January 29, 2019 / 8:59 AM / in 3 months

Siemens Gamesa's positive margin, price forecasts lift shares

MADRID (Reuters) - Wind turbine maker Siemens Gamesa forecast better profitability and said prices were stabilising on Tuesday, sending its shares as much as 9 percent higher.

The Siemens Gamesa logo is displayed outside the company headquarters in Zumudio, near Bilbao, Spain, November 28, 2017. REUTERS/Vincent West

The company formed by a merger between Spain’s Gamesa and the wind power business of Siemens stuck to its guidance for an earnings before interest and tax (EBIT) margin of 7 to 8.5 percent for the full year.

Chief Executive Marcus Tacke told analysts on a conference call he expects a stronger second half to the year, after the company said its EBIT margin for the October-December quarter fell to 6.1 percent from 6.3 percent.

Siemens Gamesa, which vies with Denmark’s Vestas to lead the global wind turbine sector, said revenue for the period rose to 2.26 billion euros (1.96 billion pounds) from 2.13 billion a year earlier.

Although shares in Siemens Gamesa initially fell by 2.5 percent on EBIT and net profit being below some expectations, they rebounded on the firm’s outlook and were up 9 percent at 1235 GMT, leading Spain’s IBEX index.

The company said profitability had been dragged down by pricing on a backlog of orders struck in 2018, a year in which they fell 9 percent, and a worse performance by its onshore unit.

Wind businesses around the world have faced margin pressure as governments phase out subsidies and move towards more competitive contract tenders.

Siemens Gamesa said market prices for turbines were stabilising and new orders in the first quarter were pricing broadly in line with those at the end of last year.

Banco Sabadell analysts said in a note that this explained some of the share gains, especially in view of a 3.5 percent fall in the firm’s shares the previous day.

“We take a positive view of the messages given by the company, especially those related to stability in prices and their confidence that they can reach the middle of the guidance range given for the year,” the analysts said.

TRADE WINDS

A trade row during which the United States and China imposed tariffs on each other’s imports has driven up the cost of steel, the main raw material for wind turbine parts.

Tacke said Siemens Gamesa had taken this into account in giving guidance for future performance, but discussions between the two major economies now needed to play out.

“We still need to see how the recent discussion is going to be concluded, depending on if there is an upside or a downside opportunity out of it,” he said.

He reiterated an earlier calculation given by the company of an increase of 2-4 percent in the costs of U.S. projects, depending on the product.

additional reporting by Jose Elias Rodriguez; editing by Jason Neely and Alexander Smith

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