Vestas Q2 orders drop 44% on policy delays; revenue rises, profit turns positive

Vestas Wind Systems A/S (VWS) reported mixed second-quarter results, with revenue rising 13.6% to €3.75 billion and EBIT margin turning positive at 1.5% from negative 5.6% year-over-year. However, wind turbine order intake sharply declined 44% to 2,009 MW due to policy uncertainty, and adjusted free cash flow turned negative €227 million from a positive €524 million. Despite the order intake decline, the company maintained its full-year guidance, underpinned by a growing combined order and service backlog of €67.3 billion.

Analysis

Vestas Wind Systems A/S (VWS) reported a dichotomous second quarter, characterized by improving operational profitability but a sharp decline in new business. Revenue grew a solid 13.6% year-over-year to €3.75 billion, while the EBIT margin before special items swung to a positive 1.5% from a negative 5.6% in the prior-year period, driven by stronger onshore project performance and reduced warranty costs. This resulted in an EBIT of €57 million and a return on capital employed of 11.5%, the highest level since 2020. However, these positive operational metrics were starkly contrasted by a 44% year-on-year drop in wind turbine order intake to 2,009 MW, which the company attributes to customer commitment delays amid policy uncertainty. Furthermore, adjusted free cash flow deteriorated significantly, turning to a negative €227 million from a positive €524 million. Despite the weak order intake, the company's confidence is reflected in its maintained full-year guidance, which is underpinned by a robust combined order and service backlog that grew by €4.3 billion to €67.3 billion, providing significant revenue visibility.

Key Decisions for Investors

• Investors should weigh the company's improved execution, evidenced by the positive EBIT margin and a multi-year high in ROCE, against the significant demand risk highlighted by the 44% plunge in Q2 order intake.
• The maintained full-year guidance and substantial €67.3 billion backlog provide a degree of stability, but future order announcements must be monitored closely to determine if the Q2 weakness is a temporary issue or a developing trend.
• The sharp reversal to negative free cash flow warrants caution, and it is critical to assess the company's ability to convert its backlog into positive cash generation amidst ongoing offshore ramp-up expenses.