SunPower Q4 Preview: Margins Will Trend Lower Amid Pricing Slump
SunPower (NASDAQ:SPWR), the second largest U.S. solar equipment manufacturer, is expected to publish its Q4 2016 results over the next few weeks, reporting on a challenging quarter that likely saw solar panel prices trend lower, while contracting activity also dipped. While SunPower’s revenues are largely expected to hold up, as the firm sells some utility scale projects over the quarter, margins are expected to trend significantly lower. Below, we take a brief look at what to expect when SunPower publishes earnings.
We have a $10 price estimate for SunPower, which is 30% ahead of the current market price.
Revenues Will Hold Up As SunPower Executes On Backlog
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SunPower has guided Non-GAAP revenues of about $1 billion to $1.2 billion for the quarter. Sales will primarily be driven by its projects business, which is expected to recognize revenues on about 350 MW of projects during the quarter. Key projects that could drive Q4 revenues include the Boulder Solar and Rio Bravo project. The firm’s commercial business could also see relatively strong sales, driven by the Helix integrated solution, although potential push outs of some projects into Q1 2017 could hurt growth. SunPower indicated that panel prices declined by over 25% over the third quarter, driven by weaker global solar demand and growing manufacturing capacity. There is a possibility that we could see the full impact of the price reduction in Q4, particularly on the firm’s panel-only sales.
Gross Margins Set To Trend Significantly Lower
SunPower has guided for adjusted gross margins of just 1% to 3% for the quarter, down from about 20% in Q3, when the firm sold its minority interest in the Henrietta project. While lower margins on utility scale projects are likely to be the primary reason for the decline, SunPower could also be impacted by lower than anticipated growth in the U.S. residential market, which is the company’s highest margin segment. Moreover, the company’s monocrystalline panels, which are manufactured using proprietary technology could be becoming less competitive in the current environment, compared to Chinese manufacturers offering increasingly compelling PERC based offerings. (related: Do PERC Panels Pose A Threat To First Solar And SunPower?) That said, SunPower is increasingly shifting production away from its older and less efficient E-Series modules to its high-end X-Series modules, in a move that could improve margins.
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