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TPI Composites Stock Drops Based on Initial Earnings, Should Investors Worry?

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TPI . compounds (NASDAQ: TPIC)Ltd., the world’s leading manufacturer of wind blades, recently released preliminary second-quarter estimates along with unused packed-year guidance. The updated numbers came in lower than previous expectations, sending TPI shares down more than 10% final Friday. In the lower session, stocks fell 17%.

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Here’s what investors need to know about the updated guidelines and how they fit into the company’s lengthy-term investment thesis.

A person holds glasses and pats his forehead in fore of an begin laptop.

Image source: Getty Images.

Disappointing tips

The unused packed-year TPI guidance requires $1.75 billion to $1.80 billion in sales and $70 million to $85 million in adjusted EBITDA compared to its previous forecast of $1.75 billion to $1.85 billion in sales and $110 million to $135 million in adjusted earnings. If TPI performed as expected, annual sales would rise only 6% and adjusted EBITDA would be lower than in 2020 and 2019.


2021 (grade midpoint)





$1.78 billion

$1.67 billion

$1.44 billion

$1.03 billion

Adjusted EBITDA

$77.5 million

$94.5 million

$85.8 million

$68.2 million

Data source: TPI Composites.

Furthermore, TPI’s initial guidance indicated that it will generate 2021 net income between $13 million and $22 million, giving TPI its first profitable year since 2018. Given the first quarter net loss of $1.8 million and the projected second quarter net loss of $42.6 million now TPI is unlikely to turn a gain in 2021.

Headwinds for lengthy periods

TPI cited rising raw material costs, supply chain constraints, and declining demand for wind blades as the main reasons behind the slowdown in business. Specifically, it is estimated that costs and logistics will affect packed-year adjusted EBITDA by $20 million, and lower demand will decrease adjusted EBITDA by $28 million. Given the uncertainty about federal tax credits, higher competition, low industry growth rates, and other challenges affecting the renewable energy industry, TPI expects the overall wind market in 2022 to be “relatively flat.”

A row of offshore wind turbines next to a sailboat.

Image source: Getty Images.

Some positives

From its fiduciary standpoint, TPI announced that it has entered into a unused three-year Long Term Supply Agreement (LTSA) with Nordex (OTC: NRDX.F). TPI will dedicate four blade manufacturing production lines to Nordex in Mexico. Nordex is based in Germany and is one of the largest manufacturers of wind turbines in Europe – not to mention one of TPI’s top customers.

In 2020, TPI extended contracts with GEAnd Vista, Nordex. During its first-quarter earnings call, TPI announced that it continued building its state-of-the-art manufacturing facilities in India and increased spending in Mexico and Turkey so that its manufacturing lines can produce larger wind blades. Wind projects today require larger blades that generate more electricity at a lower cost than in years former. Given the timing of the unused Nordex contract and the fact that TPI produces wind blades for Nordex in Mexico, Turkey and India, it is reasonable to assume that the Nordex deal is one of the main drivers behind TPI’s growth in capex from the first quarter.

Apart from the Nordex deal, TPI has expanded its supply agreement with Proterra, an electric bus company, to 2024. More than 95% of TPI’s business is casting, blade assembly and precision, but is making investments in its transmission business through partnership. With companies like Proterra, Navistar, And Horse used in farms. The Proterra deal fits with TPI’s lengthy-term goal of expanding its business but won’t contribute to the company’s base line anytime soon.

let it out

Given its lackluster guidance for 2021 and 2022, TPI doesn’t donate investors much to smile about. The inability of the renewable energy company to turn a gain or increase sales in 2021 while many other companies are beating year-over-year comparisons is a bad outlook. LTSAs provide predictable revenue for TPI, but they also have a distinguished deal of flexibility. The TPI guidance appears to indicate that customers are less willing to contract with TPI more than they should, hurting the company’s margins and short-term rally. There’s no denying that final week’s news was bad, so TPI Composites’ stock only fell.

Despite all the headwinds, there’s still a lot to like about the company’s lengthy-term potential. Investors should watch if the TPI can return to growth once raw material costs return to average and there is more certainty regarding the US production tax credit. If TPI fails to return to profitability and growth in a average business climate, the investment thesis could be in jeopardy.

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Daniel Foelber has no position in any of the stocks mentioned. Motley Fool recommends TPI compounds. Motley Fool has a disclosure policy.

The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.


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