SunPower: Earnings Up, Guidance Higher

SunPower earnings improve amid a revenue shortfall, and the U.S. solar company expects greater earnings power in the second half of 2010.
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SunPower

(SPWRA)

revenue was short of the Street expectation in its second quarter earnings, delivered after the market closed on Tuesday, but the U.S. solar company outperformed the Street expectation on a non-GAAP and GAAP earnings basis.

The Street had been expecting a GAAP loss of 13 cents, and a non-GAAP gain of 10 cents. SunPower reported a GAAP loss of six cents, and a non-GAAP gain of 15 cents.

SunPower revenue of $384 million was below the Street forecast of $401 million.

SunPower guided the lower-end of its earnings per share for 2010 up, on both a GAAP and non-GAAP basis. Previously, SunPower forecast a low end for non-GAAP 2010 earnings of $1.25, now taken up to $1.35. The previous SunPower low-end forecast for a GAAP loss of as much as 20 cents has been revised, with guidance of GAAP earnings in 2010 between 25 cents and 55 cents. Revenue and gross margin guidance was unchanged.

No one was expecting a big quarter from SunPower. SunPower previously forecast a 2010 earnings outlook that would be heavily weighted to the second half of the year and revenue recognition from its systems business, as opposed to module sales, being the key driver of the second half-leaning earnings.

>>SunPower Cost Model Remains Crucial

Upside for SunPower earnings was predicated on the high demand level in solar providing modest revenue outperformance from SunPower, with module sales higher than expected. SunPower second quarter sales into the residential and commercial sector spiked from 59% to 69%, with its systems business revenue declining by an equivalent 10% to 31% of revenue.

Year-to-date, SunPower shares are down by roughly 45%. After the earnings report was released, SunPower shares were trading higher by 2% in the after-hours session.

Analysts and investors are focused on SunPower's ability to lower its manufacturing costs as the pricing pressure is expected to increase across the solar supply chain in 2011. SunPower said its cost per watt will decrease to $1.71 in the fourth quarter 2010, and it expects the cost to be down to $1.48 by the fourth quarter of 2011.

Jefferies said in a SunPower earnings preview that even though the revenue upside exists for SunPower, it remains on the sidelines with the U.S. solar stock due to its manufacturing costs. "We would continue to recommend sidelines until its ability to compete in a lower asp environment is fully understood," Jefferies analyst Jesse Pichel wrote in a SunPower earnings preview.

SunPower's third quarter outlook was unchanged, with revenue of $450 million to $490 million, gross margin of 18% to 20%, and non-GAAP EPS of eight cents to 15 cents.

-- Written by Eric Rosenbaum from New York.

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