SunPower Corporation ( SPWR - Analyst Report ) , a Silicon Valley-based manufacturer of high-efficiency solar cells, reported a second quarter 2012 adjusted loss of 2 cents per share, versus a loss of 32 cents in the year-ago quarter. Loss in the reported quarter was also far narrower than the Zacks Consensus Estimate of a loss of 21 cents.

On a GAAP basis, the company posted a loss of 71 cents per share versus a loss of $1.51 in the year-ago quarter.

During the reported quarter, the variation of 69 cents between GAAP and adjusted loss came from charges related to Utility and power plant project of 12 cents, charges related to restructuring plan of 2 cents, charges related to amortization of intangible assets of 2 cents, acquisition and integration costs of 1 cent, loss on change in European government incentives of 38 cents, non-cash interest expense of 7 cents, changes in manufacturing step-reduction program of 4 cents, and a gain on sale of equity interest in unconsolidated investee of 3 cents.

Operational Results

SunPower generated revenues of $595.9 million, up 0.6% year over year. It was however below the Zacks Consensus Estimate of $608 million.

During the quarter under review, revenue generated in the Americas was $392.3 million compared with $370.3 million in the prior-year period. Revenues in Europe, the Middle East and Africa (EMEA) were $155.4 million versus $182.1 million in the year-ago quarter. Revenues from Asia-Pacific (APAC) were $48.2 million, up from $39.8 million in the year-ago period.

Financial Condition

At the end of the reported period, SunPower had cash and cash equivalents of $366.3 million, compared with $245.8 million at the end of the second quarter of 2011. Convertible debt decreased to $430.6 million from $620.0 million at year-end 2011.

During the quarter, net cash used for operating activities was $44.6 million compared with $105.9 million in the prior-year period. Capital expenditures during the period were $29.9 million versus $23.4 million in the year-ago period.

Guidance

For the third quarter of 2012, the company expects non-GAAP revenue in the range of $550 million to $625 million, and non-GAAP loss per share of 20 cents to 5 cents. On a GAAP basis, the company expects revenue of $545 million to $620 million, and net loss per share of 25 cents to 10 cents for the third-quarter. For fiscal 2012, the non-GAAP revenue guidance is in a band of $2,600 million and $2,800 million, while GAAP revenue is forecast in a range of $2,400 million to $2,600 million.

SunPower remains committed to achieving break even or better non-GAAP profitability and a year-end 2012 unrestricted cash balance of more than $300 million, while investing in cost reduction initiatives.

Our Take

SunPower is a vertically-integrated solar manufacturer, with a presence along the entire solar value chain from cells through installation. However, in the near term, the company is witnessing cascading Average Selling Prices (“ASP”) and margins in its residential and small commercial markets segment. We expect this trend to continue in the near future with valuation further restrained by the higher cost structure of the company compared to its peers, the glut of solar panels in the market, lower ASPs and foreign exchange risk.

The company presently retains a short-term Zacks #3 Rank (Hold). We have a long-term Underperform recommendation on the stock.

The company mainly competes with Suntech Power Holdings Co. Ltd. ( STP - Analyst Report ) and First Solar, Inc. ( FSLR - Analyst Report ) .