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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
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Earnings Watch: Expectations are lifted, strong orders from Siemens Energy
Peter Garnry
Chief Investment Strategist
Summary: In today's equity note we focus on the better than estimated Siemens Energy earnings with orders hitting a new all-time high driven by strong demand in its Grid Technologies segment. We also discuss how Q1 earnings have lifted expectations for earnings over the next 12 months suggesting that analysts are not pricing in a recession at this point. Finally, we highlight the most important earnings this week.
Key points in this equity note:
- Siemens Energy delivers stronger than expected earnings results with big increase in orders driven by enormous demand for grid technology in Europe.
- Q1 earnings have lifted 12-month expectations for earnings highlighting that the equity is not pricing in a recession at this point.
- Our key earnings focus this week is Trip.com (today), Home Depot (tomorrow), Siemens (Wednesday), and Walmart (Thursday).
Siemens Energy earnings: Enormous demand for electrical grid technology
The most important earnings release this morning is from Siemens Energy, which is the 2020 spin off of the former Gas and Power divisions of Siemens, reporting FY23 Q2 (ending 31 March) revenue of €8bn up 22% y/y up 24% y/y on a comparable basis and orders of €12.3bn up 56% on a comparable basis beating estimates. The order backlog rose to a new all-time high of €102bn and a book-to-bill ratio of 1.53. Siemens Energy is also lifting their fiscal year comparable revenue growth target to 10-12% from 3-7%. The business division that is seeing the most growth is Grid Technologies which saw revenue increase 27% and orders by 44% as the company is seeing “enormous demand for grid building in Europe”. We recently wrote an equity note The little-known risk to the green transformation where we highlighted that the electrical grid is the key bottleneck for our electrification of transportation and heating. According to estimates from Bloomberg New Energy Finance the world will need to invest $21trn in grid infrastructure by 2050 underscoring that this is going to be a high-growth industry for a long time. Siemens Energy shares are up 2.5% in today’s trading.
Q1 earnings have defied worries over growth and earnings
This year started with an interesting diversion between forward earnings expectations trending down and global equities rallying higher. As we came into the Q1 earnings season expectations for earnings were muted with concerns over the outlook as input costs remain under pressure from rising wages. However, what we have seen is that Q1 earnings have lifted the 12-month forward earnings expectations getting closer to reach a new all-time high in 2023. In other words, equity analysts and investors are not really pricing in a recession over the next year.
This week the earnings season continues with several key earnings releases highlighted below. Today our focus is on Trip.com, one of China’s largest travel services companies, expected to report Q1 results during the US session with estimates looking for revenue growth of 96% as Chinese the reopening is kicking the Chinese travel industry back into live. Tomorrow, the key focus is on Home Depot reporting FY24 Q1 results (ending 30 April) before the US market opens with analysts expecting revenue growth of -2% y/y and EBITDA of $6.2bn down from $6.7bn a year ago as the home improvement retailer is facing cost headwinds from wages and a demand slowdown due to higher interest rates making home improvements based on loans more expensive. On Wednesday, our focus is Siemens as Europe continues to enjoy positive vibes around industrial growth and is expected to report the market opens. Analysts expect Siemens to report FY23 Q2 (ending 31 March) revenue growth of 10% and EBITDA of $3.8bn compared to $2.3bn a year ago as the underlying demand for Siemens remains strong. On Thursday, we will get earnings from Walmart and coupled with tomorrow’s US April retail sales we will get clues about how US households are holding up amid inflation. Analysts expect Walmart to report 5% revenue growth and EBITDA of $8.3bn compared to $8bn a year ago.
- Monday: Constellation Software, Siemens Energy, Meituan, Bridgestone, NU Holdings, Trip.com
- Tuesday: KBC Group, Vodafone, Nibe Industrier, Sonova, Home Depot, Baidu
- Wednesday: Siemens, Munich Re, Commerzbank, Tencent, Experian, Cisco, TJX, Target, Sea Ltd
- Thursday: KE Holdings, National Grid, Walmart, Alibaba, Applied Materials
- Friday: Deere
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