MADRID (Reuters) - Shares in wind turbine maker Siemens Gamesa (SGREN.MC) plunged as much as 14% on Tuesday after it trimmed its full-year profitability guidance and reported a third-quarter margin well below its target range on low wind prices.
Like its peers, the Spain-based firm is suffering from lower prices across the industry prompted by governments introducing competitive auction systems that favor the lowest bidders, shifting away from subsidizing generous fixed tariffs.
Despite forecast-beating revenue, the company’s earnings before interest and tax (EBIT) margin came in at 6.1%, missing a forecast of 6.7% and well below its targeted range of 7-8.5% for the full year.
Siemens Gamesa said it expected the margin to level out at the lower end of that range by the end of this year, tightening previous guidance that investors should expect it to reach the mid-point.
It also blamed problems executing projects in northern Europe and India for the lower than expected profitability in the third-quarter, bringing back memories of its tussle with changes to Indian capacity auction rules in 2017.
Siemens Gamesa stock led losers on Spain’s IBEX in the morning session, erasing 1.3 billion euros ($1.45 billion) in market value and reversing some of its 46% gains so far this year. Peer Vestas (VWS.CO) fell 4.6% in its wake.
Trade tariffs mutually applied by the United States and China, Britain’s exit from the European Union, a global economic slowdown and volatility in emerging markets all represent threats in the short term, the company said.
To counter these risks, it started raising prices in the third quarter, and introduced a new turbine model. Its closely-watched average selling price rose to 0.8 million euros per megawatt, bouncing back 19% from the previous quarter.
Pressed by analysts on a conference call on whether the group could meet a target profit margin of 8-10% in 2020, Chief Executive Marcus Tacke named a no-deal Brexit among the risks.
“We see some challenges, headwinds, we see some opportunities (...) we are still completing the assessment,” Tacke said. “A no-deal Brexit would have a significant impact.”
Part of the rationale for the merger of Spain’s Gamesa and the wind business of Germany’s Siemens (SIEGn.DE) that created the company in 2017 was that they had complementary strengths in different international markets.
Revenue leapt 23% from a year earlier. The lion’s share of orders in the onshore division came from the United States and a blockbuster order for offshore turbines from Taiwan.
The impact of tariffs imposed under the U.S.-China trade dispute will be more serious as the United States becomes a more important market, Chief Financial Officer David Mesonero said.
Mesonero said the company would aim to bid in auctions that guaranteed better returns, rather than focusing on volumes.
Reporting by Isla Binnie, editing by Andrei Khalip/ Susan Fenton and Emelia Sithole-Matarise