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Canadian Solar in the Red, Cuts View

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Solar cell manufacturer Canadian Solar Inc.(CSIQ - Free Report) reported losses yet again in the third quarter of 2012. The loss of $1.01 per share in the reported quarter was wider than the Zacks Consensus Estimate of a loss of 58 cents per share.

Total Revenue

Canadian Solar posted revenues of $326.2 million, lagging the Zacks Consensus Estimate of $390 million. The revenue was 34.7% lower than $499.6 million reported in the prior-year quarter.

Canadian Solar generates a major chunk of its revenue from global operations. By geography, in the third quarter of 2012, sales to European markets represented 47.9% of net revenue, sales to America comprised 24.9% while sales to Asia and all other markets came to 27.2% of net revenue.

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

Quarterly Highlights

Solar module shipments in the quarter totaled 384 megawatts (“MW”), compared with 412 MW for the second quarter 2012 and 355 MW for the third quarter of 2011. Total solar module shipments for the third quarter of 2012 included 21.1 MW used in the company's total solutions business.

Gross profit in the third quarter of 2012 was $7.3 million, short of the year-ago profit level by $4.6 million. The shortfall in gross profit was primarily due to a decline in average selling prices, marginally offset by lower manufacturing costs and higher shipment volume.

Total operating expenses were $41.8 million. Operating expenses mainly sprung from selling expenses. Higher freight and other export-related expenses as a result of higher shipment volume increased selling expenses. Headcount additions and related salary expenses also spiked up selling expenses.

Overall, the company digested a net loss of $43.7 million in the reported quarter compared with a net loss of $43.9 million in the third quarter 2011.

Financial Position

As of September 30, 2012, cash, cash equivalents and restricted cash were $690.8 million, slightly lower than $692.1 million as of June 30, 2012. Operating cash flow was approximately $11.1 million in the third quarter of 2012, which excludes $68.6 million in cash outflows for 16 projects acquired in Ontario, Canada.

Short-term borrowings at the end of the third quarter of 2012 totaled $890.6 million, lower sequentially from $927.7 million.

Long-term debt as of September 2012 was $224.2 million, compared with $136.3 million at the end of the second quarter of 2012.  The higher debt level was because of the acquisition of assets in Canada.


Canadian Solar expects shipments in the range of 380 MW to 420 MW in the fourth quarter of 2012, with gross margin expected between 1% and 3%.

The ongoing uncertainty in the global financing environment has taken a toll on the company’s shipment forecast for the full year. The company now expects its shipment in 2012 in the range of approximately 1,500 MW to 1,600 MW of solar products, down from the prior expectation of 1,800 MW to 2,000 MW.

Our Take

In the third quarter, the company completed the sale of a utility-scale solar power plant to Stonepeak Infrastructure Partners for $48.4 million. Subsequent to the quarter, the company completed the sale of two more projects, Brockville 1 and William Rutley, totaling 20MW (AC), to TransCanada Corporation. We believe the increasing popularity of solar power projects may help the company to report once again in the black.

The company continues to see attractive opportunities for growth in China, Japan and India, as well as in other emerging markets of Asia, Africa and Latin America. Moreover, its specialization in the downstream total solutions business makes it a higher margin operation.

We nonetheless remain skeptical about the future performance of the company unless it can rein in operating expenses and increase total revenues. Besides, the industry-wide cascading average selling prices and European woes remain causes of concern for solar module makers. 

The company presently retains a short-term Zacks #3 Rank (Hold). Another operator in the solar cell market, First Solar, Inc. (FSLR - Free Report) also retains a short-term Zacks #3 Rank (Hold).

Canadian Solar Inc. is one of the world's largest solar companies. As a leading vertically integrated provider of ingots, wafers, solar cells, solar modules and other solar applications, the company designs, manufactures and delivers solar products and solar system solutions for on-grid and off-grid use to customers worldwide. With a market capitalization of $87.6 million, the company has 9,087 full time employees.

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