Solar earnings season is here, and, by the market's reaction, it's started with a bang. SunPower (Nasdaq: SPWR ) -- solar's efficiency leader and my 2012 top energy stock -- has rocketed as much as 28% higher today after releasing fourth-quarter earnings.
Results may not look impressive if you haven't been following solar companies' struggles in recent quarters, but they soundly beat very low expectations from investors and analysts. Revenue was $563.4 million, not inclusive of $186.4 million in unrecognized revenue from utility and power plant, or UPP, projects. Net loss was $83.1 million, or $0.84 per share. However, on an adjusted basis, the company posted a $0.16 per share profit, exceeding even its own projections. These adjustments include a $0.40 impact of unrecognized UPP projects, a restructuring plan, a $0.22 per share gain on investments, and other items.
I'm not a fan of all of the adjustments SunPower makes to earnings and look at this as a quarterly loss for continuing operations. That's not terribly surprising considering that SunPower is playing catch-up on costs versus suppliers like First Solar (Nasdaq: FSLR ) in thin film and Trina Solar (NYSE: TSL ) in China, but the company is quickly improving its products, costs, and strategic position in the market.
Reading the crystal ball
Management mentioned that the U.S. market was SunPower's strongest in the fourth quarter, showing that growing U.S. demand will play a major role in the coming years for solar manufacturers. SunPower has a strong market share in the U.S. -- 25% in California alone, according to management -- and with new programs, looks to continue growth.
One of those is a leasing program that SunPower introduced in 2011. The company spent significant resources on the project, contributing some negative gross margin pressure to the residential and commercial, or R&C, segment, which was just 7.5% in the quarter.
UPP was much stronger, contributing a 17.2% gross margin. The strong margins will likely continue because California Valley Solar Ranch and other projects are already on the books for 2012, locking in prices.
SunPower also repaid $199 million in convertible debt just this week, lowering leverage in its business.
Another thing to watch for manufacturers this quarter -- inventory -- was down from $425 million in the third quarter to $397 million at the end of the year. If sales were as strong in Germany and the U.S. as the market is hoping, inventory should be down for most manufacturers.
Despite all of this positive reaction today, SunPower is still projecting a $0.05 to $0.20 loss per share in the first quarter on revenue between $500 million and $575 million. For the full year, the company expects $2.6 billion to $3 billion in revenue on total production of 9,000 MW to 1.2 GW.
What this means for the industry
During conference call comments, management seemed to indicate that Germany and Italy weren't as strong as I would have thought, although my expectations were high. Manufacturers up and down the supply chain -- like LDK Solar (NYSE: LDK ) , Yingli Green Energy (NYSE: YGE ) , and Trina Solar -- are counting on higher demand from Germany to eat up inventory and increase revenue in the fourth quarter as well as the first quarter of 2012. Since SunPower is more focused on the UPP market than these Chinese manufacturers, it's conceivable that they benefited much more from a strong German market than SunPower did, especially given the excess supply they were likely trying to unload.
SunPower's results show positive signs for the company, and continued progress on cost-cutting, efficiency programs, and new products like the C7 tracker make me confident in my bullish stance on SunPower. Now that the expectations are up for the industry -- along with stock prices -- we'll see who can live up to them.
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