SunPower Corp. (SPWR) reported third-quarter 2014 adjusted earnings per share of 30 cents, ahead of the Zacks Consensus Estimate by 7 cents. Earnings, however, dropped 31.8% from 44 cents in the year-ago quarter. Yet, it marked a 7.1% sequential increase.
The timing of revenue recognition from certain utility and power plant projects negatively impacted the company’s third-quarter results. Shares of SunPower lost 1.7% yesterday in the daily trade as it projected a weaker fourth-quarter outlook.
Including one-time charges, earnings came in at 20 cents per share, significantly lower than 73 cents earned in the year-ago quarter.
Operational Results
SunPower generated non-GAAP revenues of $704.2 million, up 13.7% year over year. Revenues surpassed the Zacks Consensus Estimate of $625 million.
During the quarter under review, revenues generated in the Americas were $717.8 million, up 17.1% year over year. Revenues from Asia-Pacific (APAC) were $100.3 million, up 6.3% year over year. However, revenues in Europe, the Middle East and Africa (EMEA) were $44.6 million, down a significant 63% year over year.
Strong demand for its solar panels, particularly in the U.S., China and Japan, has kept SunPower's solar panel factories running at full capacity during the quarter. The company manufactured its 1 billionth solar cell in the third quarter and will beef up manufacturing capacity by adding a new plant in the Philippines, scheduled to open early next year and produce more than 250 megawatts by 2016. Another plant is expected to commence production in 2017. This will turn out 700 MW of solar panels a year.
The company also added a 10-MW expansion agreement to its North American backlog during the third quarter. Bookings in the North American residential channel increased over 50% sequentially this quarter. Japan accounted for 28% of SunPower’s third-quarter shipments.
SunPower’s gross margin contracted 240 basis points (bps) year over year and 280 bps sequentially to 16.7% in the quarter. Total operating expenses increased 8.4% year over year but decreased 1.7% sequentially to $85.9 million.
Adjusted operating income of $22.6 million declined significantly from $114 million in the year-ago quarter but increased from $6.8 million in the second quarter 2014.
Financial Condition
SunPower exited the quarter with cash and cash equivalents of $922.7 million, up from $762.5 million at the end of 2013. Its strong liquidity of $1.2 billion will continue to support holdco strategy and build Fab 4. Inventory levels also dropped 15% in the third quarter on a sequential basis.
Long-term debt increased to $149.8 million from $93 million at 2013 end.
Net cash used in operating activities was $32.4 million in the quarter, comparing unfavorably with cash provided by operating activities of $28.9 million in the year-ago quarter.
Capital expenditure of $25.2 million increased from $5.6 million in the year-ago quarter.
Free cash outflow was $45.3 million as against a free cash inflow of $159.8 million in the year-ago quarter.
Guidance
On a non-GAAP basis, the company expects fourth-quarter 2014 revenues in the range of $575–625 million. Gross margin is estimated between 19% and 21%. SunPower expects earnings per share in the range of 15 cents to 30 cents. Uneven revenue recognition will also weigh on the company's fourth-quarter results.
For 2014, the company expects revenues in the band of $2.58 billion to $2.63 billion on a non-GAAP basis, 19% to 20% for gross margin and $1.25 to $1.40 for earnings per share.
The company will provide fiscal 2015 guidance at its analyst day presentation in mid-Nov 2014.
At the Peer
First Solar Inc. (FSLR) will report its third-quarter results on Nov 6, 2014. The Zacks Consensus Estimate for the quarter is pegged at $2.63 per share.
Zacks Rank
SunPower currently carries a Zacks Rank #4 (Sell). Better-ranked solar stocks include Canadian Solar Inc. (CSIQ) and ReneSola Ltd. (SOL). While Canadian Solar sports a Zacks Rank #1 (Strong Buy), ReneSola carries a Zacks Rank #2 (Buy).
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