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Vestas Shares Plunge as Turbine Maker Cuts Forecasts

Vestas CEO Ditlev Engel
Vestas Chief Executive Officer Ditlev Engel said, “We were maybe too optimistic on what we expected we could execute in the second half of 2010.” Photographer: Simon Dawson/Bloomberg

Vestas Wind Systems A/S lost almost a quarter of its value in Copenhagen trading after the world’s largest wind-turbine maker reported a larger-than-expected loss and cut forecasts, blaming delayed orders.

The stock had its biggest one-day drop since November 2002 after the Randers, Denmark-based company posted a second-quarter loss of 119 million euros ($153 million), exceeding the average estimate of a 7.3 million-euro loss in a survey of 15 analysts.

“Right now it’s just a shock, and Vestas has suffered a serious blow to its credibility,” Teea Reijonen, a London-based analyst with Royal Bank of Scotland Group Plc, said today in a telephone interview. “Analysts are going to take a very dim view of margins for 2011 given what’s happened this year.” Reijonen had a “hold” rating on the shares before today.

Vestas cut its sales forecast for this year to 6 billion euros from 7 billion euros on delays in expected orders in the U.S., Spain and Germany. The credit crisis has prompted banks to restrict loans to wind-park developers that buy turbines from Vestas and competitors including Germany’s Siemens AG, Gamesa Corp. Tecnologica SA and General Electric Co.

“We were maybe too optimistic on what we expected we could execute in the second half of 2010,” Vestas Chief Executive Officer Ditlev Engel said today in an interview on “Countdown with Francine Lacqua” on Bloomberg Television. “The financial crisis had a delay effect on our industry and we’re seeing it in 2010 rather than in 2009.”

Profit Margin

Vestas also lowered the forecast for its 2010 operating profit margin. Earnings before interest and tax will likely be 5 percent to 6 percent of revenue, down from its previous forecast of 10 percent to 11 percent. Sales in the second quarter fell 17 percent to 1 billion euros.

“What we’re seeing is a consequence of a very poor 2009 and beginning of 2010,” Didier Laurens, analyst at Societe Generale in London, said by phone. Laurens, who lifted his recommendation of the shares to “buy” from “hold” last month, wouldn’t say if today’s report would change his rating. “We will probably have to wait to see what Vestas will look like next year and going forward, even if the backlog seems to be strong.”

Vestas declined 72.5 kroner, or 23 percent, to close at 242 kroner in Copenhagen, bringing the stock’s loss for this year to 24 percent. The WilderHill New Energy Global Innovation Index of 88 renewable-energy companies has dropped 21 percent this year.

Investment Slows

The company, Denmark’s fifth-largest by market value, lost 82 million euros in the first three months, its first quarterly loss in four years. Vestas had net income of 43 million euros in the second quarter of last year.

Vestas will increase its worldwide headcount by 3,000 this year, 400 fewer than it planned in April. Vestas will lay off 300 employees in Denmark and another 300 temporary workers won’t have their contracts renewed, while the company adds staff in the U.S.

“When we look at the consequences of these delayed shipments, we have to react,” Engel said in a conference call with analysts in London.

Global investment in wind power slowed during the economic slump in the U.S. and Europe, lowering prices paid for wind farms, according to Bloomberg New Energy Finance. Turbine makers are most at risk as manufacturing overcapacity narrows margins, Justin Wu, an analyst for Bloomberg New Energy Finance, said on June 21.

“The decline in revenue and earnings reflects the very low level of activity in the wake of the credit crisis,” Vestas said in today’s statement. “Expected, but still not concluded orders for delivery to the USA, Spain and Germany will now take place at such a late date in 2010 that they will not be recognized as income this year.”

Still, Vestas has signed at least eight orders the past month, including its biggest ever in the U.S. and its largest in Australia.

“The result confirms that turbine prices and pre-payment conditions are under pressure,” Patrik Setterberg, analyst with Nordea Bank AB in Copenhagen, said in a note. He has a “hold” rating on the shares. “Even a strong order intake will not compensate for the weak result.”

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