Two of Europe’s biggest wind turbine makers reported stiffer competition that held back profit in the first few months of the year.
Shares slumped for both Vestas Wind Systems A/S and Siemens Gamesa Renewable Energy SA after the manufacturers missed earnings estimates and said pressure on margins would continue. Both maintained their guidance for the full year.
The results underscore increasing pressure on the wind industry to slash costs as governments around the world force developers to bid against each other for rights to sell power to the grid. That has trickled down to turbine makers, which have more than enough factory capacity to satisfy demand.
“The wind energy industry continues to drive down electricity prices and further enable integration of sustainable energy,” Vestas CEO Runevad said. “In the short term, however, this has entailed fierce competition that has impacted profitability in the sector.”
Vestas dropped as much as 3.8% in Copenhagen trading, and Siemens Gamesa fell as much as 3.9% in Madrid on Friday.
In an indication that manufacturers are undercutting each other to win orders, Siemens-Gamesa said it’s “experiencing volatile demand and considerable price pressure” even as it enjoyed its biggest order intake for onshore turbines. Second-quarter sales of €2.24bn were short of the average analyst estimate for €2.25bn, and EBIT fell 82% from a year ago.
Lower pricing for turbines are the “main drivers of the decline in profitability,” said Siemens Gamesa’s chief executive officer Markus Tacke to analysts on Friday. Price pressures will be sustained, he said.
Vestas’s revenue and profitability fell sharply and missed estimates. The company’s operating profit was 40% lower in the first quarter of 2018 than the same period the year before. Orders were down by 20%, falling to 1,629 megawatts in the most recent quarter from 2,049 megawatts in 2017.
Runevad said management remains optimistic that they will be able to turn fortunes around, maintaining Vestas’s guidance for the full year. The company expects to generate between €10bn and €11bn of revenue, but with a profit margin at least 3 percentage points narrower than the previous year.
“From a seasonality point of view, the second half of the year is the busy period for us and for most of the industry,” Runevad said in an interview on Bloomberg Television. “That’s why we maintain our outlook for the full year.”
As usual, most of the company’s activity was in the US with at least six large-scale orders. Vestas also received orders from wind projects in India, Germany, Jordan, Sweden, Kazakhstan and Italy.