Canadian Solar Inc. (CSIQ) reported an adjusted loss per share of 80 cents in the third quarter of 2011, compared with the Zacks Consensus Estimate of a loss of 51 cents per share.
On a reported basis, Canadian Solar incurred a loss per share of $1.02 versus an EPS of 47 cents in the year-ago period. The variance of 22 cents is due to a gain of 33 cents due to change in fair value of derivatives and a foreign exchange loss of 55 cents per share.
Operational Performance
Canadian Solar had revenues of $499.6 million, beating the Zacks Consensus Estimate of $484 million. Revenues were also up 32.4% from $377.2 million in the third quarter of 2010.
Solar module shipments in the reported quarter totaled 355 MW compared with shipments of 200 MW in the third quarter of 2010. Total solar module shipments include 19.4 MW used in the company's total solutions business.
Revenues from the European market in the reported quarter accounted for 61.7% of total sales, down from 77% in the year-ago quarter. However, in real terms, revenues from the European market increased to $308.2 million from $290.3 million in the year-ago quarter.
The company generated $80.6 million in revenues from America in the reported quarter compared with $25.6 million last year. Asia and others accounted for $110.8 million of revenues, compared with $61.3 million a year ago.
Gross profit for the third quarter of 2011 was $11.9 million, down 81.8% from $65.3 million in the third quarter of 2010. Gross margin was 2.4% in the third quarter of 2011, compared with 17.3% in the third quarter of 2010. The significant year-over-year decline in gross profit and gross margin was primarily due to lower average selling prices besides approximately $36.1 million in non-cash inventory write-offs and non-cash loss on firm purchase commitment in the third quarter of 2011.
Total operating expenses were $42.6 million in the third quarter of 2011, compared with $25.3 million in the third quarter of 2010.
Selling expenses were $18.7 million in the third quarter of 2011, up 81.3% from the third quarter of 2011. The year-over-year increase in selling expenses was primarily due to increases in freight and other export-related expenses associated with higher shipment volumes. General and administrative expenses were $16.0 million in the third quarter of 2011, compared with $13.7 million in the third quarter of 2010.
Research and development (R&D) expenses were $7.9 million in the third quarter of 2011, compared with $1.3 million in the third quarter of 2010. The year-over-year rise in R&D was due to the company's continued investment in advanced solar technologies, which offer customers higher efficiency cells and Commercial AC modules, among other innovative product initiatives.
Operating margin was (6.1%) in the third quarter of 2011, compared with 10.6% in the third quarter of 2010. Contraction in operating margin resulted from lower gross margin and higher operating expenses.
Overall, net income came in at $43.9 million compared with net income of $20.3 million a year ago.
Financial Condition
Canadian Solar reported cash, cash equivalents and restricted cash of $686.3 million at the end of the reported period, up from $476.2 million at fiscal-end 2010. Long term borrowings increased to $153.6 million from $69.5 million at fiscal-end 2010.
Guidance
The company plans to prudently manage manufacturing utilization, inventory and mix levels, and operating expenses, as demand levels fluctuate. It also expects to continue to explore ways to increase manufacturing efficiency and lower processing and consumable costs where possible. It expects shipments to be in the range of 340MW to 360 MW in the fourth quarter of 2011. Despite the customer demand uncertainty due to the challenging global financing environment, the company maintained its full-year 2011 guidance of 1.2 GW to 1.3 GW.
Outlook
Canadian Solar caters to a geographically diverse customer base spread across its key markets in Germany, Spain and the U.S., as well as capture emerging market opportunities in France, the Czech Republic, Italy, South Korea, Canada, Japan and China. The company offers one of the broadest crystalline silicon solar module product lines in the industry ranging from modules made of medium power, low-cost upgraded metallurgical-grade silicon, or UMG-Si, to high efficiency, high power output mono-crystalline modules, along with a range of specialty products.
However, the benefits of its ongoing cost reduction program were of late offset by higher than forecast wafer prices on the spot market, steeper polysilicon prices and increasing non-silicon materials costs, including silver paste.
Also, its shipments were curtailed by higher solar cell prices in the market, which were eating into its margins. The company is addressing this by ramping up its captive solar cell capacity. However, it will take some time before the company becomes fully self-sufficient for its solar cells requirements. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Yesterday, one of its peers, Suntech Power Holdings Company Ltd. (STP) also posted third quarter results with an adjusted loss of 64 cents per American Depositary Share (ADS), falling behind the Zacks Consensus Estimate of 21 cents of loss per ADS. Results also came in below the year-ago adjusted earnings of 18 cents per ADS.
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