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Solar cell manufacturer Canadian Solar Inc. (CSIQ - Analyst Report) reported earnings of 56 cents in the third quarter of 2013 versus a loss of $1.01 per share in the year-ago quarter.

The strong performance in the reported quarter was driven by an increase in shipment volume and higher revenues. Canadian Solar swung into profit in the reported quarter on the back of higher shipments and revenues.

The bottom line, however, came in below the Zacks Consensus Estimate of 60 cents by 6.7%.

Total Revenue

Canadian Solar posted revenues of $490.9 million, beating the Zacks Consensus Estimate of $483 million by 1.6%. Total revenue was 50.6% higher than $326 million reported in the prior-year quarter.

Canadian Solar generates a major part of its revenues from global operations. By geography, in the third quarter of 2013, sales to Asia and all other markets came to 43.6% of net revenues; sales to America comprised 46.9% while sales to European markets represented 9.5% of net revenues.

The contribution from Europe decreased significantly from the prior year, while American and Asian markets performed remarkably well.

Highlights of the Release

Solar module shipments in the quarter totaled 478 megawatts (“MW”), compared with 384 MW for the third quarter of 2012.

During the reported quarter, the company commenced the construction of a 130 MWdc solar power plant developed by Samsung Renewable Energy Inc. (Samsung) as the EPC master contractor. This is expected to generate revenue of over C$310.0 million ($301.5 million).

Gross profit in the third quarter of 2013 was $100.2 million, much higher than the year-ago gross profit of $7.3 million.

Total operating expenses were $44.9 million in the third quarter, up 7.6% from $41.8 million in the third quarter of 2012. The rise in total expenses was due to a 6.5% increase in selling expenses to $21.2 million and a 54% increase in general & administrative expenses to $20.7 million.

Research and development (R&D) expenses were $3.0 million in the third quarter of 2013 versus $3.4 million in the third quarter of 2012. Stable R&D investments ensure technological progress for this solar firm.  

Interest expense was $11.8 million versus $15.2 million in the third quarter of 2012. The year-over-year decline in interest expense was primarily due the change in the mix of project construction loans.

Financial Position

As of Sep 30, 2013, cash, cash equivalents and restricted cash were $681.7 million, higher than $564.3 million as of Dec 30, 2012.

Cash from operation in the reported quarter was $152 million.

Short-term borrowings at the end of the third quarter of 2013 were $801.6 million, lower than $890.6 million in the year-ago quarter.  

Long-term debt as of Sep 30, 2013 was $190.5 million, down from $224.2 million as of Sep 30, 2012.

During the quarter the company issued nearly 3.7 million shares at an average price of $13.25, which generated $48 million, after payment of sales agent commission.

Guidance

Canadian Solar expects shipments in the range of 480 MW to 500 MW in the fourth quarter of 2013, with gross margin expected between 13% and 15%.

Encouraging shipment in the first nine months of 2013 induced the management to revise its shipment guidance to 1.75 GW to 1.77 GW from the prior 1.6 GW to 1.8GW.   

Solar module demand in China and Japan is likely to be the primary driving force in the final quarter of 2013.

Other Company Releases

Enphase Energy, Inc. (ENPH - Snapshot Report) reported a loss of 14 cents in the third quarter, wider than the Zacks Consensus Estimate of 11 cents.

First Solar, Inc. (FSLR - Analyst Report) reported third quarter earnings of $2.28 per share, surpassing the Zacks Consensus Estimate of 92 cents by a wide margin.

Yingli Green Energy Holding Co. Ltd.’s (YGE - Snapshot Report) loss per share of 24 cents in the third quarter was in line with the Zacks Consensus Estimate.

Our Take

Canadian Solar reported mixed results in the third quarter. However, on a year-over-year basis, the company has shown remarkable improvement on both lines. Canadian Solar has already secured 1,015 MW of geographically diversified utility-scale project pipeline, which extends visibility on revenue, profitability and cash flow of its total solution business for the next two to three years. This business accounted for 41.1% of total revenues in the third quarter.

Total shipment of solar modules in the first nine months of 2013 amounted to 1,273 MW, up 11.8% from the comparable prior-year period. With other projects in pipeline, we expect the company to be able to build up from its current position.

The demand for solar modules in Japan will continue to drive the fortunes of Canadian Solar. Also, China and other emerging solar markets will keep the revenue stream alive for Canadian Solar. The ongoing talk to dispose of two solar projects in Ontario, Canada will further boost revenues once the deal is completed.

The company presently retains a short-term Zacks #2 Rank (Buy). With a market capitalization of $1.24 billion, the company has 7,020 full time employees.

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