SunPower Corporation (NASDAQ:SPWR) isn't out of the woods yet in its efforts to turn its business around, but the recovery plan appears to be going even better than expected. Not only did second-quarter revenue and margins beat guidance, the company boosted guidance for the full year.
It's not only the solar industry's strength that are bolstering demand and solar panel sales prices -- technology improvements are starting to kick in as well. And if capacity updates and new technologies like energy storage start to contribute to results, there may be a bright future ahead.
How SunPower topped expectations
Most companies are judged against analyst expectations or their own guidance, and that's where to start with SunPower. Management said in May that it expected GAAP revenue of $370 million to $410 million, with gross margin of 0% to 3%. On a non-GAAP basis, revenue would be $420 million to $460 million, with gross margin of 7% to 10% and adjusted EBITDA of negative $5 million to positive $15 million.
What SunPower reported in the second quarter was GAAP revenue of $436.3 million, gross margin of 4.5%, and net income of $0.75 per share. On a non-GAAP basis, revenue was $481.9 million, gross margin was 10.5%, and adjusted EBITDA was $8.0 million. On nearly every count, results crushed expectations.
What's going right at SunPower
The undercurrent of SunPower's improvement is growing solar demand in the U.S. From homeowners to large utility-scale developers, the market's economics are improving, which is driving demand, and helping both volume and solar panel sale prices.
But while the macro improvement is important, SunPower's operational improvements are just as notable. Most importantly, Maxeon 5 technology, which allows the company to make the A-Series solar panels with a cell efficiency of 25%, lowers solar panel costs by up to 50% and is expected to grow to 250 megawatts by the end of 2019, which will help drive further margin gains. A 10.5% non-GAAP gross margin may not be impressive today, but management thinks that number can push over 20% for residential solar and into the high-teens for commercial projects long-term.
SunPower is also successfully tacking value added services onto solar installations. Energy storage is now included with about 35% of commercial projects, and a new residential energy storage product is set to launch in the second half of 2019. Energy storage drives incremental revenue and margin growth without increasing the megawatts of solar sold.
What I was most impressed with in SunPower's earnings was the fact that P-Series solar panels -- which assemble commodity solar cells to make a panel slightly more efficient than that of the competition -- are being sold in large numbers into residential and commercial markets (distributed generation). Management said 33% of its MW mix was P-Series to DG markets, compared to 30% for Maxeon products to DG markets and 20% for P-Series to power plants. P-Series is proving to be valuable for many end customers, and that will drive more scale for SunPower.
SunPower sets up for strong second half of 2019
What investors were most impressed by in SunPower's earnings was the increase in full-year guidance. Management now expects $1.8 billion to $2.0 billion in GAAP revenue and adjusted EBITDA of $100 million to $120 million, up from previous guidance of $1.8 billion to $1.9 billion in revenue and $90 million to $110 million in adjusted EBITDA. MW deployed are now expected to be 2,050 to 2,225 MW, so demand is clearly strong right now.
The next step for SunPower is to increase margins enough to drive a profitable quarter without the benefit of asset sales or other one-time items. By the end of 2019 the company should be close to that point, but it'll need continued solar market strength and cost reductions internally.
Signs point toward a brighter future right now, so look for more progress in the second half of 2019.