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Canadian Solar Posts Weak 4Q

Zacks Equity Research

Before markets opened today, Canadian Solar Inc. (CSIQ) reported fourth quarter and full year 2012 results. In the fourth quarter of 2012, adjusted loss per share was $1.01 per share compared with the Zacks Consensus Estimate of a loss of 83 cents per share.

In the fourth quarter of 2012, GAAP loss per share was $2.43 per share compared with the year-ago loss per share figure of $1.39. The variance of $1.42 was due to bad debt allowances of 72 cents and accruals for an arbitration charge of 70 cents.

For full year 2012 the company digested an adjusted loss of $3.04 per share versus loss of $1.68 in the year-ago period. However this was better than the Zacks Consensus Estimate of $3.07 per share loss. In 2012, the company reported a GAAP loss per share of $4.53 versus the year-ago loss of $2.11 per share.

Operational Performance

In the reported quarter, Canadian Solar had revenues of $294.8 million, marginally missing the Zacks Consensus Estimate of $296 million. Revenues were also up down from $474.1 million in the fourth quarter of 2011.

In full year 2012, the company reported revenue of $1.3 billion in-line with the Zacks Consensus Estimate. However this came in below the year-ago figure of $1.9 billion.

Quarterly Highlights

Total solar module shipments in the fourth quarter of 2012 were 404 MW, compared to 384 MW in the third quarter of 2012 and 436 MW in the fourth quarter of 2011.  Total solar module shipments in the fourth quarter of 2012 included 15.7 MW in the company's total solutions business, compared to 21.1 MW in the third quarter of 2012 and 16.3 MW in the fourth quarter of 2011.

Revenues from the European market in the fourth quarter accounted for 40.6% of total sales, down from 46.5% in the year-ago quarter. Also, in real terms, revenues from the European market increased to $119.7 million down from $220.5 million in the year-ago quarter.

The company generated $58.8 million in revenues from America in the reported quarter compared with $127.3 million last year. Asia and others accounted for $116.3 million of revenues, compared with $126.3 million a year ago.

Gross profit in the fourth quarter of 2012 was $14.9 million, compared to $7.3 million in the third quarter of 2012 and $41.4 million in the fourth quarter of 2011. The sequential quarterly increase in gross profit was primarily due to higher shipment volume and a continued reduction in manufacturing costs. The year-over-year decline in gross profit was primarily due to a lower average selling price. This was partially offset by lower manufacturing costs.

Total operating expenses were $106.4 million in the fourth quarter of 2012, compared to $41.8 million in the third quarter of 2012 and $62.9 million in the fourth quarter of 2011.

Selling expenses were $25.0 million in the fourth quarter of 2012, up 16.8% from $21.4 million in the third quarter of 2012 and up 18.4% from $21.1 million in the fourth quarter of 2011. The sequential increase in selling expenses was primarily due to higher shipment volume. The year-over-year increase in selling expenses was due to increases in transportation unit costs.

Research and development (R&D) expenses were $5.0 million in the fourth quarter of 2012, down 7.5% from $3.4 million in the third quarter of 2012 and down 37.6% from $5.0 million in the fourth quarter of 2011. The year-over-year decline in research and development expenses was due to the successful completion of several key research and development projects at the end of 2011.

Net loss attributable to Canadian Solar in the fourth quarter of 2012 was $105.0 million compared to net loss of $43.7 million in the third quarter 2012 and net loss of $59.9 million in the fourth quarter of 2011.

Financial Condition

Canadian Solar reported cash, cash equivalents and restricted cash of $564.3 million at the end of the reported period, up from $522.3 million at full year-end 2011. Long term borrowings increased to $214.6 million from $88.2 million at full year-end 2011.

Guidance

For the first quarter of 2013, the company expects photovoltaic module shipments to be in the range of approximately 290MW to 310MW, with gross margin expected to be between 8.0% and 10.0%.

For the full year 2013, the company expects photovoltaic module shipments to be in the range of approximately 1.6GW to 1.8GW, including modules used in total solutions business.

Our Take

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.

Canadian Solar 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 currently has a Zacks Rank #3 (Hold).

Also, the current macro scenario does not bode well for the solar industry, which thrives mainly on subsidies and grants. As a result, solar operators like First Solar Inc. (FSLR), JinkoSolar Holding Co., Ltd. (JKS), and LDK Solar Co., Ltd. (LDK), all hold a Zacks Rank #3 (Hold).

Read the Full Research Report on CSIQ

Read the Full Research Report on FSLR

Read the Full Research Report on LDK

Read the Full Research Report on JKS

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