CEO Strazik 'confident' GE Vernova wind unit to regain profitability in Q4 despite offshore woes

GE Vernova anticipates its wind business will become profitable in the fourth quarter despite ongoing financial losses in offshore as the OEM’s intensified drive to cut costs, become more efficient and raise pricing is yielding bottom line results, senior executives said Wednesday.

“I remain confident we will return the wind segment to profitability in the fourth quarter,” CEO Scott Strazik said on an earnings call.

The wind segment lost $317m in the quarter, up from $225m a year earlier, although losses in the first nine months were trimmed by 18% to $607m from $744m.

In the third quarter, onshore wind had its most profitable quarter since 2021 even though revenue rose modestly to $2.35bn from $2.3bn a year earlier.

“Onshore, we continue to improve on our profitability, expanding margins and delivering on our most profitable quarter in a number of years,” said Strazik, who says he and his team have positioned the business to deliver high single-digit Ebitda margins on flat revenue this year.

CFO Ken Parks noted that efficiency gains in onshore wind had re-sized the business to be profitable at around 1,000 turbines a year. “We obviously are running at a higher rate than that,” he said.

Among other things, the OEM has improved fleet availability, manufacturing quality, and pricing; reduced employee headcount; shifted its sales efforts largely towards the US and a few other markets, and simplified its senior management structure and portfolio of product offerings to 2.8-127, 3.6-154, and 6.1-158 turbines.

The US now represents about 75% of onshore wind equipment backlog revenue. International volume has become smaller but more profitable. GE Vernova will compete in regions that align better with its products and supply chain footprint, positioning turbines to targeted countries.

Strazik claimed that the OEM doesn’t require an “inflection” in US orders to continue sustaining an improvement in onshore wind margins and profitability. Nor does he have a “lot of apprehension that the top line level that we’re at today is at risk of going lower.”

The OEM believes the US industry will commission mid-to-high single digit gigawatts for onshore wind this year. Federal tax credits in the 2022 climate law will act as a tailwind for sector activity going forward.

While a lot of people - that Strazik didn’t name - believe the country needs to bring 15GW to 20GW of new capacity each year to meet its climate goals, GE Vernova has been “consistently cautious” about when orders of that magnitude come, he said.

Parks noted part of the uncertainty over the timing of future order volume in North America is that customers are having to "navigate growing interconnection queues."

When the US market rebounds to mid-teen gigawatts or more annually, it is going to lead “to a much more profitable business that we are all going to like a lot more,” said Strazik, adding, “I’m just not ready to call a date on when that comes because we just don’t quite see that now.”

In the meantime, “We feel like we’re in a solid foundational level with onshore wind performance. It will get better with topline growth,” he said.

The flip side is offshore wind where GE Vernova has struggled to work through an unprofitable $3bn backlog consisting of the 800MW Vineyard Wind project off the US state of Massachusetts and much larger 3.6GW Dogger Bank array in the UK.

Strazik acknowledged the last four months have been difficult for the OEM and he is "disappointed given the impact on our customers and our financial results.”

Delayed execution of the projects "has cost us time on when we had previously talked about completing the backlog," he said, noting the company had informed investors that this process would be largely complete by the end of 2025.

The OEM is evaluating alternatives including "incremental" installation vessels that can increase the pace of work. Strazik pledged to be transparent on the "burn down" of the backlog when GE Vernova meets with investors on 10 December to outline its 2025 financial objectives and long-range financial targets associated with that.

The $700m quarterly charge was partially offset by a $300m gain resulting from a 12 September settlement agreement regarding a US offshore wind project that was previously canceled by a customer. It enabled GE Vernova to recover costs earlier incurred on the project, which it recorded as $500m in revenues and $200m in cost of sales.

“We do not foresee adding to this backlog without substantially different industry economics than what we see in the marketplace today,” Strazik told analysts.

The OEM earlier resumed turbine installations in Dogger Bank, while at Vineyard Wind, "we are installing towers and the nacelles and are very close to resuming blade installation."

In today’s difficult economic environment, the OEM is executing on contracts priced and signed before the Covid-19 pandemic and Russia’s invasion of Ukraine, an era of cheap borrowing costs and low inflation, fully functioning global supply chains, and geopolitical calm.

Also, under General Electric, the former GE Renewable Energy, GE Vernova’s immediate predecessor, bid prices on a forward cost curve, assuming cost productivity that often failed to materialize.

“The team struggled to reach the cost productivity estimates and often saw as-sold to as-executed margin dilution,” Strazik said in June.