SunPower Earnings: Factors That Drove The Distributed Solar Business

SunPower (NASDAQ:SPWR) released its Q4 2013 earnings on February 12, reporting a relatively strong set of numbers that beat market expectations. The results were driven by strong demand for distributed solar generation in markets such as Europe, Japan and North America as well as by the smooth execution of the company’s large-scale Solar Star and California Valley Solar Ranch projects in North America. While quarterly revenues (Non-GAAP) declined by around 3% year-over-year to $758 million, operating margins grew to around 9.5% from 7.4% a year ago. ^[1] In this note, we take a look at some of the factors that drove the company’s performance in the distributed solar market (see our pre-earnings note: SunPower Q4: Focus On The Distributed Solar Business).

Trefis will be revisiting its $28 price estimate for SunPower to account for the earnings release.

See Our Complete Analysis For SunPower and First Solar

Distributed Solar Business In North America

SunPower’s distributed solar business in North America continues to do well, driven by the increasingly compelling economics of rooftop solar, new financing schemes as well as tax incentives which have played a part in bringing in financing from tax equity investors. During Q4, SunPower shipped a total of 48 megawatts (MW) of systems to residential and light commercial installations in the United States. ^[2] While this amounts to just about 25% of SunPower’s total North American shipments, the distributed solar market remains important  for the company since it is growing  faster than the broader U.S. Solar market. For 2013, the Solar Energy Industries Association (SEIA) estimated that the residential solar market in the United States would grow at nearly 52%, which is nearly twice the growth rate of the broader solar market.

SunPower has been counting on its leasing business to drive growth in the residential solar market and as of the fourth the quarter, the company indicated that it had a total of over 20,500 bookings, with total new bookings for the quarter (in terms of capacity) coming in at around 7 MW.  Encouragingly, the company’s sales to new homes have also shown significant growth, rising by around 45% year-over-year. The company has partnered with 7 out of 10 of the largest developers in the United States and this could help to power the firm’s sales in the near term as the U.S. housing market grows. Installing solar panels to new homes costs about 20% less at the time of construction rather than after a home is built, making it an attractive proposition for home owners.

Japan And Europe Drive Global Distributed Generation Growth

Japan is one of the fastest growing solar markets in the world, driven largely by attractive government incentives. Installations in the country are geared towards distributed and rooftop solar since the utility-scale solar market faces challenges due to a scarcity of land. Customers in Japan generally prefer high-efficiency panels due to the smaller areas for installations on their rooftops, making it an ideal market for SunPower’s monocrystalline panels. SunPower has seen its shipments to the country nearly double over the last year and during Q4 2013, the Japanese market accounted for nearly a quarter of the company’s shipment volumes.

SunPower has also been seeing a recovery in the European markets of late, driven by better pricing as well as demand from the rooftop solar market. Gross margins for the company’s Europe/Middle East/Africa (EMEA) region, which is largely influenced by the European business, grew to around 16.4% from about 9.6% in Q3. Europe remains an important market for high-end solar products and SunPower had indicated earlier that it was seeing particularly strong demand for its top-end X-series panels, which offer a conversion efficiency of around 21%.

See More at Trefis | View Interactive S&P Capital IQ Analyses (Powered by Trefis)

1. Q4 2013 Supplemental Data Sheet, SunPower, February 2014 [↩]
2. SunPower’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, February 2014 [↩]