Vestas shares down on Q3 profit miss, lowers FY outlook on service margins

Investing.com -- Shares of Vestas Wind Systems A/S  (CSE:VWS ) slipped after the company reported underwhelming Q3 results that missed profit expectations across both its Power Solutions and Service divisions. 

At 6:21 am (11:21 GMT), Vestas Wind Systems was trading 8.4% lower at DKK 124.6.

The company’s revenue and orders slightly surpassed forecasts, but profit margins fell significantly short, raising concerns about the company’s ability to navigate ongoing challenges in its core wind turbine business.

For the third quarter, Vestas recorded €235 million in adjusted EBIT, yielding a margin of just 4.5%, considerably below the consensus of €352 million at a 7.1% margin. 

While the company reported stronger-than-expected revenues and order intake—up 5% and 1% respectively versus company-collated consensus—the miss on earnings came from a weaker performance in both divisions. 

Its Power Solutions segment missed adjusted EBIT margins by 220 basis points due to higher-than-anticipated warranty provisions, which are now equivalent to 6% of the group's sales. 

“Disappointing set of results, with the further Service set-backs somewhat surprising given the recent margin rebasing. With FY guidance only slightly lowered, expectations look fairly weighty for Q4 particularly in Power Solutions,” said analysts at RBC Capital Markets.

Additionally, order volume for the division came in below expectations, with onshore wind orders in particular landing 8% short of consensus forecasts.

The Service division was similarly impacted, with a 24% miss on adjusted EBIT as higher costs and an unfavorable sales mix weighed on margins. 

As per analysts at RBC Capital Markets, a rise in transactional sales within the Service unit contributed to the profit shortfall, with only limited progress in margin improvement. 

This division, typically more stable, faced “slightly slower-than-expected” recovery in its profitability, which has raised concerns over the company's ability to meet full-year targets.

The weak Q3 results led Vestas to temper its outlook for the fiscal year, particularly on margin expectations in its Service division. 

While overall revenue guidance has been maintained in the range of €16.5-17.5 billion, adjusted EBIT margins are now expected at the lower end of the 4-5% range previously provided, with Service EBIT projected to reach €450 million rather than the €500 million anticipated earlier. 

“Consequently, we view the full-year updated guidance as ambitious and anticipate consensus to fall below the lower end of the 4% margin for the year,” said analysts at J.P. Morgan in a note.

Additionally, the company revised its capital expenditure outlook, now planning to spend €1 billion this year, down from an earlier target of €1.2 billion.

Looking to the final quarter, Vestas expects stronger results, with Power Solutions margins projected at roughly 11-12%, above the consensus of 10.4%, and Service EBIT margins anticipated at 21%. 

Still, RBC analysts pointed out that despite these expectations, the lingering issues affecting both the Power Solutions and Service divisions could challenge the company's ability to reach even the low end of its adjusted EBIT guidance for the year. 

The company’s lowered earnings outlook, combined with lingering high costs, has dampened investor sentiment, leaving the stock under pressure as markets reacted to the missed quarterly targets and scaled-back expectations.

Source: Investing.com