July 27, 2018 / 6:52 AM / 24 days ago

Siemens Gamesa warns on trade tensions as turbine prices drag

COPENHAGEN/MADRID (Reuters) - Wind turbine maker Siemens Gamesa (SGREN.MC) warned on Friday that trade tensions would drive up costs, after reporting a fall in quarterly sales and profits due to lower turbine sales and pricing.

FILE PHOTO: A model of a wind turbine with the Siemens Gamesa logo is displayed outside the annual general shareholders meeting in Zamudio, Spain, June 20, 2017. REUTERS/Vincent West/File Photo

The U.S.-Chinese trade row adds to challenges facing wind turbine makers such as Siemens Gamesa, Vestas (VWS.CO) and General Electric (GE.N), which already face pressure from tighter markets and the phasing out of government subsidies.

The United States and China have imposed tariffs on each other’s imports worth $34 billion, moves that have driven up the cost of steel, the main raw material for wind turbine parts, and other components, Siemens Gamesa said.

The company said it was monitoring the impact on product costs and supply chain decisions on next year’s earnings.

U.S. costs would rise by 2 to 4 percent depending on the product and whether further tariffs would be implemented, Chief Financial Officer Miguel Angel Lopez told an call with analysts.

He said the company was working to reduce the impact on margins by “optimizing our supply chains.”

Chief Executive Markus Tacke said it was not likely that the firm could pass on all the cost increases to customers.

“We are operating in very competitive markets,” he said. “The likelihood that we can pass through these effects into prices, I would consider this one rather low.”

Shares in Siemens Gamesa traded down 5.2 percent at 1000 GMT, while rival Vestas traded down 5.0 percent.

The company said there would be no impact on 2018 earnings as the extra costs were covered by hedging and supplier contracts. The firm kept its target for earnings before interest and taxes (EBIT) margin of 7-8 percent and revenues of 9.0 billion to 9.6 billion euros for the 12 months ending Sept. 30.

Average selling prices continued to fall at double-digit rates compared to last year, but Siemens Gamesa said it saw prices stabilizing in the order intake, marking the third consecutive quarter of steady prices.

Revenue fell 21 percent to 2.14 billion euros ($2.49 billion) in the April-June quarter, while adjusted EBIT fell 26 percent to 156 million euros due to lower prices.

Siemens Gamesa, majority owned by Germany’s Siemens (SIEGn.DE) after the merger of its wind power business with Spain’s Gamesa, said order intake for its onshore business was 1,660 megawatts (MW) in the quarter, up from 693 MW a year earlier but below the 2,464 MW in the preceding quarter.

The firm’s total order backlog hit a record 23.23 billion euros.

Siemens Gamesa, which counts Spain’s Iberdrola among its shareholders, overtook Danish rival Vestas last year to become the world’s biggest wind turbine maker in terms of sold turbine capacity last year, consultancy firms GlobalData and MAKE said.

(For a graphic on 'Siemens Gamesa' click reut.rs/2K0mbB8)

Writing by Stine Jacobsen; Editing by Emelia Sithole-Matarise and Edmund Blair

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