Light Dims for SunPower

New guidance from SunPower (SPWR:  Nasdaq) has disappointed shareholders and traders, who trimmed the stock back by 10% on the announcement in the second week in September 2020.  Management staged a conference call to debut their new prognosis for the company subsequent to the divestiture of its solar panel manufacturing operations into a new public company called Maxeon Solar Technologies (MAXN:  Nasdaq). 

The prevailing consensus estimate for Sunpower’s fourth quarter ending December 2020, was $0.13 in earnings per share on $356.1 million in total sales.  This would be a significant jump from the $218.5 million in sales and two pennies in earnings per share expected for the September quarter.  Both hurdles cleared, Sunpower could report a net loss of $0.16 per share on $1.4 billion in total sales for the year 2020. 

Sunpower management appeared to confirm the fourth quarter consensus estimate with the new guidance for sales in a range of $330 million to $370 million.  True enough the consensus is at the high end of this range and the low end of the range is, well quite low!  The bigger problem is that at the low end of the sales range Sunpower expects nothing more than a net breakeven and a paltry $10 million in GAAP net income at the high end of the range, which implies to just six pennies in GAAP earnings per share.  That is half of what analysts were looking for in fourth quarter. 

During the conference call to discuss the new guidance with analysts, Sunpower management strung out a laundry list of non-cash expenses expected in the quarter.  There is $5 million in stock-based compensation and another $3 million in depreciation expenses.  Then there is $1 million in business reorganization costs that could not usually impact operations.  Adjusting for non-cash and unusual expenses, management’s guidance is for $20 million to $30 million in adjusted EBITDA, implying $0.12 per share to $0.18 per share in adjusted earnings.  If we pretend analysts have published non-GAAP estimates, traders should be celebrating!

In the new guidance announcement and conference call Sunpower management seemed to skip right over the quarter that is just now coming to a close at the end of September.  Previously, the company’s guidance for the September quarter had been revenue in a range of $360 million to $400 million, resulting in a net GAAP loss of $110 million to $95 million.  Adjusting for non-cash expenses really did not improve the picture that much to an adjusted loss of $35 million to $20 million in the quarter.

 Management’s new guidance for the fourth quarter and year 2020, suggests the report for the September quarter will be disquieting at best.  It This requires some math, backing out the fourth quarter sales guidance from the full year sales guidance and then backing out the adjusted sales in the first half.  Sale associated with the recently jettisoned Maxeon operation also must be excluded.  The implied sales in the September quarter now appears to be in a range of $160 million to $217 million, suggesting that at best the September quarter sales will be flat sequentially.

Most likely Sunpower leadership would like shareholders to fuss less about the current quarter and focus on the opportunities ahead with the solar panel operations pushed off into someone else’s lap.  “Devco”, as Sunpower is called the remaining solar origination and installation business, has a chance for a new beginning according to management.  The company is looking to the market for standalone power storage to fuel sales.  Shedding manufacturing infrastructure and operating with a light capital structure is expected to deliver higher profit margins.

The proof will be coming along soon enough when Sunpower reports financial results for its year end 2020.  In the meantime, the light appears to have dimmed a bit for Sunpower.

 

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.