What to Expect From SunPower Corporation's Earnings Report

SunPower (NASDAQ: SPWR  ) reports earnings after the market closes on Thursday and it will be the first in-depth look at how solar companies are doing in 2014. Trina Solar (NYSE: TSL  ) and JA Solar (NASDAQ: JASO  ) have already provided preliminary numbers that show a sharp rise in shipments and margins from a year ago, but that's all we know for sure.

To prepare you for earnings, let's lay out what investors are expecting and what trends we should watch for.

Residential is a growing market for investors to watch when SunPower reports earnings. Source: SunPower 

What to expect from SunPower
The first thing investors will want to look for from SunPower is bottom-line results. Margins recovered nicely last year to 20.4% on a non-GAAP basis and resulted in a $1.68 per share profit.

Already this year, we've heard from Trina Solar, JA Solar, and others that panel prices are up versus the fourth quarter, which means margins are up as well. SunPower has said that it's sold out of panels this year so we can assume it will be able to fully utilize capacity while improving margins overall.

Management is expecting non-GAAP gross margins of 18% to 20%, but I'd be shocked if they weren't higher given comments from competitors and industry data showing a 35% increase in installations in Q1 over last year. That also means bottom-line results should be ahead of both SunPower and analyst expectations.

 

SunPower Guidance

Analyst Expectations

Q1 2014 Revenue

$650-$700 million

$669 million

Q1 2014 non-GAAP EPS

$0.25-$0.40

$0.32

Source: SunPower and Yahoo! Finance

On the revenue side, SunPower's results can be choppy because large project construction varies quarter to quarter. Given the margin trends, it also wouldn't be shocking to see SunPower sell more panels to high-margin locations like Japan and the U.S. in lieu of completing projects early. I'd expect SunPower to be within its own range but look for comments about where revenue comes from before jumping to conclusions about whether a miss or beat on the top line means anything at all.

Major projects like Solar Star (seen here) still drive SunPower's results but they can make earnings choppy quarter to quarter. Source: SunPower

Another key will be guidance, which I expect to be outstanding. SunPower executive Howard Wenger said at last week's GTM Solar Summit that he expects demand to exceed supply by the end of 2014, and if it does prices and margins will both rise. That means that for the full year SunPower's margins could be up significantly and the company could guide to over $2 in non-GAAP earnings this year, even before a 350 MW capacity expansion is completed, which will lead to growth next year.

Finally, look for SunPower to report more detail from the U.S. residential solar market. It doesn't report retained value the way that SolarCity does, but in a call after earnings last quarter Tom Werner said he was looking at breaking out numbers so it's easier to make a direct comparison. I expect to see MW installed, overall installed retained value, and retained value per watt for Q1 in the earnings report.

An unexpected announcement
SunPower's CEO Tom Werner alluded to another big capacity expansion last quarter and I wouldn't be shocked to hear more details on the conference call. A 350 MW expansion is going in this year and SunPower expects to be making saleable product early in 2014.

One major reason for the relatively small expansion is that SunPower is simplifying its manufacturing technique in the new plant and wants to make sure it has the technology right before building an even bigger expansion. When it is comfortable with that technology I'd expect to hear about a new expansion of around 1 GW, which will sharply increase the company's growth trajectory.

Stay tuned
Check back to Fool.com for more SunPower coverage after earnings. The company will tell us a lot about its future this week but also about the future of dozens of solar manufacturers around the world.

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