Vestas Wind Slumps After Outlook for Weaker Growth in 2017

Updated on
  • Guidance for 2016 boosted after stronger orders and earnings
  • Growth to slow in the U.S., the biggest market for Vestas

Vestas Feels the Force of a Surge in Orders

Vestas Wind Systems A/S slumped after Chief Executive Officer Anders Runevad said growth may slow next year after third-quarter results were strong enough to boost his outlook for this year.

Runevad said 2016 will be an “extraordinary year” for the Danish manufacturer of wind turbines and that sales are likely to slump in the U.S. in 2017, the company’s biggest market. The expansion Vestas is enjoying this year is unlikely to be repeated in the medium term, he said on a call with analysts.

Vestas slipped 9.1 percent to 471.10 krone at the close in Copenhagen after Runevad’s remarks, reversing a gain earlier in the session and blunting a surge the stock experienced on Monday. Along with its competitors, Vestas is benefiting from years of cost cutting that returned it to profit after prices for its turbines tumbled starting in 2011, prompting a restructuring that eliminated 3,000 jobs.

“We are moving into an overall market situation where we’ve seen two to three years of very, very high growth levels,” said Runevad in a conference call. “Moving into the next three years, the outlook is a market that still shows growth overall in that mid-term, but not from the levels that we’ve experienced year on year in this year. We expect the U.S. specifically in 2017 to be a lower activity level than 2016.”

The latest results marked Vestas’ 12th consecutive profitable quarter. After bringing costs under control, the industry has been buoyed by favorable government policies on clean energy, such as the U.S.’s extension of an incentive known as the production tax credit, or PTC, last December to 2020.

Vestas raised its outlook for the rest of the year after saying adjusted earnings before interest and tax, excluding items almost doubled to 433 million euros ($478 million) in the three months through September from 232 million euros in the same period a year earlier, according to a statement on Tuesday. That beat the median estimate of analysts surveyed by Bloomberg of 334 million euros.

The company expects an EBIT margin of 13 percent to 14 percent this year, up from the previous forecast of 12.5 percent. It expects revenue of as much as 10.5 billion euros in 2016, more than the 9.5 billion euros it anticipated before. Orders increased by 17 percent in the third quarter.

Gains in the stock Monday followed polls showing Hillary Clinton poised to win the U.S. presidential race, reducing a perceived threat to renewable energy shares from her opponent, Republican Donald Trump. Vestas has the most riding on the outcome of the election taking place in the U.S. on Tuesday, said Jacob Pedersen, chief of equity analysis at Sydbank A/S. It generated 41 percent of its revenue last year in the Americas, with the U.S. as its biggest market by far.

An energy company owned by Warren Buffett’s Berkshire Hathaway Inc. ordered 214 megawatts of turbines from the Aarhus-based manufacturer in September. The Wind XI project in Iowa is planned to have an installed capacity of 2 gigawatts upon completion and will cost $3.6 billion to develop. Vestas expects to supply more of its machines to the project, having signed a preliminary supply agreement in June.

Trump’s View

Trump has been outspoken against renewable energy, tweeting that he believes climate change is a hoax created by China. He also tried to get an offshore wind project canceled near a golf course he owns in Scotland, losing a two-year legal battle in July.

The U.S.’s booming clean energy market may continue to grow even with a climate skeptic president, according to Bloomberg Intelligence analyst James Evans.

“A number of big utilities in the U.S. such as Southern have said that they’re planning to refocus their capex plans more on wind than solar due to PPA pricing, with NextEra also focusing its development program on wind,” Evans said.

This is the second consecutive quarter that Vestas raised its outlook for full-year performance. In August, Vestas revised its guidance up for its revenue in 2016 after higher activity and wider margins, increasing it to 9.5 billion euros from 9 billion euros. It also allocated 400 million euros to a stock buyback.

Orders Boom

The company has reported at least eight major orders in August, September and October. Those include projects in China, two in the U.S. and others in Sweden, Brazil, Germany and Mongolia. Its joint venture with Mitsubishi Heavy Industries Ltd., MHI Vestas Offshore Wind A/S, won a contract to supply the Aberdeen offshore wind farm in the U.K., also in September.

Service agreements with contracted revenue may generate 9.9 billion euros this year. The combined backlog for 2016 including turbine sales is expected to be 700 million euros more than last year. The company acquired operations and maintenance companies UpWind Solutions Inc. in the U.S. and Availon Holding GmbH in Germany last year for $156 million.