Vestas Plunges Most in Eight Years After Cutting Forecasts
Vestas Wind Systems A/S, the world’s biggest wind-turbine maker, skidded 24 percent in Denmark, the most in eight years, after cutting margin and revenue forecasts because of production delays in Germany.
The stock fell 27.05 kroner to close at 84.35 kroner. The Randers, Denmark-based manufacturer yesterday said it expects 6.4 billion euros ($9 billion) in revenue in 2011, down from the 7 billion euros it forecast in August. Vestas said earnings before interest and tax margins will drop to 4 percent from the 7 percent previously forecast, and further delays are possible.
“The fact that the profit warning is based on ramp-up problems and not on weak demand or other execution problems is certainly surprising,” Sven Kuerten, an analyst at DZ Bank, said in a note. Vestas’ new forecast is “way below expectations” as it was a “severe profit warning,” he said.
The news followed a series of earnings misses that have pushed the stock down more than 90 percent from its 2008 record. Vestas and its rival General Electric Co. (GE) are suffering from slower demand growth, falling prices and narrowing margins. Chinese companies grabbing market share also are suffering profit declines, with Sinovel Wind Group Co. yesterday reporting a 49 percent drop in third-quarter profit.
Pretax Loss Expected
Vestas said it would post a pretax loss of 60 million euros in the third quarter, largely due to delays in expanding a new production plant in Travemuende, Germany. That compares with a pretax profit of 107 million euros expected, according to the average estimate in a Bloomberg survey of six analysts.
Before yesterday, Vestas had reported earnings that missed estimates in four of its previous six quarters as the debt crisis eroded demand for clean-energy investments. Yesterday’s downgrade was a result of the factory in Travemuende not being able to keep up with higher demand, Vestas said.
It would have been “irresponsible” to run the German factory at a level that would meet demand as it would hamper safety and quality of the products, Chief Executive Officer Ditlev Engel said in the statement.
“Had Vestas continued the build out of turbines with external or untested parts, this could have led to a repeat of the fleet failures and much larger warranty costs the company experienced in 2005,” Rupesh Madlani, an analyst at Barclays Capital, wrote in a note to clients. “We believe it was an appropriate action for the company to take.”
Under its new sales forecast, the company would book the lowest full-year revenue since 2008.
Short interest in Vestas has climbed 2.3 percentage points since the end of September and stands at about 13 percent of the shares outstanding, suggesting more investors are betting the stock will drop, according to data on Bloomberg compiled by Data Explorers Inc.
There may be further delays affecting Vestas results for 2011, according to the statement.
About 600 million euros of projects that would have been delivered this year have now been postponed to 2012 because of delays in ramping up the capacity of the Travemuende plant, which makes generators for the turbines, said Peter Kruse, a spokesman for Vestas. He declined to say how many projects and what amount of megawatts of turbines were affected.
“Travemuende is a very new plant, and we thought we could take it to top production sooner than the case is,” Kruse said in a telephone interview. “It’s not producing as many generators as we thought.”
Kruse said the Travemuende plant makes generators for several types of turbines. He said the postponements to next year won’t create a “snowball” effect of further delays, and that Vestas is working “every day” to ensure the factory in Germany is brought up to speed.
Disclosure Before Earnings
The company was due to report earnings on Nov. 9 and decided the delays meant it had to make a statement sooner. “When we came to the conclusion that we had to change our guidance we had to go to the street immediately,” Kruse said.
It reported a negative third-quarter earnings before interest and tax margin of 6.9 percent compared with an Ebit margin of 14.1 percent a year earlier and posted a third-quarter Ebit loss of 92 million euros, compared with an Ebit of 271 million euros a year earlier.
Vestas reported second-quarter net income of 55 million euros, the company said in August, beating analysts’ estimates of 41.5 million euros. Last night, the company confirmed estimates for an order intake in 2011 of between 7,000 megawatts and 8,000 megawatts.
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