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Key Takeaways from SunPower's 3Q17 Earnings

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1 2 3 4 5
Part 3
Key Takeaways from SunPower's 3Q17 Earnings PART 3 OF 5

How SunPower’s Costs in 3Q17 Affected Its Gross Margin

Segmental cost performance

In 3Q17, the cost of revenue for SunPower’s (SPWR) power plant segment was reported at $234.9 million, compared to $328.7 million in 3Q16. The commercial segment’s 3Q17 cost of revenue came in at $99.9 million—24.7% lower than the $132.6 million in 3Q16. The cost of revenue of the residential segment in 3Q17 was reported nearly 8.8% lower than its $138.8 million in 3Q16. It came in at $126.6 million.

How SunPower’s Costs in 3Q17 Affected Its Gross Margin

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SunPower’s overall cost performance

The total cost of revenue posted for 3Q17 was $461.5 million, compared to $600.1 million in 3Q16—which is nearly a 23% drop on a YoY (year-over-year) basis. In percentage terms, the total cost of revenue in 3Q17 was 97% of total revenue higher than 82% in 3Q16.

SunPower reported a lower cost of revenue across all operating segments for 3Q17. According to company filings, the fall in the cost of revenue is mainly due to the drop in the recognition of revenue and related costs of solar power systems that were sold to the power plant and commercial customers.

The fall was partially offset by a rise in the cost of revenue, from $7.7 million in charges recorded in connection with the contracted sale of raw material inventory to third parties, $12.4 million charges for raw material sold to suppliers, and write-downs totaling $2.3 million on some solar power development projects in 3Q17.

 Gross margins

How SunPower’s Costs in 3Q17 Affected Its Gross Margin

In 3Q17, the gross margin for the power plant segment came in at -7.8%, compared to 21.6% in 3Q16. The gross margin of the commercial segment came in at 5.7%, compared to 5.2% in 3Q16. The gross margin of the residential segment in 3Q17 came in at 17.4%, compared to 18.5% in 3Q16.

The gross profit margins for upstream solar (TAN) companies like First Solar (FSLR), Canadian Solar (CSIQ), and JA Solar (JASO) depend mainly on the methods of revenue recognition they use.

In the next part of this series, let’s look at SunPower’s project pipeline and liquidity position.

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