SunPower’s Earnings Could Trend Lower As It Builds Out Projects For H2
SunPower (NASDAQ:SPWR), the second largest U.S. solar equipment manufacturer, is expected to publish its Q2 earnings in the coming weeks. We expect the firm’s revenues to trend lower on a year-over-year basis, amid weaker revenue recognition in its power plant business as it builds out assets for sale during the second half of this year under its Holdco strategy. On a Non-GAAP basis, the company has guided for revenue of $310 million to $360 million for the quarter with a gross margin of 12% to 14% and EBITDA of zero to $25 million. Below we take a look at some of the key factors to watch when SunPower reports earnings. [1]
Power Plant: Revenues Could Trend Lower, FY’17 Projects In Focus
As of April, SunPower had a total of seven power plant projects due for completion during 2016 with a total capacity of about 575 MW. These projects will be sold to 8Point3 Energy partners – SunPower’s JV yieldco with First Solar – or to third party buyers. However, most of these projects have commercial operation dates (COD) of between Q3 2016 or Q4 2016. This could potentially result in weaker revenue recognition for the second quarter, although this should be offset by significantly stronger Q3/Q4 results. Separately, we will also be watching the company’s progress in improving its project visibility for 2017 and beyond, which remains somewhat weak.
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Residential: Watching U.S. Business, Equinox
SunPower’s residential business could also face some headwinds in the U.S. amid policy changes relating to net metering in states such as Nevada and Arizona. Near-term residential sales could also be impacted by the extension of the U.S. solar ITC, which reduced the urgency for homeowners to install solar systems before December 2016 to avail tax credits. However, this could be partially offset by the introduction of SunPower’s Equinox integrated solution – which combines panels, mounts and micro inverters into a single package The company indicated that Equinox accounted for over 40% of the new bookings for its residential unit, as of May.
Manufacturing Capacity Expansion Progress
SunPower’s factories ran at full capacity over Q1, as the firm built up inventory for its second half project completions, and it is likely that the trend will continue into Q2 as well. The company intends to boost production capacity to about 1,850 MW by the end of this year, up from 1,400 MW at the end of last year by ramping up capacity of its Fab 4 plant (from 30 MW to 350 MW) and also by expanding the production of its just launched P-Series modules (60 to 80 MW of capacity by year-end). P-series modules offer higher conversion efficiencies compared to multi-crystalline panels, at prices which are lower than SunPower’s monocrystalline offering. These panels could be increasingly important to SunPower, as panel prices decline, amid strong manufacturing capacity expansion and weaker demand from China.
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