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Canadian Solar Loss Widens, Revs Up

Zacks Equity Research

Canadian Solar Inc. (CSIQ) reported fourth quarter and fiscal 2011 results. In the fourth quarter of 2011, adjusted loss per share was $1.12 compared with the Zacks Consensus Estimate of a loss of 40 cents per share.

GAAP loss per share in the reported quarter was $1.39 compared with the year-ago loss per share of $1.02. The variance of 27 cents between pro forma and GAAP figures was due to a gain of 5 cents from the change in fair value of derivatives and a foreign exchange loss of 32 cents per share.

In 2011, the company reported a GAAP loss per share of $2.11 versus year-ago earnings of 1.16 per share.

Operational Performance

Canadian Solar generated revenues of $474.1 million in the fourth quarter, marginally beating the Zacks Consensus Estimate of $472 million. Revenues were also up 4.7% from $452.7 million in the fourth quarter of 2010.

In fiscal year 2011, the company reported revenue of $1.9 billion, up from our expectation by approximately $90 million. It also easily surpassed the year-ago figure of $1.5 billion.

Quarterly Highlights

Solar module shipments in the reported quarter totaled 436 MW compared with shipments of 237 MW in the fourth quarter of 2010. Total solar module shipments include 16.3 MW used in the company's total solutions business.

Revenues from the European market in the fourth quarter accounted for 46.5% of total sales, down from 70.9% in the year-ago quarter. In real terms, revenues from the European market were $220.5 million, down from $321.1 million in the year-ago quarter.

The company generated $127.3 million in revenues from America in the reported quarter compared with $46.8 million last year. Asia and others accounted for $126.3 million of revenues, compared with $84.8 million a year ago.

Gross profit for the fourth quarter of 2011 was $41.4 million, down 46.2% from $77 million in the fourth quarter of 2010. Gross margin was 8.7% compared with 17% in the fourth quarter of 2010. The significant year-over-year decline in gross profit and margin was mainly due to a substantial fall in average selling prices during 2011.

Total operating expenses were $62.9 million in the fourth quarter of 2011, compared with $34.9 million in the fourth quarter of 2010.

Likewise, selling expenses climbed 49% year over year to $21.1 million. The year-over-year increase in selling expenses was primarily due to increases in freight and other export-related expenses associated with higher shipment volumes. General and administrative expenses were $36.8 million in the fourth quarter of 2011, compared with $18.7 million in the fourth quarter of 2010.

Research and development (R&D) expenses were $5 million in fourth quarter of 2011, compared with $2.1 million in the fourth quarter of 2010. The year-over-year rise in R&D was due to increased investment in advanced solar technologies, improved cell conversion efficiency and the launch of new products.

Operating margin was (4.5%) in the fourth quarter of 2011, compared with 9.3% in the year-ago period due to lower gross profit exacerbated by higher operating expenses.

Financial Condition

Canadian Solar reported cash, cash equivalents and restricted cash of $344 million at the end of the reported period, up from $288.7 million at fiscal-end 2010. Long-term borrowings increased to $88.2 million from $69.5 million at fiscal-end 2010.


The company plans to prudently manage manufacturing utilization, inventory and mix levels, and operating expenses, as demand levels fluctuate. It also expects to continue to explore ways to increase manufacturing efficiency and lower processing and consumable costs where possible. It expects shipments to be in the range of 340MW to 350MW in the first quarter of 2012. Despite the challenging global financing environment that leads to customer demand uncertainty, the company expects to ship approximately 1,800 MW to 2,000 MW of solar products in fiscal 2012.

At the Peer

Recently, head-to head peer First Solar Inc. (FSLR) fell below the Zacks Consensus earnings per share estimate of $1.57 by 31 cents to clock adjusted earnings of only $1.26 in the fourth quarter of fiscal 2011. It also came in below the year-ago quarterly figure of $1.88.

Our Take

In spite of the overhangs rife in the solar module sector, Canadian Solar managed to record positive growth in the U.S., Europe, China and India in 2011. Moreover, its specialization at the downstream total solutions business fetches higher margins.

However, near-term fortunes are vulnerable to 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 high inventory level, we do not foresee any short-term improvement in the company’s margins.

The company presently retains a short-term Zacks #5 Rank (Strong Sell). We have a long-term Underperform recommendation on the stock.

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 operations in North America, Europe, Australia and Asia, Canadian Solar provides premium quality, cost-effective and environmentally-friendly solar solutions to support global, sustainable development.

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