SunPower Corp. reports preliminary financial results for the quarter ended June 30, 2015.
We analyze the earnings along side the following peers of SunPower Corporation – First Solar, Inc., SunEdison, Inc., Canadian Solar Inc., SolarCity Corp., Total SA Sponsored ADR Class B, NRG Energy, Inc., Weir Group PLC Unsponsored ADR, Enphase Energy, Inc. and Meritage Homes Corporation (FSLR-US, SUNE-US, CSIQ-US, SCTY-US, TOT-US, NRG-US, WEIGY-US, ENPH-US and MTH-US) that have also reported for this period.
Summary numbers: Revenues of USD 378.67 million, Net Earnings of USD 6.51 million, and Earnings per Share (EPS) of USD 0.04.
Gross margins narrowed from 18.52% to 18.10% compared to the same quarter last year, operating (EBITDA) margins now -0.56% from 5.91%.
Year-on-year change in operating cash flow of -60.58% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
Narrowing of operating margins contributed to decline in earnings.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:
SPWR-US‘s change in revenue this quarter compared to the same quarter last year of -25.42% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SPWR-US is holding onto its market share. Also, for comparison purposes, revenues changed by -14.40% and earnings by 167.94% compared to the immediate last quarter.
Earnings Growth Analysis
The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 18.52% to 18.10%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 5.91% to -0.56% in this time frame. For comparison, gross margins were 20.87% and EBITDA margins were 5.08% in the previous period.
Gross Margin Trend
Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.
SPWR-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 253.91 days, compared to last year’s level of 88.84 days.
Cash Versus Earnings – Sustainable Performance?
SPWR-US‘s change in operating cash flow of -60.58% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.
The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 1.17% to -8.86% and (2) one-time items that contributed to a decrease in pretax margins from -1.76% to -6.86%
SunPower Corp. provides solar products and services. The company designs, manufactures, and delivers solar electric systems to residential, commercial and utility-scale power plant users. SunPower was founded by Thomas L. Dinwoodie, Robert Lorenzini and Richard M. Swanson in April 1985 and is headquartered in San Jose, CA.
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My art-hero, ever since childhood, Katsuya Terada is in San Francisco for the weekend but I’m currently half a world away (I keep departing wherever he’s going to be at, by a month; thrice now, once in LA, once in Japan and now in SF).
Luckily my great, great, great friends, Richmond, Lateef, Dan and Stephen were there and they got to pass him a drawing I did for him and I got to skype-chat with him briefly.
I definitely grinned like a chimpanzee all the way through.
I visited Museum of Contemporary Art, Tokyo today. They have a beautifully curated special exhibit called “The Power of Manga: Osamu Tezuka and Shotaro Ishinomori”. Anyone who’s around the Tokyo area should check out the exhibit.
I grew up loving these two master’s works and to be able to see their sketchbooks, notebooks, actual artwork for the pages and hand-painted illustrations in person was just unthinkable. The exhibit really blew me away. The “no-photo” rule really killed me, I had to draw the moment I stepped out of the museum.