Vestas Lifts Outlook After Orders for Wind Turbines Surge

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Vestas Factory
An employee walks between wind turbine blades at the Vestas Wind Systems A/S blade factory in Lem, Denmark. Photographer: Freya Ingrid Morales/Bloomberg

Vestas Wind Systems A/S raised its sales and income forecast after strong orders in the usually weak first quarter drove the backlog at the biggest wind turbine maker to a record. Shares surged to a five-year high.

The Aarhus, Denmark-based company reported net income of 56 million euros ($63 million) in the first three months, almost double the 29.7 million euro average that analysts had expected. It also enjoyed a 13 percent increase in revenue from its services business even though the year-ago period was fattened with rare contracts maintaining machines offshore.

“This has been a historically strong first quarter on revenue, margins, order intake, and return on invested capital,” Chief Executive Officer Anders Runevad said. “Vestas is making good progress toward achieving its profitable growth objectives. We are in a very strong position in an otherwise highly competitive industry.”

The results indicate Vestas has rebounded from a slump in turbine prices that forced it to slash 3,000 jobs since 2011 and close a third of its factories. Wind turbine makers led by Vestas, General Electric Co. and Siemens AG are enjoying record installations and the prospect of further growth as renewables become competitive on cost with fossil-fuel fired power plants.

Runevad said he hasn’t “yet seen an impact from lower oil prices,” suggesting the economics of generating power from wind is detaching from fossil fuel prices. The industry depends on support from regulators and governments for cleaner forms of energy, which are on the rise as policymakers look for ways to keep generating power without worsening pollution.

Shares Surge

Vestas said it expects the margin on adjusted earnings before interest and taxes of at least 8.5 percent in 2015, more than the at least 7 percent it had forecast. The stock jumped as much as 6.5 percent in Copenhagen to 335.40 euros a share, the highest intraday value since May 2010. It rose 4.3 percent to 328.30 euros as of 12:12 p.m. local time.

“We have greater visibility across the board,” because of the order backlog and internal cost-cutting, Chief Financial Officer Marika Fredriksson said in a phone interview. “We’ve managed to control the fixed capacity cost despite higher overall activity in the business.”

Vestas said it has an order backlog and service agreements with projected revenue of a combined 15 billion euros as of March 31. It raised its sales guidance for the year by 1 billion euros to at least 7.5 billion euros.

Service Sales

Services accounted for half of the order backlog, a gain of 9 percent since the end of March 2014. The unit had revenue of 255 million euros in the first quarter, down 2 percent from the fourth quarter and up 13 percent from a year ago. The first quarter of 2014 included 15 million euros of revenue from servicing offshore wind turbines. Subsequent periods recorded no sales for the offshore market.

A favorable U.S. dollar exchange range has helped lift sales. Runevad said Vestas will further reduce turbine costs and make machines that generate more power, bringing closer the day when wind can compete without subsidy.

“We lower the cost of wind turbines,” Runevad said in an interview with Bloomberg Television. “You will continue to see new products that are more efficient and create more energy.”

(A previous version of this story was corrected to fix an error on service revenue in the second paragraph.)

(Updates with service revenue in ninth paragraph.)
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