(CSIQ) Canadian Solar’s Quarterly Earnings A Penny Light

August 21st, 2010

Canadian Solar Inc. (CSIQ) reported adjusted EPS of 3 cents for the first quarter of fiscal 2010, which fell short of the Zacks Consensus Estimate at 4 cents. The company also beat the year-ago quarterly loss of 13 cents.

The delay in releasing its quarterly numbers was due to an investigation by the company’s audit committee into certain transactions identified in the subpoena issued to the company by the Securities and Exchange Commission (SEC). The company announced the investigation in June 2010. The audit committee concluded that the transactions identified in the SEC subpoena were properly accounted in the company’s accounts.

Operational Performance

Canadian Solar had revenues of $336.9 million, beating the Zacks Consensus Estimate of $334 million. Revenues were also greater than $254.2 million in the fourth quarter of 2009 and $49.5 million in the first quarter of 2009.

Shipments were 155.5 MW Incorporatedluding 146.5 MW of module sales, approximately 6.5 MW of off-spec solar cells, and 2.5 MW of modules shipped to a solar power plant project, which the company built and sold during the quarter. In the fourth quarter of 2009, shipments were only 141.2 MW while shipments were 18 MW in the first quarter of 2009. In the reported quarter gross margin rose to 12.4%, compared to a gross margin of 9.5% in the fourth quarter of 2009.

Canadian Solar’s upside in quarterly sales came from its global markets with Europe continuing to be its largest contributor. Revenues from the European market in the reported quarter accounted for 88.5% of total sales, up from 72.7% in the year-ago quarter. Also in real terms, revenues from the European market increased to $298.2 million from $36 million in the year-ago quarter.

The company generated $19.1 million in revenues from the Americas in the reported quarter compared to $2.7 million last year. Asia and others accounted for $19.6 million in revenues, compared to $10.8 million last year.

Overall net income was $1.5 million in the reported quarter, compared to a net loss of $15.6 million for the fourth quarter of 2009 and a net loss of $4.8 million for the first quarter of 2009.

Financial Condition

Canadian Solar reported cash and cash equivalents of $174.5 million at the end of the reported quarter, up from $160.1 million at fiscal-end 2009. Long term borrowings decreased to $27.8 million from $29.3 million at fiscal-end 2009.

Outlook

Canadian Solar expects margins to improve in the second half of 2010 due to its focus on vertical integration and improvements in processing costs. It is increasing its solar cell production capacity to 720 MW in the third quarter of 2010. The company reaffirmed its fiscal 2010 shipments guidance range of 600 MW – 700 MW.

Canadian Solar’s focus on increasing the conversion efficiency of its solar cells will lower processing costs and benefit gross margin.

Our Neutral recommendation on the stock indicates that it would perform in line with the broader market. In the near term we believe its Zacks #1 Rank (‘Strong Buy’) peers like Trina Solar Ltd. (TSL), LDK Solar Co. Ltd. (LDK) and China Sunergy Co. Ltd. (CSUN) are more promising compared to CSIQ, a Zacks #3 Rank (‘hold’).

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(CSIQ) Canadian Solar’s Quarterly Earnings A Penny Light

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(CSIQ) Canadian Solar’s Quarterly Earnings A Penny Light

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