(SOL) ReneSola Loss Higher than Expected

ReneSola Ltd. (SOL) in the second quarter of 2012 reported adjusted loss per American Depositary Share (ADS) of 40 cents per share, missing the Zacks Consensus Estimate of 34 cents of loss per ADS. Numbers also were way short of the year-ago quarterly earnings of 5 cents per share.

Operational Results

In the reported quarter, ReneSola’s revenues of $233 million fell 6.5% from $249.3 million in the year-ago quarter and rose 10.2% from $211.5 million in the sequentially preceding quarter. The sequential rise was due to higher module shipments. Reported quarterly revenue was also higher then the Zacks Consensus Estimate of $204 million.

Total solar product shipments in the second quarter of 2012 were 503.7 megawatts, an increase of 8.1% from 466 megawatts in the first quarter of 2012. In the reported quarter, module shipments rose over 75% quarter over quarter largely due to strong demand from Europe, particularly from Germany, as well as demand from Australia. Wafer shipments decreased 8.3% as a result of a strong demand for modules leading to more in-house use.

Average Selling Prices continued to decline in the second quarter with module ASPs dropping to 0.75 per watt and wafer ASPs dropping to $0.31 per watt in the second quarter compared to $0.84 per watt and $0.33 per watt, respectively, in the first quarter.
Gross margin for the quarter was reduced to 0.6% from 18.4% in the year-ago period.

Overall, ReneSola recorded a net loss of $34.8 million compared with a net income of $1.8 million in the year-ago quarter.

Financial Condition

As of June 30, 2012, ReneSola had cash and cash equivalents plus restricted cash of $394.1 million, compared with $388.3 million at the end of the first quarter of 2012. Total debt was $932.9 million, compared with $912.4 million at the end of the first quarter of 2012. Short-term borrowings were $691.1 million, an increase from $662.2 million at the end of the first quarter of 2012.

Guidance

ReneSola, for the third quarter of 2012, expects total solar wafer and module shipments to be in the range of 510 MW–530 MW. Of this module shipments are expected to be in the range of 150 MW–170 MW. Revenue for the third quarter is expected to be in the range of $200 million to $220 million.

For the full year 2012, the company’s outlook is unchanged, with total solar wafer and module shipments expected to be in the range of 2.2 GW–2.4 GW.

Our Take

Based out of China, ReneSola is a leading global manufacturer of solar wafers and producer of solar power products. Capitalizing on proprietary technologies, economies of scale, high production quality, technological innovations and know-how, and its in-house virgin polysilicon and solar cell and module production capabilities, ReneSola provides its customers with solar wafer products and processing services. The company possesses a global network of suppliers and customers.

ReneSola in the second quarter of 2012 developed high-efficiency second generation Virtus II wafers which utilize new in-house proprietary Virtus A++ manufacturing process, alleviating the need for any crystalline seeds. The Virtus II modules’ use of the Virtus A++ manufacturing process produces high-efficiency Virtus A++ wafers with lower light-induced degradation and lower processing cost. Current processing cost is close to $12 cents per watt, which the company expects to further improve to 11 cents per watt by year-end 2012. ReneSola in the second quarter of 2012 also developed a microinverter, Replus, which can be used with its modules for power conversion in solar systems.

ReneSola to meet higher demand increased its module production capacity to 1.2 GW during the second quarter of 2012. In the reported quarter, the company’s total module selling cost was approximately 66 cents per watt. The company expects total manufacturing cost to decrease to below 63 cents per watt for the ongoing quarter.

However, ReneSola’s fortunes have been impacted by the industry-wide oversupply glut leading to sharply falling Average Selling Prices, tepid module demand in Europe, and rising competition in the market. Given the industry-wide high inventory level, we advise investors not to take any position in the short-term Zacks #4 Rank (Sell) stock ReneSola. Over the longer run we maintain our Neutral recommendation on the stock.

In the near term we would advise investors to focus on its Zacks #2 Rank (Buy) peer First Solar Inc. (FSLR).
Read the full analyst report on “FSLR”
Read the full analyst report on “SOL”
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