What happened
The passage of President Joe Biden's $1.2 trillion infrastructure bill, which includes billions of dollars for clean energy projects, should have ideally sent shares of the world's largest independent manufacturer of composite wind blades higher.
Instead, TPI Composites (TPIC +2.94%) stock tumbled Tuesday morning, and was down by 16.7% as of 3:40 p.m. EST after dismal quarterly numbers and a week outlook from management attracted multiple stock downgrades.
So what
Here's how the wind energy company fared in the third quarter:
- Wind blade sets produced: 830 versus 1,037 in Q3 2020.
- Net sales: $479.6 million, up 1.2% year over year.
- Net loss: $30.7 million versus net income of $42.4 million in Q3 2020.
As bad as those numbers are, some of the things TPI Composites' executives said are even more worrisome.
Image source: Getty Images.
To start, TPI Composites revealed it was non-compliant with some financial covenants as specified by its lenders, which means those lenders have the right to request immediate repayment of the loans. As it is, TPI Composites generated negative cash flow, and held cash and cash equivalents worth only around $119 million against net debt of $143.8 million as of the end of the third quarter.
Although TPI Composites has raised funds to meet its financial covenants, it must generate enough cash flow to maintain liquidity in the future. That looks tough given that the company expects lower demand for wind blades from its customers in not just 2021 but in 2022 as well, citing high raw material costs, supply constraints, and uncertainty regarding global renewable energy policies.
These headwinds are reflected in TPI Composites' outlook for 2021: It expects to generate net sales of only $1.72 billion to $1.74 billion this year, considerably lower than management's earliest projection for sales in the $1.75 billion to $1.85 billion range.
For that matter, TPI Composites' latest sales projection translates into a muted growth of 3.5% over 2020. The company expects to have utilized only 76% of its total wind blade production capacity in 2021.
Given that muted outlook, analysts at Roth Capital and Craig-Hallum downgraded their price targets on the stock Tuesday. While Roth Capital now has a target of $29 a share on TPI Composites, Craig-Hallum slashed its price target to $27 a share from $41 a share.
In the wake of Tuesday's drop, TPI Composites shares have now lost nearly half their value this year.
Now what
This was the second time TPI Composites trimmed its 2021 outlook, reflecting the challenges it faces. During the Q3 earnings conference call, management also revealed it will suspend operations at its Iowa facility at the end of 2021. For now, it has no plans to restart manufacturing there in 2022.
Although TPI Composites sees the wind energy market strengthening in the future as federal spending on clean energy projects rolls out under the Biden administration, and as nations across the world strive to decarbonize, investors dumped the stock in the absence of any visibility into the company's earnings growth in the near term.
