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Why TPI Composites Stock Sank 21% Today

By Rich Smith - Aug 8, 2019 at 5:36PM

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This is not how "earnings beats" are supposed to work.

What happened

Shares of TPI Composites (TPIC 2.60%) stock -- the biggest manufacturer of wind turbine blades that you've never heard of -- got absolutely crushed today, its stock closing down 20.9%. Shockingly, this happened after the company beat earnings in its fiscal second quarter.

Heading into Thursday evening's earnings report, analysts expected TPI to report a $0.28-per-share pro forma loss for its fiscal second quarter. Instead, the company earned a profit of $0.13 (adjusted for one-time items).

A windmill viewed from below

Image source: Getty Images.

So what

Sales for the quarter jumped 43% in comparison to last year, to $330.8 million. Profit as calculated according to generally accepted accounting principles (GAAP) was $0.05 per share, an improvement over last year's $0.12 GAAP loss. CEO Steve Lockard called this a "solid operational and financial performance in the second quarter."

So why did TPI stock go down instead of up? And why did it go down so very much?

Now what

Guidance could be the culprit. On the one hand, TPI management warned that it's likely to book a per-share loss of between $0.18 and $0.23 this year despite the Q2 profit, which is a bit worse than previous guidance.

On the other hand, TPI's sales guidance for this year looks pretty good; the Street is looking for only $1.46 billion. TPI says it will deliver $1.45 billion to $1.5 billion, so that's largely better than expected.

On the third hand, though, TPI warned that "due to a faster pace of transitions than originally anticipated for 2020," it will be ratcheting back guidance for both sales and earnings in 2020. I suspect this, in the end, is what really spooked investors.

Still, management says it has finally "stabilized the workforce and production in Matamoros," where a strike had disrupted production in previous quarters. It "completed negotiations to sell" blades that had been promised to its now-bankrupt customer Senvion directly to its customers, "while also mutually agreeing with Senvion to terminate our two-line supply agreement," putting an end to another complication.

Things may be finally getting back to normal for TPI Composites. So while the weaker guidance is certainly a concern, I can't agree that now is the right time to sell this stock.

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