Solaredge Faces 12% Plunge in Shares in New York due to Weak 3rd quarter Revenue Forecast

Solaredge, a leading manufacturer of solar panel converters and power amplifiers, disappointed investors with a weak forecast for its revenues and profitability in the third quarter of 2023. As a result, its shares plummeted by 12% in late trading.

The company reported earnings of $120 million, equivalent to $2.12 per share based on US GAAP, for the second quarter of 2023. This was a decline from the $138 million profit in the first quarter of the year and $15 million in the same quarter in 2022.

On a non-GAAP basis, excluding certain expenses, Solaredge's net profit for the past quarter was $157 million, or $2.62 per share, surpassing analysts' forecasts by 4 cents.

One of the primary reasons for the disappointing forecast is the weakness in demand in the US domestic sector. Furthermore, high inventory levels in the US and Europe have also contributed to the challenging situation for the company.

Solaredge's third-quarter revenue is expected to be in the range of $880-920 million. This projection falls 14% below the average of analysts' forecasts for the current quarter and 9% lower than the revenues reported in the second quarter of 2023.

While the company's overall revenue grew by 5% in the second quarter compared to the first quarter of this year, the growth varied significantly between the regions. Solaredge saw impressive revenue growth of 19% in Europe, reaching a record level of $689 million, thanks to a substantial 64% growth in Germany and record sales in the United Kingdom and Switzerland.

However, in the US, which is Solaredge's second most important market, revenue suffered a significant 23% decrease compared to the first quarter of 2023 and a 37% drop compared to the same quarter in 2022. This decline was largely attributed to high inventory levels and various market factors, including high interest rates, low energy prices in certain states, and the impact of new regulations in California (Nem 3.0).

Outside the US and Europe, Solaredge's revenues decreased by 17% in the second quarter compared to the first quarter of the year but increased by 19% compared to the same quarter in 2022, reaching $63 million. The company experienced challenges in this region but found some success in South Africa and Thailand, where government incentives for solar systems and unstable electricity grids drove demand.

Despite these challenges, Solaredge's gross profit on a non-GAAP basis showed improvement, growing by 5.4% in the second quarter of 2023 compared to the first quarter of the year and 67% compared to the same quarter in 2022. The company's gross profit amounted to $324 million, which accounted for 32.0% of the turnover.

The improvement in gross profitability was partly due to decreased gross losses in the non-solar sector, particularly in electric vehicle drive systems and lithium-ion battery cells. Additionally, the strengthening of the euro and a decrease in the share of sales subject to customs duty in the US contributed to this positive trend.

However, challenges remained in the commercial sector, where gross profitability is lower, and in Europe, where lower price levels affected the company's revenues.

The market is closely watching how Solaredge's management, led by Zvi Lando, plans to address these challenges and steer the company back on track amid the changing dynamics of the solar industry.