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Why Shares of TPI Composites Plunged on Thursday

Lou Whiteman, The Motley Fool

What happened

Shares of TPI Composites (NASDAQ: TPIC) fell more than 20% on Thursday morning after the wind turbine blade manufacturer warned that the current quarter and full fiscal year would fall well short of expectations.

So what

Management had sounded a cautious tone on 2019, but investors underestimated how challenging the year would be. After markets closed Wednesday, TPI said it expects to lose $0.35 per share in the first quarter, compared to consensus expectations for a $0.06-per-share profit, on revenue that should come in around consensus.

For the year, TPI now expects to lose between $0.09 and $0.03 per share on revenue of between $1.45 billion and $1.5 billion. Analysts had expected a full-year profit of $1.37 on revenue of $1.53 billion.

A western Australia wind farm.

Image source: Getty Images.

TPI blamed the revised guidance on asset impairments and revenue recognition issues associated with customer Senvion's entry into insolvency self-administration proceedings, delays related to a plant strike in Mexico, and expected damages or lost revenue related to the plant disruption.

Senvion currently represents about 4% of TPI's total global blade production capability.

These were all issues that TPI discussed on its most recent earnings call back in March, but the company perhaps did not sound the alarm loudly enough. In March, TPI chief financial officer Bill Siwek referenced Mexico and Senvion's financial troubles but concluded, "at this point, it is still too early to tell if these two situations, offset by other upside opportunities we have, will have a material impact or not on our 2019 adjusted EBITDA and net sales guidance."

Now what

The issues TPI is facing will not disappear overnight. The company warned production delays stemming from the Mexico plant strike will also impact second- and third-quarter financials and could result in "significant" charges throughout the year if there are delivery delays.

The company also warned that the potential upside opportunities Siwek mentioned in March would not materialize this year "primarily due to constraints on availability of certain key raw materials driven by significant year-over-year demand growth in the wind industry globally."

The good news for long-term investors is that TPI believes demand remains strong and growing. In the statement, CEO Steve Lockard said, "We remain confident and committed to our overall business model, strategy and our plan to double the company's revenue over a three-year period."

Investors now know not to expect TPI to be able to fully capitalize on that demand in 2019.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends TPI Composites. The Motley Fool has a disclosure policy.