Canadian Solar Misses Q1 Earnings, Maintains View - Analyst Blog

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Solar cell manufacturer Canadian Solar Inc. ( CSIQ ) reported earnings of 7 cents per share in the first quarter of 2014 as against a loss of 10 cents per share in the year-ago quarter. The bottom line, however, was short of the Zacks Consensus Estimate by a penny. The lower-than-expected earnings evoked a negative market reaction with the shares losing 9% in the premarket trading on May 16, 2014.

However, the company swung to a profit in the quarter as against a loss incurred a year ago. The upside was driven by an increase in shipment volume and higher revenues.

Total Revenue

Canadian Solar posted revenues of $466.3 million in the first quarter, beating the Zacks Consensus Estimate of $435.0 million by 7.2%. Total revenues were 76.9% higher than $263.6 million reported in the prior-year quarter.

Canadian Solar generates a major part of its revenues from global operations. Geographically, in the first quarter of 2014, sales to Asia and all other markets came to 50.4% of net revenues; sales to America comprised 43.6% while sales to European markets represented 6.0% of net revenues.

The contribution from Europe decreased significantly from the prior-year quarter, while American markets performed remarkably well over that period. Again, Asia and other markets decreased both year over year as well as sequentially.

Operational Update

Solar module shipments in the reported quarter totaled 500 megawatts ("MW"), compared with 340 MW in the year-ago quarter. However, shipments decreased from 621 MW in the sequentially preceding period.

Gross profit in the first quarter was $68.6 million, much higher than the year-ago gross profit of $25.6 million but took a 32.3% sequential hit. The year-over-year increase in gross profit was primarily due to more revenues coming in from the company's higher-margin total solutions business, as well as higher module shipments. The sequential drop mainly reflects lower module shipments.

Total operating expenses were $42.0 million in the quarter, much higher than the year-ago figure of $7.5 million. Tthe company however reduced operating expenses by 24.9% sequentially.

Canadian Solar reported an operating income of $26.6 million in the quarter under review versus $18.0 million in the comparable year-ago quarter. The favorable results were a function of a robust gross profit.

Research and development (R&D) expenses were $2.5 million in the first quarter of 2014 versus $2.4 million in the first quarter of 2013. The steady R&D investment reflects technological progress at this solar firm.

Interest expense was $12.0 million, lower than $14.6 million incurred in the year-ago period.

Canadian Solar had a pipeline of late stage utility-scale solar projects totaling about 1.2 gigawatt (GW) DC at the end of the quarter.  These projects comprise owned and joint-venture projects as well as engineering, procurement and construction (EPC) services.

In the first quarter of 2014, the company closed the sale of the Little Creek project in Ontario, Canada to BluEarth for more than C$53.0 million.

Financial Update

As of Mar 31, 2014, cash and cash equivalents were $364.2 million, higher than $228.3 million as of Dec 31, 2013.

Net cash used in operating activities was $153.7 million, compared to net cash provided by operating activities of $73.2 million in the fourth quarter of 2013.

Long-term debt as of Mar 31, 2014, was $163.5 million, up from $151.4 million as of Dec 31, 2013.

Guidance

Canadian Solar expects shipments in the range of 600 MW to 630 MW in the second quarter of 2014. Total revenues are expected in the range of $560.0 million to $590.0 million with gross margin between 17% and 19%.

Guidance for total annual shipments is maintained in the range of 2.5 GW to 2.7 GW and total revenues are expected in the $2.7 billion to $2.9 billion band for 2014.

The company expects to earn 50% of its total revenues in 2014 from its total solution business.

Canadian Solar expects China to be the biggest solar market in the world in 2014 and beyond, with at least 11 GW to 12 GW of solar module installations this year. The company believes that this Asian superpower will likely achieve its total target of 14 GW.

Zacks Rank

The company presently holds a Zacks Rank #3 (Hold). Other stocks to look out for in the space are JA Solar Holdings Co. Ltd. ( JASO ), Trina Solar Ltd. ( TSL ) and ReneSola Ltd. ( SOL ). JA Solar and Trina Solar sport a Zacks Rank #1 (Strong Buy), while ReneSola carries a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CSIQ , JASO , SOL , TSL

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