The post “Solar Panel Market Seeking Partner”
explored the unusual mating call of a solar panel manufacturer, SunPower
Corporation (SPWR: Nasdaq). The Company is looking for a partner to
bankroll the upgrade of a manufacturing facility in Hillsboro, Oregon acquired
in October 2018, in a tie up with one of its rivals, SolarWorld America. SunPower now has one less competitor and more
room to flex its production muscles.
However, capital is still important.
The Company
suffered a net loss of $811.1 million or $5.76 per share on $1.73 billion in
total sales. Profit margins were
negative straight down. Investors could
accept the loss without too much worry if the pace of cash flow was encouraging. Unfortunately, in 2018 operations required
$543.4 million in cash resources to make it through the year.
There are limits
as to how long SunPower can keep up that pace.
The Company ended December 2018 with $305.4 million in cash on the
balance sheet and $1.5 billion in total debt.
Stated otherwise SunPower has limited flexibility!
Management tried
to strike a note of optimism several weeks ago when the reporting year-end 2018
financial results and providing guidance for the year 2019. Improvements are expected in the coming
quarters. Of course, management is
hedging the prediction with the usual hedge that growth will be weighted to the
second half of 2019. Guidance includes
the expectation to ship up to 150 megawatts of the P-Series solar modules from the Hillsboro facility.
Changes in the company’s
leasing program could be pivotal in improving reported sales and expenses. The residential leasing portfolio has been
sold and the business leasing structure has been adjusted. Investors will have to wait until the end of
March 2019, to get enough details to make an assessment of the potential in the
new plan. The company is staging a ‘capital
markets day’ with investors and analysts on March 27th.
Even this
superficial review of SunPower’s financial performance suggests investors should
move cautiously. Management had pledged to trim operating expenses as well as
reduce leverage using proceeds from the residential leasing portfolio. Both actions could improve profit results
going forward. That means improved cash flows that could deliver returns for a
new investor.
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| Silica Gel |
Unfortunately,
cost of silicon is an even more pressing issue for the Company and management
has little control over that. Silicon has
been in short supply for at least the last two years and that has led to price
increases. The U.S. anti-dumping case
resulted in higher import tariffs of silicon metal, effectively doubling raw
material prices. SunPower could have a
to have a tough time with margins even with cost cuts at the operating level.
SunPower is
looking for a new mate in its Hillsboro, Oregon facility. There is much afoot for the Company - new,
more competitive products based on the P-Series
solar module and changes on the business leasing business model. That has to be appealing to any number of
financial or strategic investors. It
will take some careful due diligence before cutting a check!
Neither the author of the Small Cap Strategist web
log, Crystal Equity Research nor its affiliates have a beneficial interest in
the companies mentioned herein.
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