What: Shares of solar manufacturer SunPower Corporation (NASDAQ:SPWR) fell as much as 31.3% on Wednesday after the company issued disappointing 2016 guidance.
So what: For the second quarter, the company reported GAAP revenue of $420.5 million and net loss of $70 million, or $0.51 per share, which were actually at the high end of expectations. And non-GAAP revenue of $401.8 million and EBITDA (earnings before interest, taxes, depreciation, and amortization) of $29.9 million beat expectations. But guidance was a bombshell for investors.
On a non-GAAP basis, which I'll focus on here because it smooths out project-timing challenges, 2016 revenue guidance was reduced by $200 million, to a range of $3 billion to $3.2 billion. Gross margin expectations were lowered 3.5%, and now stand between 10.5% and 12.5%, while EBITDA projections were reduced $175 million, to $275 million to $325 million.
The guidance reduction was due to a project that didn't get an expected contract and won't be completed in 2016, as well as a lower-than-expected sale price for projects being sold in the second half of the year. And since costs are essentially fixed, the reduction in revenue flowed all the way to the bottom line.
Now what: On the conference call, management said that competition is increasing for power purchase agreements, and the bankruptcy of SunEdison is causing investors to demand higher returns. The combination of those two factors results in lower sale prices, which is a direct hit to SunPower's bottom line.
As a way to counteract the effect of these setbacks, the company is shifting its power plant focus to the Americas and France, where it has a low cost of capital, and higher-efficiency modules have a competitive advantage. In the rest of the world it will sell components to developers.
These are good long-term strategic moves for SunPower, but the company is expecting to lose money as a result of weak power plant demand through the end of 2017. That's what investors are looking at today and is the reason for the share sell-off. I think the company is still in a great position in solar for the long term, and the residential and commercial businesses are doing well, but the near-term financial outlook isn't good. There's no question about that.