One of America’s leading solar energy companies, SunPower, has taken a hard hit on the back of a subdued 2016, Donald Trump’s presidency, and a “significant near term market dislocation” causing the company to slash 2016 guidance and initiate cost cutting plans for 2017.
SunPower could not have published its dire third quarter earnings report at a worse time if it had tried, coming right on the heels of the election of Donald Trump as next President of the United States. The company’s shares tanked 10% the moment investors were able to move the morning following President-Elect Trump’s win, steadying somewhat until SunPower published its earnings report which, while steady, predicted nothing but doom and gloom.
The company reported revenue of $729 million for the third quarter, up substantially on Q2’s $420 million and up further on Q3’15’s $380 million. Gross margin was nearly double the previous quarter, at 17.7%, and even the company’s net loss narrowed to only $40.5 million, compared to $70 million in the second quarter.
“Our solid third quarter results reflect continued execution of our diversified downstream strategy as we met or exceeded our key financial targets for the quarter,” explained Tom Werner, SunPower president and CEO.
But almost all the news out of the earnings call and subsequent information was of the lackluster future SunPower sees on the horizon.
“While prospects for long term solar industry growth remain strong, we are seeing a significant near term market dislocation in the solar market that we expect will impact our financial performance through 2017,” Werner continued, adding, “given the current market environment, we have made the decision to implement a companywide cost reduction program, along with other proactive strategic initiatives, to focus on improving cash flow through the current market dislocation while positioning the company to succeed in the next phase of industry growth. We intend to conclude our cost reduction analysis in the near future and will formally announce our restructuring program on December 7, 2016.”
Subsequently, SunPower will implement the following initiatives:
- Reduce capacity to lower inventory, improve cash flow, and match to profitable demand
- Cost reduction programs that are expected to improve margins and reduce 2017 annual operating expenses to approximately $350 million
- Target 2017 capital expenditures of approximately $100 million, a reduction of more than 50% compared to 2016
- Initiatives to improve liquidity with the goal of generating positive cash flow from operations through the end of 2017 and exiting the year with approximately $300 million in cash
The financial outlook for the company has again been modified. In its second quarter earnings back in August, SunPower shredded its original 2016 guidance announced in February — dropping predicted revenue for 2016 down to being in the range of $3.0 billion to $3.2 billion, and likewise tumbled its deployment guidance from between 1.7 GW to 2 GW, down to only 1.45 GW to 1.65 GW.
That has only fallen further on the back of the current climate, with new guidance for full year 2016 predicting revenue in the range of $2.43 billion to $2.63 billion, a gross margin of 8% to 10%, and a net loss of between $295 million and $320 million. SunPower also now only expects to deploy a total of between 1.325 GW to 1.355 GW for the full year.
There could be some good news in the small note that SunPower is deepening its relationship with French energy giant Total SA, saying that the two are teaming up on a four-year, up to 200 MW supply agreement to support the solarization of Total facilities around the world.
“With this cost reduction program, as well as continued strong support from Total, we believe we will be able to reduce our cost structure, more prudently allocate our product and technology investments, appropriately size our manufacturing to balance production with near term demand, and improve cash flow,” continued Werner. “Combined with our realignment initiatives announced last quarter, we believe we will be well positioned for sustained profitability when market conditions improve.”
“While we are pleased with our third quarter performance, we felt it was important to be proactive in positioning the company to address the difficult near term industry conditions,” added Chuck Boynton, SunPower chief financial officer. “We are very focused on prudently managing our working capital and maximizing cost reduction to improve cash flow and fund our strategic plans. We believe that these initiatives will position us well to capitalize on long term industry growth.”
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