ReneSola Sails Past Estimates

ReneSola Ltd. (SOL - Analyst Report) in the first quarter of 2011 clocked adjusted Earnings Per American Depositary Share (EPADS) of 64 cents per share, beating the Zacks Consensus Estimate of 60 cents and the year-ago quarterly earnings of 14 cents.

On a reported basis, EPADS came in at 49 cents in the reported quarter versus 14 cents in the year-ago quarter.

Operational Results

In the reported quarter, ReneSola’s revenues rose to $328.2 million comfortably, beating the Zacks Consensus Estimate of $321 million. However revenue came short of the fourth quarter 2010 by 15.1% due to lower average selling prices (ASP) of solar wafers cum modules along with a decline in module shipments.

ReneSola’s product shipments were 330.4 MW versus 349.4 MW (down 5.4%) in the fourth quarter of 2010. In the reported quarter, solar wafer and module shipments were 243.5 MW and 86.9 MW, respectively.

ReneSola clocked a gross profit of $100.6 million and a gross profit margin of 30.7%, compared to $119.3 million and 30.9% in the fourth quarter of 2010. The sequential decrease in gross margin was primarily due to the drop in solar module ASPs and increases in polysilicon prices.

ReneSola’s operating expenses in the reported quarter slipped to $25 million versus $33.4 million in the fourth quarter of 2010. Operating expenses represented 7.6% of total revenues in the reported quarter, a decrease from 8.6% in the fourth quarter of 2010.

The company had a foreign exchange gain of $4.8 million in the reported quarter, primarily due to the appreciation of the Euro against dollar. The company also recognized a $19.8 million loss in the fair value of foreign exchange forward contracts as the Euro appreciated to a higher level than the forward rate hedged, compared to a gain of $10.1 million in the sequential quarter.

Operating income came in at $75.6 million, down 12% versus $85.9 million in the fourth quarter of 2010. Overall ReneSola recorded net income of $43.3 million compared to net income of $61 million in the fourth quarter of 2010.

Financial Condition

ReneSola at the end of the reported quarter had cash and cash equivalents of $435.9 million, compared with $324.3 million at fiscal-end 2010. Long-term borrowings decreased to $118.8 million from $121.5 million at the end of fiscal 2010. The company used cash for operating activities of $3.1 million in comparison to $42.7 million generated in the year-ago quarter.

Guidance

Keeping in mind the uncertainties in government policies related to the solar industry, ReneSola for the second quarter of 2011 expects total solar wafer and module shipments to be in the range of 330 MW–350 MW, revenues to be in the range of $280 million–$300 million and gross profit margin to lie within 25%–27%.

Our Take

The fortunes of ReneSola look promising with a geographically-diversified customer base, ongoing expansion programs, subsidy programs, improving operating efficiencies, rising margins and material cost savings through its vertically-integrated production structure.

We feel the Zacks #1 Rank (strong buy) stock would open up a small window of opportunity for investors in the near term (1 to 3 months). In the longer run we are ‘Neutral’ on the company, walking in hand with its peers like First Solar, Inc. (FSLR - Analyst Report) and Evergreen Solar Inc. (ESLR).

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