Canadian Solar Inc. (CSIQ) reported an adjusted
EPS of 24 cents in the second quarter of 2011, falling short of the
Zacks Consensus Estimate of 29 cents. The company’s results,
however, surpassed the year-ago quarterly earnings of 7 cents.
The upside came from higher shipments, cost efficiencies and
lower raw material costs. On a reported basis, Canadian Solar
reported an EPS of 16 cents versus 7 cents in the year-ago
period.
Operational Performance
Canadian Solar had revenues of $481.8 million, beating the Zacks
Consensus Estimate of $438 million. Revenues were also up 8.7% from
$443.4 million in the first quarter of 2011 and up 46.6% from
$328.7 million in the second quarter of 2010.
Solar module shipments in the reported quarter totaled 287 MW
compared to shipments of 244 MW in the first quarter 2011 and 181
MW in the second quarter of 2010. Canadian Solar's upside in
quarterly sales came from its global markets with Europe continuing
to be its largest contributor. Revenues from the European market in
the reported quarter accounted for 76.6% of total sales, down from
86.4% in the year-ago quarter.
However in real terms, revenues from the European market
increased to $369.1 million from $284.1 million in the year-ago
quarter. Canadian Solar has significantly increased its sales to
the Asia Pacific region and America as part of its market
diversification strategy.
The company generated $73 million in revenues from America in
the reported quarter compared to $24.2 million last year. Asia and
others accounted for $39.7 million of revenues, compared to $20.4
million last year.
Gross profit for the second quarter of 2011 was $63.7 million,
down 2.5% from $65.3 million in the first quarter of 2011 and up
42.8% from $44.6 million in the second quarter of 2010. Gross
margin was 13.2% in the second quarter of 2011, compared to 14.7%
in the first quarter of 2011 and 13.6% in the second quarter of
2010.
The sequential decline in gross margin was primarily due to the
higher level of external solar cell purchases and lower average
selling prices. This was partially offset by lower raw material and
manufacturing costs.
Year-over-year, gross margin was down as a result of lower
average selling prices. This was partially offset by lower raw
material and manufacturing processing costs.
Total operating expenses were $38.7 million in the second
quarter of 2011, compared to $31.3 million in the first quarter of
2011 and $27.6 million in the second quarter of 2010.
Selling expenses were $17.0 million in the second quarter of
2011, up 34.5% from the first quarter of 2011 and up 42.0% from the
second quarter of 2010. The sequential increase in selling expenses
was driven by increases in freight and export related costs, annual
salary adjustment, higher advertisement and insurance expenses.
General and administrative expenses were $16.8 million in the
second quarter of 2011, compared to $16.6 million in the first
quarter of 2011 and $14.0 million in the second quarter of 2010.
Research and development expenses were $4.9 million in the second
quarter of 2011, compared to $2.0 million in the first quarter of
2011 and $1.7 million in the second quarter of 2010.
The sequential and year-over-year increases are associated with
the company's focus on reducing the use of silver paste, and on
developing its next-generation, high-efficiency cells and other
product development initiatives.
Operating margin was 5.2% in the second quarter of 2011,
compared to 7.7% in the first quarter of 2011 and 5.2% in the
second quarter of 2010. The sequential decrease in operating margin
was a result of lower gross margin and increase in selling
expenses.
Interest expense in the second quarter of 2011 was $11.4
million, compared to $9.9 million in the first quarter of 2011 and
$6.4 million in the second quarter of 2010. The sequential and
year-over-year increases were due to additional bank borrowings and
an increase in interest rates.
Overall net income came in at $7.1 million compared to net
income of $5.9 million for the first quarter 2011, and net income
of $3.2 million for the second quarter of 2010.
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.
The increase in cash and cash equivalents was largely the result
of an increase in short-term and long-term borrowings. Restricted
cash increased mainly due to increased cash collateral and issuance
of bank acceptance and letters of credit. Long term borrowings
increased to $183.3 million from $69.5 million at fiscal-end
2010.
Outlook
Canadian Solar is a vertically-integrated manufacturer of
silicon ingots, wafers, cells, solar modules and custom-designed
solar power applications. The company sells its products to
customers worldwide, spread across Germany, Spain, the U.S.,
France, the Czech Republic, Italy, South Korea, Canada and
China.
Canadian Solar 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, to high efficiency, high power output mono-crystalline
modules, along with a range of specialty products.
Canadian Solar's standard solar modules are sold to distributors
and system integrators, and specialty solar modules and products to
various manufacturers, who integrate these solar modules into their
own products or sell and market them as part of their own product
portfolio.
Canadian Solar’s China-based manufacturing assets have a
distinct cost advantage over its peers. The company also pursues a
balanced and diversified supply channel mix by entering into
long-term supply contracts and toll manufacturing arrangements.
In addition to in-house solar cell, wafer and ingot
manufacturing, it is also ramping up its internal solar cell
capacity to cut back its reliance on third party solar cells for
the manufacture of solar modules.
In the near-term, however, the benefits of its ongoing cost
reduction program were however offset by higher than forecasted
wafer prices on the spot market, higher polysilicon prices and
higher non-silicon materials costs, including silver paste.
Also, in the near-term 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.
Canadian Solar currently has a short term Zacks #3 Rank (Hold)
in line with peers like Ascent Solar Technologies,
Inc. (ASTI) and Energy Conversion Devices,
Inc. (ENER) . Over the longer run, we maintain our Neutral
recommendation on Canadian Solar shares.
ASCENT SOLAR TE (ASTI): Free Stock Analysis Report
CANADIAN SOLAR (CSIQ): Free Stock Analysis Report
ENERGY CONV DEV (ENER): Free Stock Analysis Report
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