TPI Composites (TPIC +2.91%), a global leader in wind blade manufacturing, recently released preliminary second-quarter estimates along with new full-year guidance. The updated figures came in below the previous forecast, sending shares of TPI down over 10% last Friday. At the session low, shares were down 17%.
Here's what investors need to know about the updated guidance and how it fits into the company's long-term investment thesis.
Image source: Getty Images.
Disappointing guidance
TPI's new full-year guidance calls for $1.75 billion to $1.80 billion in sales and $70 million to $85 million in adjusted EBITDA compared to its earlier forecast of $1.75 billion to $1.85 billion in sales and $110 million to $135 million in adjusted EBITDA. If TPI performs as expected, year-over-year sales would be up just 6% and adjusted EBITDA would be down from both 2020 and 2019.
|
Metric |
2021 (Midpoint of Estimate) |
2020 |
2019 |
2018 |
|---|---|---|---|---|
|
Revenue |
$1.78 billion |
$1.67 billion |
$1.44 billion |
$1.03 billion |
|
Adjusted EBITDA |
$77.5 million |
$94.5 million |
$85.8 million |
$68.2 million |
Data source: TPI Composites.
What's more, TPI's initial guidance suggested it would earn 2021 net income between $13 million and $22 million, giving TPI its first profitable year since 2018. Given the first quarter's net loss of $1.8 million and the second quarter's projected net loss of $42.6 million, it's now unlikely that TPI will turn a profit in 2021.
Prolonged headwinds
TPI cited higher raw material costs, supply chain constraints, and decreased demand for its wind blades as the primary reasons why business is slowing. Specifically, it's estimating that costs and logistics will impact full-year adjusted EBITDA by $20 million and lower demand will reduce adjusted EBITDA by $28 million. Given the uncertainty regarding federal tax credits, higher competition, lower industry growth rates, and other challenges affecting the renewable energy industry, TPI is projecting the overall wind market in 2022 to be "relatively flat."
Image source: Getty Images.
Some positives
To its credit, TPI announced it had landed a new three-year long-term supply agreement (LTSA) with Nordex (NRDX.F +1.75%). TPI will allocate four production lines to manufacture blades for Nordex in Mexico. Nordex is based in Germany and is one of Europe's largest wind turbine manufacturers -- not to mention one of TPI's best customers.
In 2020, TPI extended contracts with GE, Vestas, and Nordex. During its first-quarter earnings call, TPI announced that it continued to build out its newest manufacturing facility in India and ramped spending in Mexico and Turkey so that its manufacturing lines can produce larger wind blades. Today's wind projects demand bigger blades that generate more electricity at a lower cost than in years past. Given the timing of the new Nordex contract and the fact that TPI produces wind blades for Nordex in Mexico, Turkey, and India, it's reasonable to assume that the Nordex deal is one of the main drivers behind TPI's growth in capital expenditures from the first quarter.
Aside from the Nordex deal, TPI extended its supply agreement with Proterra, an electric bus company, through 2024. Over 95% of TPI's business is blade and precision molding and assembly, but it has been making investments in its transportation business by partnering with companies like Proterra, Navistar, and Workhorse. The Proterra deal fits into TPI's long-term goal to expand its business but won't contribute to the company's bottom line anytime soon.
Ride it out
Given its lackluster 2021 and 2022 guidance, TPI isn't giving investors a lot to smile about. The renewable energy company's inability to turn a profit or grow sales in 2021 while so many other companies are blowing year-over-year comparisons out of the water is a bad look. LTSAs provide predictable revenue for TPI, but they also have quite a bit of flexibility. TPI's guidance seems to indicate a lack of customer appetite to contract TPI more than they have to, which hurts the company's margins and short-term upside. There is no denying that last week's news is bad, so it's only fitting TPI Composites stock fell.
Despite all the headwinds, there remains a lot to like about the company's long-term potential. Investors should watch to see if TPI can return to growth once raw material costs normalize and there's more certainty regarding the U.S. Production Tax Credit. If TPI fails to return to profitability and growth in a normal business climate, then the investment thesis could be in jeopardy.
