to break this down by region. We had already been reporting a good activity of our portfolio with the entry of orders from Europe. This is something that has been happening for more than a quarter. We also have a specific situation in Asia Pacific, more specifically in China, a slower recovery than we had imagined. And we have begun to observe volatility in other region, especially in the short-cycle equipment. We have to follow up on this and the short-cycle portfolio is not a very long portfolio. It will last 2 to 3 months and we'll have to follow-up on the evolution month-after-month, but we do -- we have signs of volatility. It's also important to mention that the long-cycle portfolio continues to be positive in the industrial part, in the large projects oil and gas, pulp and paper, especially in GTD with a highlight for [ IT ].Now regarding your second question, to qualify this better, impacted in the third quarter, solar energy accelerated the slowdown vis-a-vis what had happened in the first half of the year. It wasn't a significant drop, but it did take place. And basically, due to a more recent effect, which is a change in regulation and the high cost of [ fine earning ] which has been a reality since the beginning of the year. Well, we have begun to observe since the end of the second quarter is a greater impact on prices. Andre mentioned once again, because of a reduction in the cost of panels during the year and because of the market dynamic, there is a drop in price. And of course, this compromises our growth.So in the solar segment from the viewpoint of revenue, we have had a more intense effect. But when we look at other segments, yes, there is a drop at a lower drop in revenue and we see lower drops vis-a-vis the market that is also having these drops. So this is a more challenging moment for the market at present, but we are gaining space and we think that during a resumption, we will be very well positioned to make the most of this in coming years.

[Operator]

Our next question is from Daniel Gasparete from Itau BBA.

[Daniel Gasparete, analyst]

I have 2 questions. First of all, we would like to gain a better understanding of the price trend and margins in motors. You spoke about a drop in the order entry. Now the impact that you achieved and the margin -- this is already reflected drop in prices or have prices remained constant, is it a greater volume, lower price or both taking place? We have another question referring to the long-cycle margins. You did explain the effect on wind energy. Now in terms of the construction contracts, you have had a growth, it has reached a higher revenue rate since 2018. Now simply to better understand this, if this is the effect of the wind energy where the margins are different than they were in the past? Or does this mean you have a normalization of the long-cycle margins, which, of course, is something that happens and will happen in the longer run. Now this is simply to understand if the magnitude of margins will continue on or if we will have a decrease going forward.

[André Rodrigues, executive]

Now regarding price, specifically when it comes to motors or engines, there hasn't been a significant change in the last quarters. The price is relatively stable since the beginning of the year, which means that there are no significant [indiscernible]. Now when it comes to the long-cycle margin, what we observe and I'm referring to our construction contract. In fact, there was a fluctuation in the quarter. Part of this is linked to what was mentioned by Andre, wind energy with a somewhat higher share in the revenues this quarter. This doesn't mean that the margins of wind energy are worth the share of revenues is somewhat higher, this had an impact. But this effect is not only for wind energy, the long-cycle dynamic. As we mentioned in the previous quarter is that as time goes by, as we deliver the projects that we contracted in the past, we also have the entry of new product with a more normalized margin.And of course, this is what has been happening in the last quarters. It's natural to see a normalization of this margin, which has been positive in the last quarters and is now returning to a scenario of greater normalcy, not only in wind energy, but normalization as we had anticipated as part of the margins of the long cycle.

[Daniel Gasparete, analyst]

Simply a follow-up, if you allow me, the prices continue to be quite stable. Is it fair to think that you will have a more stable order entry and that the second movement in industry will be a slight increase in prices, the competitive environment, of course, will have an impact on prices.

[André Rodrigues, executive]

Well, if you think about the dynamic that would make sense, but we depend on the market. We -- repeat is, everything depends on the market. And according to the situation, we have to adjust to it. We're following up on what happens and depending on what will happen, we will have to take a stance.

[Operator]

Our next question is from Lucas Marquiori from BTG Pactual.

[Lucas Marquiori, analyst]

We have 2 topics at our end. Now given the magnitude of this slowdown in your top line since the beginning of the year and we spoke about mid-teens, low teens and I would like to understand your understanding of which should be your top line growth in the rolling 12 months if it will be below that if you have room to catch up on those factors going forward, simply to work with that moving average exercise now. The second topic, I did not find a great deal of information, information on the [ wing ], I presume this refers to the new turbine. If this means that you will further internationalize your wind energy project, if you could give us more in-depth explanations on this?

[André Rodrigues, executive]

Now to speak about the rolling 12 months rolling year, we're still concluding our budgetary process and you will have more information at the end of the year. What I mentioned in one of the first stances regarding to the market situation is that we no longer have wins in our favor. This is very clear. We look at the news in terms of the demand in most of our businesses. And it is important to underscore that we have been through situations like this one in several times of our history and what WEG tends to do is to find alternatives in its long-term strategy to be able to withstand more difficult moment. There are avenues of growth. We're always very fatal to these new avenues. We develop new opportunities with the products that we have, the demand for electric traction, the new trends. Well, the demand will continue to be high for our products, internationalization. We continue to invest in this. In the presentation, I also mentioned the new lot that we acquired in Mexico and we're working to work on project for the future to ensure our growth. More recently, a plant where the construction of low voltage motor and the general development of our business and we cannot forget the inorganic growth that from time-to-time also contributes to the company's growth.Last month, we had the acquisition of the system. So the message is that even in unfavorable environment, the company has to seek alternative who continue to find these avenues for growth and WEG has done this through time. And we have given you some clues of how we're going to continue to do this going forward.Regarding [ B Win ], this is a positive news, we are reinforcing our engineering structure in wind energy business. This is not the first time we do this. When we began with a 2.1 machine, we carried out a partnership with an American company that we later acquired -- B Win is a company that specializes in the development of new technologies and projects for aero generators and turbines as well. It also renders services, offers consultancy, develop technology for the generation of wind energy. It has a team of 30 professionals that are highly qualified, led by an engineer with more than 15 years of experience in the industry. We have a minority position, 45% in the company and this acquisition is part of the WEG's growth strategy when it comes to renewal energy in the GTD business.We're working with a robotic construction of 7 [ mega ], their consultancy participated in this project. And this gives us the opportunity to continue to develop new technologies for this market and shows the commitment that WEG has in the future of wind energy business.

[Operator]

Our next question is from Rogerio Araujo from Bank of America.

[Rogério Araújo, analyst]

I have a question, which is a following, if you think about markets that could contribute with growth revenues for WEG, if you could give us a better notion of timing simply to deal how enthusiastic you are in terms of your growth potential? And of course, here, we exclude everything you have already mentioned in Turkey, India, United States and Brazil, an increase in market share in automation and automation drive new businesses, electric products, battery storage, digital solutions and plus. So if you could tell us, what is it that gives you the greatest enthusiasm as part of your order portfolio? Of course, your order portfolio will continue strong in coming quarters, but does not have an incremental growth of revenue. So what could lead to a better growth, incremental revenues? And also give us a timing idea if you could?

[André Salgueiro, executive]

And while you were making the question, we were thinking about the answer. Let's speak about the opportunities we have before us. We have grasped most of them. Sometimes, we don't highlight any, but opportunities do happen in businesses that are already mature in the company. We have the T and the business transmission and distribution that we have been speaking about for years. In the last 12 months, T&D has been a highlight in growth, not only in Brazil, but also abroad. And the outlook is very positive in the Brazilian market because of all of the projects or transmission auctions and projects we have had in the last year. And in what is about to happen going forward, the demand we have for transformers, for renewable energy and all the part of transformers for distribution networks and industrial transformers that also have a very positive performance abroad, a very positive outlook for T&D, especially in the U.S. and in Mexico.But what stands out most is the United States and we're reinforcing the electrical grid and generation of renewable energy and the positive market because of the inflation reduction in the United States. What is happening in the United States causes a very good opportunity for us, but it is in the middle and long run. Besides the investment we have already mentioned of investments in U.S. and Mexico, as Andre mentioned, we're working with electrical energy. This is a reality in terms of supplying the powertrain for heavy vehicle in Brazil and recharging stations that have had a relatively good performance and the opportunity of internationalizing as a whole. You mentioned automation and I speak about the strategy that we have for automation drive that we refer to significantly last year.We want to make the most of the share that has in industrial motors and leverage the growth in gear boxes and other businesses that we have in our portfolio that have a good outlook for development for the future.

[Rogério Araújo, analyst]

If you allow me a follow-up question. You spoke about distributed solar energy now. If you could clarify this point better, it seems that in the second quarter, you had an drop in the incremental revenue because of raw material. And besides that, is there any expectation for recovery? Do you have visibility on when the recovery will take place, if there will continue to be a drop, when you will have a stronger base for solar generation? And you also spoke about [ sun ] farms that could become part of your portfolio to offset is distributed solar distribution. It would be wonderful if we could have more color at the base and just how far the solar distribution is hampering your growth?

[André Salgueiro, executive]

Okay. Let's explore this further than in practice. I think the dynamic has already been mentioned. It happened in the third quarter and I would like to underscore that when we look at volume at megawatts, we don't see the market worsening this effect in the third quarter is more connected to price. And if we look at the future, the price will be positive. The lower cost for the system improves payback and return for the end client. And this could lead to greater demand going forward. So we're going to have to follow-up on this. The year of 2023 is a year where we see a market accommodation because of the regulatory changes, the higher cost of financing and more recently the price effect in 2024. We still have the phaseout of our distributed generation projects, our middle and large projects in T&D as we call them here, something should be happening with this in 2024. And we should also see a recovery in demand, given the price drop for the rest especially for the smaller size projects. It's very difficult to share our expectation with you because our expectation is for the mid and long-term. But in solar energy, we do believe that we should have growth in the middle and long-term. This makes sense in the Brazilian market.For years, we have had a very strong growth because of the incentives that existed to develop the market. These have been withdrawn and after the adjustments that are happening this year and because of the phaseout that we will have in 2024, we should see a resumption in this market eventually, perhaps not at the same growth pace that we saw in the past, but a more constant growth at a lower level than observed in the past.Now this area is centralized generation. This year is better than last year, but here once again, we depend on that demand for new energy and looking forward, this will depend on the dynamic of option for energy. We're working on some projects for the free contracting market and we will see what happens going forward.

[Rogério Araújo, analyst]

Well, once the regulations are fully implemented, how relevant will this be for the WEG portfolio?

[André Salgueiro, executive]

I would say about 30%.

[Operator]

Our next question is from Alberto Valerio from UBS.

[Alberto Valerio, analyst]

Well, you have addressed most of our doubts. I do have one more question that refers to the labor market. We spoke about the salaries that were somewhat tight. If you could give us an update in terms of this market and some potential bottlenecks for growth in supply, not in demand that you could face in the future?

[André Salgueiro, executive]

Let's speak about the first part of the question. In GT, we have greater difficulties in the U.S. market. If we had better availability of labor, we could enhance our production capacity in terms of transformers. Now this is concentrated in the United States and the plant in the south in Washington and Mexico, we don't foresee any problem because our units in Mexico are located in Monterrey, where you have a greater offer of labor and significant demand. We don't foresee any difficulty in Mexico. All of our labor needs have been fulfilled.Now regarding the chains, after the pandemic and because of the normalization, we have not seen any bottlenecks. But it is correct to state that when it comes to components, this has not been fully normalized, but we have learned our lesson. We are working with longer-term contract for the supply of electronic components. And we hope that in 2024, this part will also have been fully normalized.

[Alberto Valerio, analyst]

A follow-up, if you allow me regarding Rogerio's last question on solar energy. Your portfolio for many plants for the residential segment, what are you expecting from this? If you could give us more color about this segment?

[André Salgueiro, executive]

The solar energy portfolio is a very short portfolio. As we have observed a drop in revenues, this also is reflected in the portfolio. When we look to the future, we have visibility of some months, but there is no dynamic that is different in terms of portfolio compared to the demand we see from the customers and what is happening in revenues. All the mix throughout the year will be maintained and for the coming year, we will have to see what happens depending on the subsequent demand we will have.

[Operator]

Our next question is from Marcelo Motta from J.P. Morgan.

[Marcelo Motta, analyst]

And we have 2 questions. The first, if you could speak about your outlook for your CapEx, we see a increase in pace in the domestic market and with the acquisition of Regal, if your CapEx will be somewhat lower compared to 2023 because of this accommodation. So what will be your CapEx demand for the coming quarters? And the second question, in the last call, you mentioned that you were still serving the impact to give the market a better outlook of what would happen in 2024. And I would like to know if there's any novelty in this field?

[André Rodrigues, executive]

Let's begin with the CapEx. Everything that we have invested has been done with a long-term vision, evidently in the more obsertive moments of the economy, we can adjust our speed. We're completing our budgetary process and we don't foresee a reduction of CapEx for the coming year because of all of the business dynamics that we have approached in the call, a very positive dynamic for transmission and distribution that is consistent in all the regions where we operate. We foresee an increase of capacity in Brazil, in North America and in all of the countries of Latin America where we operate.We cannot forget the investment we're making in Brazil itself on battery packs, the increase of capacity of motors, a plant that will be devoted to electrical components. So at this precise moment in some businesses, we have very consistent demand and we don't see a scenario for reduction of CapEx for 2024. At the end of the year, of course, we will be able to funday more detail about all of our expectation and where the company is willing to allocate more capital in its quest for growth. In terms of the transfer price, the only update that we have, Motta, is the following. We're developing a benchmark. We have concluded this work and as we have said during the year, we confirm our expectation of the estimated impact of reducing by 50% the benefit that we had in previous year. So we're confirming what we had as the initial expectation.I'm sorry, we were on mute, Bruno I think had a question. If your microphone is on, you can go on with your question.

[Bruno Amorim, analyst]

We have spoken about your outlook for growth in the call, but it would be interesting to put together all of these moving parts. We have seen a 0 growth after a growth of 30%, 20% or 10%. I would like to know if -- when going forward, we will have a contraction in revenues, if the company will have to return the additional amount of revenue it made during the pandemic or if we -- what we see now is what we should expect going forward, perhaps not a growth of 20%, 30%, but 10%, 15%, which is your historical average. Because if -- the question is if we will have a contraction in revenue, if this drop will stop happening, if we will see more moderate growth? And the second question, I would like to speak more about the short- cycle in the United States. We see some industries accelerating there. So what do you see there if this is simply a phenomena of the last few months? If you could give us more color on this short-cycle group, which is more interesting in Brazil. Now anything would help us to better understand what will happen with margins?

[André Rodrigues, executive]

Regarding the growth, I think Andre has spoken about this, especially when thinking about the coming 12 months. We have had a slight slowdown in the last quarters, months, we have come to a growth of 2.1% in this quarter, partially due to the exchange rate and some specific adjustments we have already mentioned. It's important to look at the revenues of the market abroad in dollars, as we disclose them in the release, we still see expressive growth, 14% in dollars, almost 20% in local currency.Now having said that, if we look at a shorter-term scenario, we will perhaps have a smaller growth. Now we're serving these scenarios to be able to disclose more information. But as Andre mentioned, we're looking at opportunities in markets where the wind is not truly favorable, but to continue on with sustainable growth in the company. So the retraction of revenue is not one of our scenarios when we think about 2024. When it comes to the short-cycle in the U.S., yes, we have seen a slowdown. But if we look at the revenue performance, it's growing in dollars in mid [indiscernible]. There was a slight drop vis-a-vis what was presented in the first half of the year. We have to follow up on this going forward in the regions where we are active. The situation is more positive, but in the industrial part, we do see some signs of a slowdown that we had not observed at the present. Our portfolio is relatively short and we do have a very close follow-up on this.

[Operator]

Ladies and gentlemen, at this point, we are going to end the question-and-answer session. We're going to return the floor to Mr. Andre Rodrigues for his closing remarks.

[André Rodrigues, executive]

Well, once again, we invite all of you for our next edition of WEG Day on December 8, it will be a pleasure to meet all of you. Thank you very much for your attendance. Have a good day. The web conference call ends here. We would like to thank all of you for your participation. Have a good day.