Siemens Energy warns on wind costs ahead of Gamesa acquisition
Group’s chief says market is ‘in dire straits’ because of surging raw material prices
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A surge in raw material costs is threatening hopes that wind energy will stay a cheaper alternative to power generated by fossil fuels, the head of Siemens Energy has warned.
Renewable energy would “get more expensive and must reflect the volatility in the market”, said Christian Bruch, stressing predictions that the price of wind energy would keep falling predated the supply chain crisis gripping the industry.
“If oil stays at $100 [a barrel], then OK, I think it gives you enough headroom,” said Bruch. “But don’t forget the assumption two years ago . . . was that offshore wind in 2030 will probably be half the price compared to 2021 or 2020,” he added.
“That is a logic which doesn’t prevail if your material costs double.”
Wind prices have been climbing since 2019 as supply chain disruptions and higher raw material costs shake up the sector.
The gloomier outlook from Bruch came as Siemens Energy announced on Saturday its long-expected €4bn offer to buy the remaining 33 per cent of Siemens Gamesa, the world’s largest offshore wind turbine maker.
Shares of Siemens Gamesa, which has been plagued by successive profit warnings, climbed 6 per cent to €17.79 on Monday, just shy of the €18.05 offered by Siemens Energy.
Like competitors such as Vestas and Nordex, Siemens Gamesa has suffered from sharp increases in the cost of steel, copper and rare earths used in turbines, which it is often unable to pass on to customers because of long-term contracts signed when commodity prices were cheaper.
Siemens Gamesa has also cycled through chief executives as it grappled with operational problems, such as delays to the manufacture and installation of its new 5x onshore platforms, forcing Siemens Energy to write down the value of its stake by about €800mn
Acquiring the rest of Gamesa would give Siemens Energy more control over the struggling company, said Bruch, but cautioned that it would take until the middle of the decade for the turbine maker to deliver consistent profits.
The wind energy market was “in dire straits at the moment”, he said, predicting that “we might see some consolidation further in the industry”.
The IEA warned this month that the rollout of wind and solar was “set to lose momentum next year” after growing rapidly, citing supply chain and logistics challenges as a constraint on the industry.
However, in the longer term, Bruch emphasised that “there is no solution without wind”.
“The question is whether it will double until 2030 or will it quadruple until 2030,” he said, but warned that the wind sector needed “to find a business model which reflects on the one hand the supply chain volatility, and on the other hand allows companies like ours . . . to earn enough money to also invest in research and development”, for bigger turbines.
That would necessitate Gamesa customers sharing more risk, Bruch said.
Siemens Energy’s offer to Gamesa shareholders represents roughly an 8 per cent premium on the Madrid-listed group’s closing price on Friday last week. Siemens Energy would delist Gamesa if the acquisition — fully underwritten by Bank of America and JPMorgan Chase — was successful, the company said.
Siemens Energy will finance up to €2.5bn of the transaction with equity, and the remainder with a mixture of debt and cash. It hopes to close the transaction in the second half of the year.
Gapping down
In reaction to earnings/guidance:
- NIU -2.6%
Other news:
- LTCH -4.1% (completes workforce reduction)
- VIR -2.7% (terminates collaboration agreement with WuXi Bio; other existing agreements between co and WuXi Bio remain in effect)
- CABO -1.8% (authorizes additional repurchases of up to $450 million of Cable One's common stock)
- OCGN -1.3% (FDA removes clinical hold on phase 2/3 clinical trial for COVAXIN)
Analyst comments:
- ADSK -3.4% (downgraded to Hold from Buy at Deutsche Bank)
- GLW -2.9% (downgraded to Neutral from Buy at Citigroup)
- HPQ -2.8% (downgraded to Neutral from Buy at Citigroup)
- PTVE -1.6% (downgraded to Neutral from Buy at Citigroup)
- SKLZ -1.6% (downgraded to Neutral from Buy at Citigroup)
- DOW -0.8% (downgraded to Neutral from Overweight at Piper Sandler)
Research Calls
- Upgrades:
- Con Edison (ED) upgraded to Neutral from Sell at Guggenheim; tgt $94
- CubeSmart (CUBE) upgraded to Strong Buy from Outperform at Raymond James; tgt lowered to $52
- DTE Energy (DTE) upgraded to Outperform from Neutral at Credit Suisse; tgt lowered to $140
- Motorola Solutions (MSI) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt $240
- Saia (SAIA) upgraded to Buy from Neutral at UBS; tgt raised to $240
- TreeHouse Foods (THS) upgraded to Buy from Hold at Truist
- Trimble (TRMB) upgraded to Equal-Weight from Underweight at Morgan Stanley; tgt lowered to $67
- Zebra Tech (ZBRA) upgraded to Equal-Weight from Underweight at Morgan Stanley; tgt lowered to $335
- Downgrades:
- Autodesk (ADSK) downgraded to Hold from Buy at Deutsche Bank; tgt lowered to $225
- Axon (AXON) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt $120
- Corning (GLW) downgraded to Neutral from Buy at Citigroup; tgt lowered to $37
- Covetrus (CVET) downgraded to Mkt Perform from Outperform at Raymond James
- Dow (DOW) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $78
- HP (HPQ) downgraded to Neutral from Buy at Citigroup; tgt lowered to $38
- JBG SMITH Properties (JBGS) downgraded to Peer Perform from Outperform at Wolfe Research; tgt lowered to $26
- LyondellBasell (LYB) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $115
- Pactiv Evergreen (PTVE) downgraded to Neutral from Buy at Citigroup; tgt lowered to $10
- Realty Income (O) downgraded to Peer Perform from Outperform at Wolfe Research; tgt $73
- Skillz (SKLZ) downgraded to Neutral from Buy at Citigroup; tgt lowered to $2.10
- WPP plc (WPP) downgraded to Underweight from Equal-Weight at Morgan Stanley
- Others:
- AbbVie (ABBV) initiated with an Underperform at SVB Leerink; tgt $140
- Alteryx (AYX) initiated with an Outperform at FBN Securities; tgt $80
- Amgen (AMGN) initiated with a Mkt Perform at SVB Leerink; tgt $256
- Century Therapeutics (IPSC) initiated with a Buy at H.C. Wainwright; tgt $27
- Compass Therapeutics (CMPX) assumed with a Buy at H.C. Wainwright; tgt $12
- Gilead Sciences (GILD) initiated with a Mkt Perform at SVB Leerink; tgt $68
- Hain Celestial (HAIN) initiated with an Outperform at Cowen; tgt $34
- Halozyme Therapeutics (HALO) initiated with an Outperform at SVB Leerink; tgt $52
- Horizon Pharma (HZNP) initiated with a Mkt Perform at SVB Leerink; tgt $95
- Johnson & Johnson (JNJ) assumed with an Outperform at SVB Leerink; tgt $200
- Lancaster Colony (LANC) initiated with a Market Perform at Cowen; tgt $140
- Ouster (OUST) initiated with an Overweight at Cantor Fitzgerald; tgt $8
- Pfizer (PFE) initiated with a Mkt Perform at SVB Leerink; tgt $55
- Porch Group (PRCH) initiated with an Overweight at JP Morgan; tgt $8
- Radius Health (RDUS) initiated with a Mkt Perform at SVB Leerink; tgt $7
- Regeneron Pharma (REGN) initiated with an Outperform at SVB Leerink; tgt $738
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- Theravance Biopharma (TBPH) initiated with an Outperform at SVB Leerink; tgt $12
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- Vertex Pharma (VRTX) initiated with a Mkt Perform at SVB Leerink; tgt $265
- Wabtec (WAB) initiated with an Overweight at Atlantic Equities; tgt $101
Gapping up
In reaction to earnings/guidance:
- JPM +1.4% (provides guidance at investor day)
Other news:
- GOEV +6.5% (files for 48043111 share common stock offering by selling shareholder)
- GLSI +5.6% (to resume stock repurchase program)
- AXL +5.2% (provides statement on company sale speculation)
- GNK +5% (positive Barrons article)
- NEXT +4.7% (files for 4618226 share common stock offering by selling shareholder)
- CMPS +4.7% (COMPASS Pathways presents largest ever study of psilocybin therapy at American Psychiatric Association annual meeting)
- PSN +3.4% (entered into a definitive agreement to acquire Xator Corporation in a transaction valued at $400 mln)
- EA +2.6% (positive Barrons article)
- GH +2.1% (Presents New Data Showing Blood Test Accuracy in Detecting Colorectal Cancer in First-of-its Kind Prospective Study at Digestive Disease Week 2022)
- BNTX +1.9% (Pfizer/BioNTech (BNTX) COVID-19 vaccine demonstrates strong immune response high efficacy and favorable safety in children 6 months to under 5 years of age following third dose)
- POSH +1.8% (positive Barrons article)
- OCN +1.7% (Board of Directors authorizes $50 million share repurchase program)
- VG +1% (announces that termination date of previously announced deal for ERIC to acquire VG has been extended to August 22)
- RIVN +1% (positive Barrons article)
Analyst comments:
- MSI +2.6% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- THS +2.6% (upgraded to Buy from Hold at Truist)
- ZBRA +1.6% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
- ED +1.5% (upgraded to Neutral from Sell at Guggenheim)
- TRMB +1.1% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
Gapping up
In reaction to earnings/guidance:
- JPM +1.4% (provides guidance at investor day)
Other news:
- GOEV +6.5% (files for 48043111 share common stock offering by selling shareholder)
- GLSI +5.6% (to resume stock repurchase program)
- AXL +5.2% (provides statement on company sale speculation)
- GNK +5% (positive Barrons article)
- NEXT +4.7% (files for 4618226 share common stock offering by selling shareholder)
- CMPS +4.7% (COMPASS Pathways presents largest ever study of psilocybin therapy at American Psychiatric Association annual meeting)
- PSN +3.4% (entered into a definitive agreement to acquire Xator Corporation in a transaction valued at $400 mln)
- EA +2.6% (positive Barrons article)
- GH +2.1% (Presents New Data Showing Blood Test Accuracy in Detecting Colorectal Cancer in First-of-its Kind Prospective Study at Digestive Disease Week 2022)
- BNTX +1.9% (Pfizer/BioNTech (BNTX) COVID-19 vaccine demonstrates strong immune response high efficacy and favorable safety in children 6 months to under 5 years of age following third dose)
- POSH +1.8% (positive Barrons article)
- OCN +1.7% (Board of Directors authorizes $50 million share repurchase program)
- VG +1% (announces that termination date of previously announced deal for ERIC to acquire VG has been extended to August 22)
- RIVN +1% (positive Barrons article)
Analyst comments:
- MSI +2.6% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- THS +2.6% (upgraded to Buy from Hold at Truist)
- ZBRA +1.6% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
- ED +1.5% (upgraded to Neutral from Sell at Guggenheim)
- TRMB +1.1% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
*STIGLITZ: RAISING INTEREST RATES WON'T SOLVE INFLATION PROBLEM
*STIGLITZ: WE NEED SUPPLY SIDE INTERVENTIONS
*STIGLITZ: OUR DEMOCRACY, ECONOMIC SYSTEM IS AT RISK
Marketing Budgets Rise as Share of Company Revenues, Gartner Survey Finds
Inflation, Russia’s invasion of Ukraine and supply-chain issues are creating headwinds for ad spending
Marketing budgets have risen to 9.5% of total company revenue in 2022, according to the annual CMO Spend Survey by research firm Gartner Inc.
The figure represents an increase from the 6.4% seen in 2021, but still lags behind prepandemic levels. Marketing spending averaged 10.9% of company revenue between 2018 and 2020 in Gartner’s surveys.
The survey collected responses from more than 400 marketing executives from North America, Western and Northern Europe from February through March on the marketing budgets for their current fiscal years. Respondents came from various industries and company sizes, with the majority reporting annual revenue of more than $1 billion, Gartner said.
The report found that average marketing spending increased across almost all industries surveyed, with financial services recording the highest budgets, at 10.4% of company revenue, up from 7.4% in 2021. Spending at consumer-goods firms has declined slightly, however, dropping to 8% in 2022, from 8.3% in 2021.
A December forecast from media-buying firm GroupM predicted that global ad spending would rise 22.5% to $763.2 billion this year, excluding U.S. political spending. That raised a previous estimate of 19.2% growth this year.
But inflation, Russia’s invasion of Ukraine and supply-chain issues are creating headwinds for ad spending.
The disruptions roiling the world economy are likely to hurt many companies’ performance, which will put downward pressure on marketing spending relatively quickly, said Ewan McIntyre, vice president analyst and chief of research for the Gartner for Marketers practice.
“We’ve seen this in previous years—marketing budgets are generally the first to be impacted in times of economic difficulty,” he said.
Al Moffatt—who runs Moffatt Advisory, which consults for ad agencies and brands—said companies often should lean into marketing during tougher times to maintain their position with consumers.
“If you have a strong brand, you’re able to charge more for it, regardless of the sector,” he said. “And that’s going to help you with your margins to help offset the cost of goods.”
He said the lesson for marketers is that if they do need to cut, they shouldn’t cut too much.
Christine Moorman, a professor at Duke University’s Fuqua School of Business and managing director of another CMO spending study, said marketers should consider factors such as customer behavior and competitor activity when deciding whether to adjust spending.
“You want to look at what’s going on with your customers, and that’s where it’s really important to get close to them and spend time talking to them—not just guessing or doing large surveys, but really talking to people,” Ms. Moorman said. “But then also thinking about what your competition is going to do. If their revenues are tight, or if you see them being cautious, or in earnings calls with analysts they talk about cutting their marketing budget, maybe you want to push harder.”