SunPower Corp. slumped after the second-biggest U.S. solar manufacturer scrapped a target to at least break even this year, in part because of challenging conditions in its power-plant business.
The company cited the extension of a federal investment tax credit that has reduced the urgency to complete new projects by the end of the year, as well as aggressive pricing by industry newcomers. It will close a Philippine panel assembly facility and transfer the equipment to Mexico, cutting 15 percent of the overall workforce, or 1,200 employees, in the process. The shares slid 30 percent to $10.36 in after-hours trading on Tuesday in New York.
“We wanted to re-position supply closer to the end market,” Chief Executive Officer Tom Werner said in an interview after the company posted second-quarter earnings. “We’re in transition. We’ve been through this before.”
Besides cutting its workforce, SunPower plans to take restructuring charges of $30 million to $45 million, a substantial portion of which will be incurred in the third quarter, it said in a statement.
It now sees a 2016 gross margin of 9.5 percent to 11.5 percent and a net loss of $125 million to $175 million. In May, it had forecast a gross margin of 13 percent to 15 percent and net income of break-even to as much as $50 million.
“The magnitude of the guide down was surprising,” said Michael Morosi, an analyst at Avondale Partners LLC by e-mail. “It is increasingly apparent that margins are coming in on the low end.”
2017 Estimate
For 2017, SunPower expects to report a net loss of $100 million to $200 million. It also estimates earnings before interest, taxes, depreciation and amortization of $300 million to $400 million.
Ben Kallo, an analyst at Robert W. Baird & Co, told company executives on a conference call that he was “blindsided” by the update. “I understand the concern, but these changes materialized in the last few months,” Werner said.
The second-quarter net loss was $70 million, or 51 cents a share. That compared with a profit of $6.5 million, or 4 cents, a year earlier. Excluding some items, SunPower’s loss of 22 cents compared with the 24-cent average loss of 16 analysts’ estimates compiled by Bloomberg. Sales rose to to $420.5 million from $381 million.
(a) What caused the stock price of the company (sunpower corp.) to drop?
(b) How does this article relate to the limitations of constrained growth?
(c) What do companies do when they have an earnings issue?
(d) What is the outlook for this company?