Vestas Earnings: Higher Turbine Prices to Restore Full-Year Profitability; Raises Full-Year Guidance

No-moat Vestas’s VWS third-quarter results comfortably beat company-compiled consensus after it benefited from the delivery of higher-priced turbines, which resulted in the group returning to profitability for the first time in 2023. Third-quarter operating profit of EUR 70 million was considerably higher than consensus estimates of EUR 31 million and a considerable improvement from its EUR 127 million loss in 2022. The group is on track to return to profitability for the full year after it raised operating profit margin guidance to between 0% and 2% for the full year, from negative 3%-positive 2%. Shares are up 8%, but remain slightly undervalued compared with our DKK 197 fair value estimate, which we maintain.

Its order intake more than doubled year over year to EUR 4.9 billion, which is also a significant sequential increase from the EUR 2.5 billion during the previous quarter. The increase was mainly driven by two major offshore deals in Europe and ongoing onshore wind growth in the U.S. The average selling price of third-quarter turbine orders increased sequentially to EUR 1.09 million/megawatt from EUR 1.04 million/megawatt and thus should translate into ongoing improvements in its profitability.

Revenue increased 11% during the third quarter to EUR 4.4 billion, driven by higher turbine prices in the power solutions segment and 15% service revenue growth. The low end of Vestas’ full-year revenue guidance was raised to EUR 14.5 billion from EUR 14 billion, which we viewed as conservative. Despite trending in the right direction, Vestas’ power solutions segment remained marginally loss-making during the third quarter, which is partially attributable to a rise in warranty costs. Vestas’ warranty provision of 6% of revenue and operational issues at Siemens Gamesa can largely be attributed to the shorter development cycles of wind turbines, which are required to produce more efficient and thus larger turbines to keep the levelized cost of wind energy low.