All indications have pointed to a tough time for solar stocks in the second quarter. Germany lowered its feed-in tariff and is targeting a reduction in annual solar power installed. Italy's feed-in tariff was also in turmoil, which basically brought installations to a halt in the country. As a result, additional manufacturing capacity in the industry was fighting for a smaller pie than the industry expected. The results won't likely be pretty.
What SunPower is seeing
Here are the big highlights from SunPower's release:
- Revenue is expected to be between $590 million and $595 million, at the high end of previous expectations and well above analyst estimates of $572 million in revenue.
- Non-GAAP gross margins should be between 12% and 13%, down from an expected range of 15%-17%.
- Non-GAAP earnings per share are expected to be between a $0.19 loss and a $0.20 loss, down from prior guidance of between a $0.05 loss and a $0.10 profit. On a GAAP basis, the loss is expected to be between $1.50 and $1.55 per share.
Based on the higher revenue, lower margins, and comments about reducing inventory, it looks like management flushed as much product as possible through the system at reduced prices. That could be good news if you read carefully between the lines.
A closer look
In the explanation of the difference between GAAP and non-GAAP results, I saw a few points of interest that will impact SunPower positively going forward:
- $29.3 million was dedicated to a "panel reallocation strategy," which means SunPower is moving panels to where demand is occurring.
- There was a $32.5 million "writedown of third-party inventory and costs associated with the termination of third-party cell supply contracts." In other words, SunPower is taking a financial hit now to get lower-cost supply contracts in the future.
- SunPower reduced inventory quarter over quarter, which will be something we'll have to watch from other panel manufacturers. Those who were aggressive in pricing likely gave up margin this quarter in return for lowering inventory.
- The company also said it is ahead of schedule in its cost-reduction roadmap. After seeing disappointing gross margins and a larger than expected loss, I'll need to see more detail about what exactly this means, but for now I'll take that statement with a grain of salt.
Add all of this up and I see SunPower telling investors that they'll take a larger hit in the second quarter, which was expected to be weak for the industry, to gain some cost advantages in the future.
Suppliers will suffer most
If SunPower is any indication, wafer and cell suppliers could come under pressure this quarter. JA Solar
Foolish bottom line
Keep a close eye on inventory levels as earnings come out of the solar industry this quarter. Companies with industry-leading margins like Trina Solar
It's going to be a rough quarter for solar manufacturers, and we may be starting to sort out the winners from the losers.
Keep up to date with what's happening in the solar industry by adding your favorite stock picks to the Fool's free stock tracking service, My Watchlist.
Fool contributor Travis Hoium owns shares of LDK Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
7 Stocks to Energize Your Portfolio
Now is the time to diversify your portfolio with energy stocks.
Why Congress Can't Stop Stealing: A Picture Is Worth 1,000 Shares
All investors are equal, but some are more equal than others -- and they like it that way.
Here's Why SunPower's Latest Report Might Worry You
Don't just ask, "How much inventory?" Ask, "What kind?"