By Callum Keown
Shares in Siemens Gamesa Renewable Energy tumbled more than 14% on Thursday after the wind turbine maker issued a profit warning due to a sharp increase in raw material prices.
The Spanish renewable energy company, a subsidiary of Siemens Energy /zigman2/quotes/221435471/delayed XE:ENR +0.87% , said it now expects a negative operating margin, between -1% and 0%, for the financial year following a weak third quarter. The company had previously forecast a margin of 3% to 5%.
Steel prices have surged this year , with steel CRU index futures up more than 88% year-to-date at $1,815 per short ton, while copper futures /zigman2/quotes/210054311/delayed HG00 -0.48% are 23% up so far in 2021.
Siemens Gamesa’s chief executive Andreas Nauen said the company had drastically changed its approach in recent months, pushing to pass rising steel prices onto customers. “Of course, they do not happily accept that… But on the other hand, it’s also clear that light of the size of the increases that it cannot stay with us,” he said on an earnings call.
Full-year group revenue is now expected to be at the low end of its €10.2 billion to €10.5 billion range. The company also cited higher ramp-up costs for its 5.X onshore wind turbine platform, particularly in Brazil, where it said it has faced supply chain shortfalls and bottlenecks.
Siemens Gamesa /zigman2/quotes/205820667/delayed ES:SGRE -0.09% said those cost issues and higher raw material prices meant it had to reassess the profitability of its order backlog, leading to provisions of €229 million in the three months to the end of June. It now expects to report an adjusted loss before interest and taxes of €150 million in the third quarter, compared to a loss of €161 million the previous year in the third quarter.
The impact of the company’s profit warning late on Wednesday blew a chill across the broader sector on Thursday. Shares in Danish wind turbine manufacturers Vestas Wind Systems /zigman2/quotes/205019303/delayed DK:VWS -0.15% and Ørsted /zigman2/quotes/206971802/delayed DK:ORSTED +3.20% slumped more than 6%, and 3%. It didn’t stop there as German wind turbine manufacturers Nordex /zigman2/quotes/201472194/delayed XE:NDX1 +0.61% and RWE /zigman2/quotes/205250572/delayed XE:RWE +1.65% were 4.8% and 2% lower respectively.
Shares in Siemens Energy, which owns 67% of Siemens Gamesa, fell more than 10% after it also lowered its fiscal 2021 margin guidance late on Wednesday. The German energy company, a spin off of industrial conglomerate Siemens, said it doesn’t expect to hit the low end of its 3% to 5% group margin guidance. However, it stuck to its outlook for group revenue growth of 3% to 8%.
Citi analysts said some of the near-term hit for Siemens Gamesa would be temporary but said investors should be aware of the extent of unhedged steel costs. “More concerning is the impact on 2022-23 from raw material prices. The company still has quite substantial unhedged steel exposure (40% not covered in 2022, no hedging for 2023; it also has not covered 75% to 80% of its copper exposure), which will be the focus of investor concern,” they said, maintaining a Buy rating on the stock.
When it comes to Siemens Gamesa’s rivals, Citi analysts said raw material fears for Vestas were overdone. They said the company was capable of margins within guidance and having a strong mid-term demand outlook. The stock could come under pressure in the short term until the company clarifies the picture at its second quarter results on August 11, they added.