Suntech Power Holdings Company Ltd. (STP) posted second quarter adjusted loss of 19 cents per American Depositary Share (ADS), falling behind the Zacks Consensus Estimate of 16 cents earnings per ADS. Results also came in below the year-ago adjusted earnings of 3 cents per ADS.
Operational Results
Suntech registered total net revenues of $830.7 million, compared to $877.0 million in the first quarter of 2011 and $625.1 million in the second quarter of 2010. Revenues in the reported quarter comfortably beat the Zacks Consensus Estimate of $791 million.
The sequential decline of revenues was primarily due to a decline in the average selling price of Photovoltaic (PV) products. This was partially offset by an increase in shipments. Total PV shipments increased 2% sequentially, and increased 48% year-over-year.
In the reported quarter gross profit was $33.7 million and gross margin was 4.1% compared to $182.7 million and 20.8%, respectively, in the first quarter of 2011; and $123.3 million and 19.7%, respectively, in the second quarter of 2010.
The sequential decrease in gross profit was primarily due to a $91.9 million write-off of the unamortized cost of warrants previously issued to MEMC Electronic Materials Inc. (WFR) in conjunction with a supply agreement, which was recently terminated.
Operating expenses increased to $204.0 million, which represented 24.6% of revenues, compared to $85.8 million, or 9.8% of revenues, in the first quarter of 2011, and $142.3 million, or 22.8% of revenues, in the second quarter of 2010.
The sequential increase in operating expenses was primarily due to expenses related to the recent termination of a wafer supply agreement with MEMC. Overall net loss came in at $259.5 million versus net loss of $174.9 million in the year-ago quarter.
Financial Condition
As of June 30, 2011, Suntech reported cash and cash equivalents of $648.2 million, compared with $782.6 million as of March 31, 2011. The company at the end of the reported quarter had outstanding long-term bank borrowings of $202.3 million and convertible notes worth $563.7 million.
Outlook
Wuxi, China-based Suntech is a leading solar energy company. The company designs, develops, manufactures and markets photovoltaic (PV) cells and modules. Suntech achieved 2.4 GW of PV cell and module capacity, and 1.2 GW of silicon ingot and wafer capacity as of the end of the second quarter of 2011.
Looking forward, Suntech plans to expand wafer capacity to 1.6 GW by the end of fiscal 2011. The company will, however, will maintain its cell and module production capacity at 2.4 GW.
Suntech Power is one of the largest producers of PV solar modules under its proprietary Pluto technology with a geographically-diversified customer base. Other positive factors for Suntech include ongoing expansion programs, higher conversion efficiency through its Pluto technology-enabled modules, subsidy program in China, and improving operating efficiencies. However apprehensions over rising competition, subsidy cuts in Europe, and financial stability of its customers overshadow the positives.
In the near-term however we assign a Zacks #4 Rank (short-term 'Sell' recommendation) for the stock. Over the longer run, our Neutral recommendation on the stock indicates that it should perform in-line with the broader market.
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MEMC ELEC MATRL (WFR): Free Stock Analysis Report
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