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SunEdison Inc. (SUNE - Analyst Report) reported breakeven earnings per share in the third quarter of 2013 which came ahead of the Zacks Consensus Estimate of loss of 11 cents per share. However, earnings were down from 30 cents reported in the year-ago period.

Quarter Details

On a GAAP basis, SunEdison reported third-quarter revenues of $611.5 million, which increased 1.7% from the year-ago quarter and beat the Zacks Consensus Estimate of $578 million.

Including direct sales and lease-back transactions, non-GAAP revenues came in at $672 million, which decreased 5.2% from the year-ago quarter.

Segment-wise, revenues from Semiconductor Materials (35% to total non-GAAP revenues) decreased 4% from the year-ago quarter to $230.7 million primarily due to lower prices.

Revenues from the Solar Energy segment (65% of non-GAAP total revenue) decreased 5.8% year over year to $441.3 million. The decline was primarily due to lower pricing and sale of solar projects and solar modules. However, the company witnessed higher volumes in solar wafer sales.

During the quarter, SunEdison recognized revenues related to 75 MW of solar energy systems, towards the high end of the guided range of 60 MW to 80 MW. The Solar Energy segment has a project pipeline of 3.1GW while it has a backlog of 1.1GW, both increasing from the comparable previous-year periods.

SunEdison’s non-GAAP gross margins were down 646 basis points (bps) from the year-ago quarter to 9.5% primarily due to a lower revenue base. Moreover, lower pricing also impacted margins.

The company reported an operating loss of $45.8 million which deteriorated from $85.2 million operating profit reported in the year-ago quarter. The year-over-year decline was attributed to lower pricing and prior-year benefit related to a favorable restructuring adjustment.  

During the quarter, SunEdison’s marketing & administrative expenses increased 32.2% and research & development expenses increased 6.9% from the year-ago quarter to $91.1 million and $18.6 million, respectively.

SunEdison reported non-GAAP net income of $1.7 million or breakeven earnings compared to $70.4 million or 30 cents.

SunEdison exited the third quarter with cash, cash equivalents and restricted cash of $757.4 million, up from $482.1 million in the previous quarter, primarily due to share issuance coupled with solar project financing and working capital management. Long-term debt (excluding current portion) was $756.1 million compared to $755.9 million in the previous quarter.

SunEdison used $102.6 million cash in operations compared with $86.4 million in the previous quarter. The company incurred $31.6 million in capital expenditures.

Guidance

For the fourth quarter of 2013, SunEdison expects Semiconductor Materials revenues in the range of $220 million–$230 million and non-GAAP solar energy systems sales volume in the range of 234 MW to 264 MW.

Average project pricing would range between $2.75/watt and $3.50/watt. Capital spending is expected to be between $28 million and $38 million.

For fiscal 2013, Semiconductor Materials revenues are expected to be between $920 million and $930 million (previously $940.0 million to $980.0 million). Solar energy systems sales volume is expected in the range of 405 MW to 435 MW (previously 430 MW to 500 MW).

Average project pricing would remain between $3.10/watt and $3.40/watt. Capital spending is still expected between $130 million and $140 million (previously $120.0 million and $140.0 million).

Conclusion

Although SunEdison posted better-than-expected third-quarter results, its year-over-year comparisons in every operational metric were down. Solar systems sales were also lower than expected. Fourth-quarter guidance was cautious and fiscal 2013 estimates were lowered. Moreover, the company expects a moderate rise in its operating expenses, going forward. The price erosion is also a concern for the company.

Though the Solar segment has not performed well, we believe there is immense potential given the improving backlog and a large project pipeline. Moreover, SunEdison is expected to benefit from the rise in demand for solar energy and the semiconductor business IPO that should further enable it to concentrate on its core competencies.  

However, competition from SunPower Corp (SPWR - Analyst Report) and First Solar Inc. (FSLR - Analyst Report) is a concern. Currently, SunEdison has a Zacks Rank #3 (Hold). Investors may also consider another technology stock, SanDisk Corp (SNDK - Analyst Report), which carries a Zacks Rank #1 (Strong Buy).

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