MEMC Electronic Materials Inc.
(
WFR
) reported second-quarter 2012 adjusted earnings per share of 14
cents, which beat the Zacks Consensus Estimate of zero cents.
The earnings beat was mostly driven by solid performance in the
Solar Energy segment. Shares rose 1.32% after hours and 10.68% in
the day's trade.
The adjusted figure excludes the impact of direct sales and
lease-back from the Solar Energy segment as well as some tax
benefits, and also excludes restructuring and impairment charges.
Revenues
On a GAAP basis, MEMC reported second-quarter revenues of $808.4
million, up 8.4% from $745.6 million in the year-earlier quarter.
The reported revenue surpassed the Zacks Consensus Estimate of
$647.0 million. Weak contribution from Semiconductor Materials was
more than offset by the strong performance of the Solar Energy
segment.
Including direct sales from the Solar Energy segment and lease-back
transactions, non-GAAP revenue came in at $933.4 million, which
increased 19.7% from the year-ago quarter.
Segment wise, revenue from Semiconductor Materials fell 15.5% year
over year to $232.7 million and was 28.8% of total revenue. MEMC
witnessed lower wafer volume growth and average selling prices
(ASPs). The semiconductor industry is going through a cyclical
downturn and hence softer demand for the same adversely affected
shipments and pricing. Nevertheless, the segment witnessed a
sequential growth based on higher volume.
The Solar Energy segment (which now includes Solar Materials)
accounted for 71.2% of total revenue. The segment generated revenue
of $575.7 million, up 22.4% year over year. The improvement was
driven by higher project sales, partially offset by lower solar
wafer pricing and volume.
Solar Energy segment sold 169 megawatts (MW) of solar energy
systems, compared with 28MW in the year-ago quarter. System sales
in Europe were encouraging amidst prevailing debt issues. Projects
interconnected during the second quarter represented 87 MW in 24
projects. MEMC also reported that construction of 104 MW of systems
is underway. The project pipeline remained unchanged from the prior
quarter at 2.9 gigawatt.
Operating Results
Reported gross profit was $106.4 million, down from $181.1 million
in the year-ago quarter. Gross margin was 13.2%, compared with
24.3% in the year-ago quarter. The margin contraction was due to
higher charges and lower pricing, partially offset by cost control
initiatives.
Operating income was $0.7 million, compared with $51.7 million in
the earlier-year quarter. Operating margin was 0.1%, compared with
6.9% in the year-ago quarter.
Total operating expenses decreased 18.3% from the year-ago quarter
with marketing and administration expenses falling 8.9% and
research and development expenses decreasing 16.1%. One-time items
recorded during the quarter were negligible.
Reported net loss was $61.3 million or 27 cents per share, compared
to net income of $47.3 million or 20 cents in the prior-year
quarter. However, adjusted earnings per share (EPS) were 14 cents
per share.
Balance Sheet & Cash Flow
MEMC ended the quarter with cash, cash equivalents and restricted
cash of $501.7 million, up from $471.3 million in the previous
quarter, primarily on the back of improved sales of solar energy
projects and cessation of financings needed for solar projects.
Long-term debt was $569.1 million, slightly down from $570.3
million in the previous quarter.
MEMC generated $100.3 million cash in operations, compared to
($386.5) million in the preceding quarter. The improvement was
attributable to proceeds from solar systems sales. Capital
expenditure was $36.3 million, down from $40.0 million in the
previous quarter.
Guidance
Keeping in mind the ongoing uncertainty in the semiconductor and
solar markets, MEMC refrained from providing any quantitative
revenue and EPS guidance for the third quarter and fiscal 2012.
For the third quarter, management expects Semiconductor Materials
segment revenue to grow 3.0-8.0% sequentially. Solar Energy systems
sales is expected to range between 40 MW and 50 MW (pricing per
watt to be roughly $3.50), which will be significantly lower than
169 MW sold during the second quarter. Furthermore, MEMC expects
operating expenses of less than $100.0 million and capital
expenditure of less than $30.0 million in the third quarter.
For the second half of fiscal 2012, MEMC expects consolidated
revenue to be higher than the first half.
For fiscal 2012, management expects Semiconductor Materials segment
revenue to fall 2.0-5.0% from the prior-year level. Solar Energy
systems sales are expected to be higher than 400 MW (pricing per
watt to be roughly $3.50). Furthermore, MEMC expects operating
expenses of less than $385.0 million and capital expenditure of
less than $150.0 million in fiscal 2012.
Conclusion
MEMC posted an impressive second quarter with both the top and
bottom lines surpassing the Zacks Consensus Estimates. Both cash
balance and cash from operating activities improved. But the
improvement was solely based on higher solar systems sales.
Considering the current market trend, it is difficult to predict
whether the Solar Energy segment will sustain its growth momentum.
The company itself seems dubious about the environment, which can
be easily inferred from a weak third quarter guidance.
However, we are encouraged by management's commentary of expecting
a better demand/supply situation in the semiconductor market. Of
course, expense control will also provide some support.
This apart, we noticed that SunEdison, MEMC's solar energy unit,
completed the sale of a 98MW project worth $220.0 million in
Europe. Though solar system sales trajectory looks impressive, we
are concerned due to cessation of MEMC's long-term solar wafer
supply agreement with
Suntech Power Holding Co. Ltd.
(
STP
) and lack of new long-term supply agreements.
Currently, MEMC has a Zacks #3 Rank, implying a short-term Hold
recommendation.
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