Before markets opened, Canadian Solar Inc. (CSIQ) reported first quarter 2012 results. In the reported quarter, the company with a loss per share of 49 cents fared better than the Zacks Consensus Estimate of a loss of 52 cents per share. However, results were much lower when compared to earnings of 44 cents in the year-ago period.
Operational Performance
Canadian Solar had revenues of $325.8 million, falling behind the Zacks Consensus Estimate of $371 million. Revenue was also down 31.3% versus $474.1 million in the fourth quarter of 2011 and down 26.5% versus $443.4 million in the first quarter of 2011.
Quarterly Highlights
Solar module shipments in the reported quarter totaled 343MW compared with shipments of 436MW in the fourth quarter of 2011 and 244MW for the first quarter of 2011.
By geography, in the first quarter of 2012, sales to European markets represented 42.6% of net revenue, sales to North America represented 45.1% of net revenue, and sales to Asia and all other markets represented 12.3% of net revenue. In the above order, fourth quarter of 2011 revenue breakdown was 46.5%, 26.9% and 26.6%, respectively, and in the first quarter of 2011 the breakdown was 75.6%, 12.2% and 12.2%, respectively,
Gross profit in the first quarter of 2012 was $25.1 million, compared with $41.4 million in the fourth quarter of 2011 and $65.3 million in the first quarter of 2011. The sequential and year-over-year decline in gross profit was primarily due to the continued decline in average selling prices. This was partially offset by lower manufacturing costs. Gross margin was 7.7% in the first quarter of 2012, compared with 8.7% in the fourth quarter of 2011 and 14.7% in the first quarter of 2011.
Overall the company in the first quarter of 2012 digested a net loss of $21.3 million compared with a net loss of $59.9 million in the fourth quarter 2011, and net income of $5.9 million in the first quarter of 2011.
Financial Condition
Canadian Solar reported cash, cash equivalents and restricted cash of $625.2 million at the end of the reported period, up from $522.3 million at fiscal-end 2011. The company generated approximately $12.1 million of cash from operations in the first quarter of 2012. Short-term borrowings at the end of the first quarter of 2012 totaled $861.9 million, compared with $743.7 million at the end of the fourth quarter of 2011. As of March 31, 2012, the company has approximately $764 million in unused bank lines. Long-term debt at the end of the first quarter 2012 was $88.3 million, compared with $88.2 million at the end of the fourth quarter of 2011.
Accounts receivable balance, net of allowance for doubtful accounts, at the end of the first quarter of 2012 was $250.6 million compared with $292.2 million at the end of the fourth quarter of 2011. Accounts receivable turnover days however increased to 78 days in the first quarter of 2012 from 50 days in the fourth quarter of 2011.
Accounts and notes payable at the end of the first quarter of 2012 were $390.5 million, compared with $306.0 million at the end of the fourth quarter of 2011. Accounts payable turnover days in the first quarter of 2012 were 104 days compared with 74 days in the fourth quarter of 2011.
Guidance
Canadian Solar 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 430MW to 450MW in the second quarter of 2012, with gross margin expected to be between 8% and 10%. Despite the challenging global financing environment that leads to customer demand uncertainty, the company expects to ship approximately 1,800MW to 2,000MW of solar products in fiscal 2012.
Our Take
In recent times, Canadian Solar booked positive growth in the U.S., Europe, China and India. Moreover, its specialization at the downstream total solutions business makes it a higher margin business.
However, in the near term, fortunes would be impacted by the industry-wide oversupply glut leading to sharply falling Average Selling Prices, tepid module demand in Europe, and rising competition in the market. Given the industry-wide high inventory level, we do not foresee any short-term improvement in margins of the company. The company presently retains a short-term Zacks #5 Rank (Strong Sell). In the near term we would advise investors to focus on its Zacks #2 Rank (Buy) peer Ascent Solar Technologies Inc. (ASTI).
Canadian Solar Inc. is one of the world's largest solar companies. As a leading vertically integrated provider of ingots, wafers, solar cells, solar modules and other solar applications, the company designs, manufactures and delivers solar products and solar system solutions for on-grid and off-grid use to customers worldwide. With operations in North America, Europe, Australia and Asia, Canadian Solar provides premium quality, cost-effective and environmentally-friendly solar solutions to support global, sustainable development. Over the longer run we thus maintain our Neutral recommendation on the stock.
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