STR Holdings Posts Narrower Loss

STR Holdings Inc. ( STRI - Snapshot Report ) posted second-quarter 2012 results with adjusted loss per share of 4 cents, in line with the Zacks Consensus Estimate and narrower than the year-ago loss of 28 cents per share. On a reported basis, loss per share came in at 6 cents compared with earnings of 23 cents per share in the year-ago quarter.

Operational Performance

STR Holdings’ quarterly revenues were $25.1 million, representing a decline of 19.2% sequentially and 65.0% year over year. The sequential decline was primarily due to a 16.6% volume decline and a 2.0% decline in average selling price (“ASP”). On a year-over-year basis, volume declined 53.0% and ASP declined 20.7%. Quarterly revenue came in below the Zacks Consensus Estimate of $27 million.

Gross profit for the second quarter of 2012 was $1.6 million, or 6.3% of sales, compared with $2.0 million, or 6.4% of sales, in the first quarter of 2012. The company was able to maintain its gross margin despite lower sales as a result of its successful cost-reduction efforts, which curtailed cost per square meter sold by 3% sequentially.

Selling, general and administrative expenses for the second quarter of 2012 were $6.7 million compared with $7.7 million in the first quarter of 2012. The reduction was driven by lower labor and incentive compensation expense and lower professional fees. Together, these more than offset increased R&D and selling expenses.

Overall, STR Holdings digested a net loss of $2.4 million versus a net income of $9.7 million in the year-ago quarter.

Financial Performance

STR Holdings reported $72.2 million of cash and cash equivalents at the end of the reported period versus $87.1 million at the end of the year-ago period. Deferred tax liabilities decreased to $46.2 million from $48.6 million at year-end 2011.

Guidance

STR Holdings expects sales for the quarter ending September 30, 2012 to be in the range of $23 million to $25 million. During the quarter it expects its EPS to range between breakeven and a loss of 3 cents.

STR Holdings for full year 2012 expects sales to be in the range of $102 million to $108 million, along with EPS ranging between a penny and 7 cents.

Outlook

Based in Enfield, Connecticut, STR Holdings, Inc. is a diversified global leader providing high quality, superior performance solar encapsulants to the photovoltaic module industry. It is also one of the world's top providers of quality assurance testing, audit, inspection and responsible sourcing services. The company's polymeric PhotoCap products consist primarily of ethylene-vinyl-acetate, or EVA, which is modified with additives and put through its proprietary manufacturing process to increase product stability and make the encapsulant suitable for use in extreme, long-term outdoor applications.

STR Holdings supplies solar module encapsulants to many of the major solar module manufacturers, including First Solar Inc. ( FSLR - Analyst Report ) , and SunPower Corporation ( SPWR - Analyst Report ) . Therefore as direct fallout, STR Holdings along with the whole solar industry is witnessing an oversupply of photovoltaic products leading to a steep drop in Average Selling Prices.

Also, a volatile euro, apprehension over a reduction in European solar subsidies and falling crystalline silicon prices remain a matter of concern for the company.

STR Holdings presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.