Supply Chain Shortages Weigh on Schneider Electric’s Third-Quarter Revenue but Growth Still Solid

Schneider Electric posted solid third-quarter organic growth with a mix of fundamental demand, price increases and possibly some redundancy in customer orders leading to 9% growth. Group revenue beat our forecast by around 3%; however, given the supply chain shortage challenges to delivering products, we do not plan to make material increases to our forecasts for the full year. Management estimated that without supply chain shortages revenue growth might have been 2% higher and expects shortages to continue into the next two to three quarters. We think widespread shortages may be causing a general feedback loop with customers looking to build in redundancy to secure supply for their production needs. To mitigate possible order cancellations, the company has started to put non-cancellation clauses into contracts. In the nine months of 2021, organic revenue growth exceeded 2019 levels by 7%. The company continues to put through price increases with a 2.3% average increase in the third quarter. We maintain our wide moat rating and fair value estimate.