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Solar cell manufacturer Canadian Solar Inc. (CSIQ - Analyst Report) reported earnings of 39 cents per share in the fourth quarter of 2013 as against a loss of $2.43 per share in the year-ago quarter. The bottom line, however, came in below the Zacks Consensus Estimate of 49 cents by 20.4%. The lower-than-expected earnings evoked a negative market reaction with the shares losing 10.6% to close at $39.02 on Mar 5, 2014.

In 2013, Canadian Solar reported earnings of 63 cents per share as against a loss of $4.53 per share in 2012. However, the reported figure missed the Zacks Consensus Estimate of 84 cents per share by 25.0%.

The company swung into profit in 2013 as against the loss incurred in 2012. The strong performance in the reported quarter was driven by an increase in shipment volume and higher revenues.

Total Revenue

Canadian Solar posted revenues of $519.5 million in the fourth quarter, beating the Zacks Consensus Estimate of $511.0 million by 1.7%. Total revenues were 76.2% higher than $294.8 million reported in the prior-year quarter.

In 2013, net revenues were $1,654.4 million, up 27.8% from $1,294.8 million in 2012. The reported figure marginally missed the Zacks Consensus Estimate of $1,655.0 million by 0.04%.

Canadian Solar generates a major part of its revenues from global operations. Geographically, in the fourth quarter of 2013, sales to Asia and all other markets came to 62.4% of net revenues; sales to America comprised 32.1% while sales to European markets represented 5.5% of net revenues.

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

Operational Update

Solar module shipments in the reported quarter totaled 621 megawatts (“MW”), compared with 404 MW in the year-ago quarter. Of the total shipment, 42.9% and 19.7% were shipped to the Chinese and the Japanese markets, respectively.

Gross profit in the fourth quarter of 2013 was $101.3 million, much higher than the year-ago gross profit of $14.9 million. The year-over-year increase in gross profit was primarily due to the increase in revenue contribution from the company's higher-margin total solutions business, as well as higher module shipments and lower module manufacturing costs, partially offset by a slight decline in module average selling price.

Total operating expenses were $56.0 million in the fourth quarter, down 47.4% year over year.

The company reported an operating income in the quarter under review versus an operating loss in the comparable year-ago quarter. The favorable results were primarily due to higher gross profit and lower operating expenses.

Research and development (R&D) expenses were $3.2 million in the fourth quarter of 2013 versus $3.1 million in the fourth quarter of 2012. The steady R&D investment reflects technological progress for this solar firm.

Interest expense was $9.9 million, in line with the interest expense in the fourth quarter of 2012.

Financial Update

As of Dec 31, 2013, cash and cash equivalents were $228.3 million, higher than $142.0 million as of Dec 31, 2012.

Cash from operation in the reported quarter was $73.2 million.

Long-term debt as of Dec 31, 2013, was $151.4 million, down from $214.6 million as of Dec 31, 2012.

Project Pipeline Update

At the end of Jan 2014, the company had a pipeline of late-stage, utility-scale projects including solely owned as well as joint-venture projects across Canada, Japan, China and the U.S.  Together these projects would produce 1.3 gigawatts (GW) DC of energy.

During the fourth quarter of 2013, the company closed the sale of the Mississippi Mills project in Ontario, Canada to TransCanada for C$61.0 million.

Guidance

Canadian Solar expects shipments in the range of 470 MW to 490 MW in the first quarter of 2014. Total revenue is expected in the range of $415.0 million to $430.0 million with gross margin expected between 14% and 16%.

Total annual shipments are expected to be in the range of 2.5 GW to 2.7 GW and total revenue is expected in the range of $2.7 billion to $2.9 billion for 2014.

The company expects to earn 50% of its total revenues in 2014 from its total solution business.

Zacks Rank

The company presently holds a Zacks #1 Rank (Strong Buy). Other stocks to look out for in the space are Ascent Solar Technologies, Inc. , JinkoSolar Holding Co. Ltd. (JKS - Snapshot Report), SolarCity Corporation (SCTY - Snapshot Report). All of these stocks hold a Zacks Rank #2 (Buy).
 

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