Siemens Energy Up 12%, Eyes Job Cuts for Gamesa Boost

Key Takeaway

• Siemens Energy shares surged 12% after raising its fiscal year revenue growth forecast to up to 12%, signaling a turnaround in its Gamesa wind-turbine unit.
• The company plans job cuts and leadership changes at Gamesa, aiming for double-digit returns amid restructuring efforts.
• Despite challenges, Siemens Energy projects up to €1 billion in pretax free cash flow and sees strength in Grid Tech and Transformation of Industry segments.

Siemens Energy Raises Outlook

Siemens Energy AG, a prominent player in the energy sector, has seen its shares surge by 12% following an optimistic update to its fiscal year revenue growth projections. The company now anticipates revenue could grow by as much as 12%, a significant increase from the previously estimated high of 7%. This adjustment comes amid plans to streamline operations, particularly within its Gamesa wind-turbine unit, which has faced considerable challenges. The focus will be on markets where Siemens Energy sees potential for midterm profit, specifically in Europe and the US, as stated by CEO Christian Bruch in a Bloomberg TV interview.

Strategic Adjustments at Gamesa

The Gamesa unit, specializing in onshore wind turbines, has been identified as a critical area for restructuring due to its struggles with high costs and technical issues that have led to financial losses. Siemens Energy has not disclosed the exact number of job reductions but emphasizes its goal for double-digit returns at Gamesa. The company's strategic shift includes a change in leadership, with Vinod Philip set to replace Jochen Eickholt as CEO of the Gamesa division in July. This decision marks the fourth CEO change at Gamesa since 2017, highlighting the unit's ongoing challenges.

Financial Performance and Expectations

Siemens Energy reported fiscal second-quarter earnings that aligned with analyst expectations and has revised its pretax free cash flow forecast to as much as €1 billion ($1.1 billion), a significant improvement from a previous outlook of negative €1 billion. Bloomberg Intelligence analyst Omid Vaziri notes the raised guidance for fiscal 2024 organic-sales growth and a solid first-half margin, suggesting potential increases in profit expectations. Despite the difficulties faced by the Gamesa unit, Siemens Energy sees strength across its other segments, particularly in Grid Tech and Transformation of Industry, which are expected to drive sales growth in the latter half of the year.

Challenges and Turnaround Efforts

The journey to revitalize Siemens Energy's wind business, particularly the Gamesa unit, remains a focal point for the company. Years of defective wind turbines have overshadowed successes in other divisions, leading to significant financial losses. The situation was exacerbated by a €15 billion deal with the German government to stabilize the company's finances, including asset sales. CEO Christian Bruch acknowledges the ongoing strong demand for technology that supports the energy transition but admits that resolving the issues within the wind business will take time, with a break-even point projected for 2026. Siemens Energy is also considering divesting its onshore wind business if it fails to meet midterm profit targets, indicating a critical period of evaluation and potential restructuring ahead.

Street Views

• Omid Vaziri, BI industrials analyst (Bullish on Siemens Energy):

  "Siemens Energy’s raised guidance for fiscal 2024 organic-sales growth of 10-12% (from 3-7%) — driven by strength in its Grid Tech and Transformation of Industry segments — along with a solid 1H margin suggest profit expectations could increase by the mid-to-high single digits. Increased free-cash-flow guidance to €1 billion is underpinned by strength across all segments excluding the Siemens Gamesa unit (where sales are expected to increase significantly in 2H, driven by offshore turbines)."

Management Quotes

• Christian Bruch, CEO of Siemens Energy:

  "We will not defend each and every market, in particular onshore, where we do not see the midterm profit. It is about focus and selectivity." "There is continued strong demand for technology to power the energy transition. The turnaround of our wind business is still our focus."