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Shares of ReneSola Ltd. (SOL - Analyst Report) fell 21% on Dec 5 on daily trade following the release of its third-quarter earnings report. This is due to the fact that the photovoltaic manufacturer ReneSola incurred a bigger loss in the third quarter of 2013 as it shut down a part of a polysilicon factory.

ReneSola reported loss per American Depositary Share (ADS) of $2.23 for the third quarter of 2013, wider than the Zacks Consensus Estimate of a loss of 24 cents per ADS. The third-quarter loss was also wider than the year-ago quarterly loss of 91 cents per ADS and the prior quarter loss of 24 cents per ADS.

This Chinese solar panel maker had initiated an effort last year to upgrade a polysilicon factory in Sichuan and integrate it with a more advanced facility while reducing costs. However, the company said that its effort to cut costs failed and it discontinued the production. Consequently, the company digested a $194.7 million impairment charge.

Operational Results

Although ReneSola booked bigger losses during the quarter, its net revenue surged 92.2% to $419.3 million from $218.2 million in the prior-year quarter, supported by increased shipments. The reported figure also came well ahead of the $362.0 million Zacks Consensus Estimate and was 11.1% above the prior quarter’s $377.4 million.

During the quarter, total solar wafer and module shipments were 851.0 megawatt (“MW”), up 59.8% year over year and 0.2% sequentially. Its module shipments were 462.9 MW, up a considerable 219% year over year and 6.6% sequentially.

The company continued to grow its module business while focusing more on the geographic diversification of its sales. This has resulted in another quarter of record shipments and guidance-beating revenues.

Operating expenses increased significantly during the quarter to $214.3 million versus $43.6 million in the third quarter 2012 and $44.0 million in the preceding quarter. The increase was due to a non-cash impairment charge on assets of $202.8 million, including a charge of $194.7 million related to the above-mentioned Sichuan polysilicon factory.

Operating loss during the quarter was $180.3 million as compared with operating losses of $82.8 million in third quarter of 2012 and $16.6 million in second quarter of 2013.

Financial Condition

As of Sep 30, 2013, ReneSola had cash and cash equivalents plus restricted cash of $438.5 million, compared with $442.7 million as of Mar 31, 2013. Net cash inflow from operating activities was $79.6 million compared with $65.5 million in the second quarter of 2013. Total debt was $831.2 million compared with $958.6 million as of Mar 31, 2013.

Guidance

The company expects fourth quarter 2013 total module shipments to be between 490 MW and 510 MW, with overall gross margin in the range of 9% to 11%.

Full-year 2013 solar wafer and module shipments are forecast between 3.0 gigawatts (GW) and 3.1 GW, with solar module shipments of 1.7 GW to 1.75 GW.

At the Peers

The largest solar-cell producer by capacity, JA Solar Holdings Co. Ltd. (JASO - Analyst Report) announced a loss of 37 cents per ADS in the third quarter of 2013, narrower than the Zacks Consensus Estimate of a loss of 42 cents. The company also cut its loss on a sequential as well as year-over-year basis. Loss per ADS was $1.56 in the year-ago period and 59 cents in the preceding quarter.

The narrower loss was due to higher-than-expected shipments backed by an improving macro environment and increased installation activity across key markets.

JinkoSolar Holding Co. Ltd. (JKS - Snapshot Report) reported adjusted third quarter earnings per ADS of $1.36 (adjusted earnings of 34 cents per share), much ahead of the Zacks Consensus Estimate of 35 cents. The company reversed its year-ago adjusted loss per ADS of $3.96 (adjusted loss 99 cents per share). Each “ADS” represents four ordinary shares. The results reflect a diversified customer base and improved operational efficiency in a rapidly changing solar power environment.

Our Take

In spite of ReneSola reporting in the red this quarter, we remain optimistic about the company. The company after all outstripped the shipment volume guidance even in a challenging macro environment and a competitive solar industry. In order to build its brand image, the company also introduced its proprietary technology to customers across multiple international markets.

We believe that the company is well positioned given its focus on improving operating efficiencies, multiple contracts and agreements in place, generation of material cost savings and introduction of innovative products like the power conserving microinverter Replus.

China is anticipated to install up to 15 GW of solar power next year which will boost ReneSola’s growth momentum. The government’s policy of refunding 50% of the value-added tax for sales occurring from Oct 2013 through Dec 2015 to local solar manufacturers helped trigger the rising demand trend.

ReneSola presently carries a short-term Zacks Rank #3 (Hold). Other better-placed solar players include Zacks Ranked #1 (Strong Buy) JinkoSolar Holding and Zacks Ranked #2 (Buy) First Solar Inc. (FSLR - Analyst Report).

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