SunPower Corporation (NASDAQ:SPWR) reports earnings after the market closes on May 8, 2018, in what will be another eventful release for the company. Since the last time SunPower released earnings, it has filed for an exemption from solar tariffs, agreed to buy U.S. competitor SolarWorld Americas, and launched a commercial energy storage product, just to name a few developments.
Here are the highlights investors should be looking for in the earnings release and conference as well as the questions management needs to answer.
The tariffs exemption, SolarWorld, and future of SunPower's U.S. solar business
SunPower recently announced it would acquire SolarWorld Americas for an undisclosed sum to expand its U.S. manufacturing capacity. SunPower has said it will transition up to half of the 550 megawatts (MW) of solar module capacity in the company's Oregon plant to P-Series production -- SunPower's proprietary solar panel construction that shingles commodity cells to make a panel that's slightly more efficient than traditional assembly methods -- but will continue selling SolarWorld's products, for now.
The bigger driver of the acquisition is the assumption, or understanding with the Trump Administration, that if SunPower acquired SolarWorld Americas' U.S. manufacturing facility it would get an exclusion from tariffs on high-efficiency X-Series solar panel imports. Management needs to answer a lot of questions about both SolarWorld and the exemption.
- Is the understanding still that SunPower will get an exemption from tariffs for X-Series solar panels? When will the exemption decision be made?
- What would the financial impact of an exclusion be? $1.5 million to $2 million per week has been floated, but management needs to answer whether it, in fact, sees $100 million in annual savings if the exemption is granted. The final number could have a big impact on SunPower's 2018 guidance and expectations for 2019.
- SunPower originally gave guidance for just 1,500 MW to 1,900 MW of solar panels deployed in 2018, but the addition of a U.S. plant with 550 MW of capacity should increase that guidance and impact gross margins as well. Management needs to update what exactly the impact will be.
- Will SunPower expand the SolarWorld Americas plant in the future or is this a plant that's not going to get future investment? Management hadn't finalized plans for the plant when the acquisition was announced, so guidance on what its future looks like will be useful.
The SolarWorld Americas deal and potential tariff exemption will be the biggest thing on investors' minds during the first quarter 2018 conference call, but it's not all investors should watch.
P-Series demand and margins
Arguably, the most important product SunPower has in production right now is P-Series solar panels, which are made in Mexico, China, and soon in SolarWorld America's Oregon plant. The product is intended to be for the utility-scale solar market and could be a huge winner if the cost of production is competitive with commodity panels. Much of its success will rely on SunPower's ability to generate incremental revenue from its Oasis power plant components like racking, cleaning robots, and design services.
What I would like to see in the first quarter is gross margins improve from the 6.6% generated in 2017 as well as an idea of how much backlog the company has. As of the fourth quarter 2017 conference call in February, management said bookings were over 600 MW and 2018 P-Series production was expected to be about 1 GW, so investors will want to see the booking number, in particular, increase.
P-Series could be the company's biggest growth product with over 5,000 MW of production capacity planned in the next five years. But if sales aren't going as well as planned or margins are low then it could change the investment thesis for the entire company very quickly.
Where are these next-generation residential solar products?
SunPower introduced an energy storage product to go with commercial solar systems in early March, called Helix Storage, and has promised more information on both a residential energy storage system and next-generation solar panel technology on this conference call. CEO Tom Werner said this on the last call:
[O]ur next-generation technology is something that we plan on speaking about quite a bit on our next call, which will either be the next earnings call or we might have a call in between. And so, I expect to give more complete answers on that call.
Now is the time to take advantage of the U.S. residential solar market since former market share leader Tesla (NASDAQ:TSLA) has taken a step backward. SunPower's high-efficiency products are being received well and SunPower could introduce a residential solar plus storage offering that could replace Tesla's Powerwall as the gold standard for residential energy storage. With the power plant business struggling with low margins, it's time to make a splash in residential solar.
Can SunPower impress investors?
It's been a long time since SunPower gave investors reason for hope during an earnings release. Investors are usually worried about financial losses or the shutdown of manufacturing capacity. But SunPower has a chance to point itself in the right direction if it gets a tariff exemption, improves P-Series margins, and launches a next-generation residential solar product. SunPower has a lot to explain to investors given all that's happened early in 2018.