Top turbine manufacturer reports record orders

Source: By Jeremy Hodges, Bloomberg • Posted: Monday, November 11, 2019

Vestas Wind Systems A/S beat earnings estimates for the third quarter as sales soared 30% and orders hit a record, contrasting with stumbling results from rival manufacturers.

The world’s biggest maker of wind turbines upgraded its outlook for revenue from its service business and said it’s continuing to pare back costs. Earnings before interest and taxes excluding special items rose 55% to €429 million ($475 million), exceeding the highest estimate.

The figures contrast with a gloomier outlook coming from much of the rest of the industry, which is suffering from compressed margins and trade tensions that delayed sales. Vestas said it’s benefiting from a growing business outside Europe and affirmed its own guidance for the rest of the year.

“We are very pleased with the performance,” Henrik Andersen, who took over as chief executive officer in August, said in an interview yesterday. “We’ve done a very good quarter in terms of order intake, and we have had stable pricing on the order intake, which is also very supportive. There’s an enormous visibility and predictability when you look into 2020 and to some extent towards 2021.”

In a statement, the CEO said “profitability remains impacted by tariffs and increased execution costs.”

There is a 1.5 percentage point impact on margins from cost increases across trade, transport and raw materials for 2019, that represents a 0.5 point increase on what the company anticipated at the start of the year, Chief Financial Officer Marika Fredriksson, told analysts on a call.

The manufacturer, based in Aarhus, Denmark, rose by as much as 13% in Copenhagen, the biggest jump since November 2014.

Vestas said it had orders of 13 gigawatts already in 2019 and expects a “very busy 2020.” The company maintained its full year guidance on revenue of as much as €12.2 billion with earnings margin still set at 8% to 9%.

Revenue from the growing service business grew 8% compared to the same period last year to €422 million, reflecting the growing importance of keeping their existing turbine portfolio in good working order.

“Where we have invested in systems, we have invested in some of the technology that drives the stability of assets we know incredibly well,” Andersen said over the phone. “There is getting a different attitude in the world, how to maintain your assets rather than just repair or replace.”

The results reflect an effort by Vestas to rein in costs and brace for a more competitive landscape. In September, it outlined job cuts in Germany and Denmark. It cited lower demand for onshore wind farms in a market now dominated by auctions, forcing developers to squeeze down costs.

“Vestas’ strong activity growth and order execution lends confidence that the turbine maker is on-track to meet full-year guidance before an anticipated surge in 2020,” said James Evans, an analyst at Bloomberg Intelligence in London. “The onshore wind business is likely to remain margin-constrained in the near term, in our view.”

Other wind turbine makers are similarly affected. Siemens Gamesa Renewable Energy SA has announced 1,200 cuts this year across the manufacturing and business support divisions.

Last month, Ørsted A/S shares tumbled after an admission the company overestimated the amount of power its turbines would produce, potentially harming revenue projections. It’s new territory for a market that enjoyed a boom in global demand for the clean energy and generous support from governments.

The results for Vestas mark a turnaround from two quarters of missed estimates and narrowing margins. In August, Vestas scaled back its guidance for the rest of the year.

Its offshore wind joint venture, MHI Vestas Offshore Wind A/S, saw its net profit collapse to €4 million in the three months to September compared with €42 million in the third quarter of 2018. Vestas attributed the drop-off to a delayed project and that net profit for the first nine months of 2019 was €36 million versus a loss in 2018.

The services business was a source of strength in the quarter, and Andersen said he expected to maintain margins in that unit.

“We’re covering 91 gigawatts of turbines,” Anderson said in the television interview. “How do you actually service them and how do you connect with your turbines from a service perspective? Customers there see the value of service we provide.”

More from the results:

  • 3Q revenue €3.65 billion, beating estimate for €3.30 billion.
  • Maintains guidance for full year revenue of €11 billion to €12.25 billion. That compares with analyst estimates from €10.98 billion to €12.18 billion.
  • Maintains guidance for 2019 Ebit margin of 8% to 9%.
  • Maintains outlook for 2019 investments of about €800 million.
  • Starts a €200 million share buyback program.