Canadian Solar Experiences Ups and Downs in Second Quarter of 2012

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Researched by Industrial Info Resources (Sugar Land, Texas)--Unfortunately, a sunny summer does not necessarily equate to a shining solar module market. On August 15, 2012, Canadian Solar Incorporated (NASDAQ:CSIQ) (Guelph, Ontario) announced its second-quarter financial earnings in a conference call. Overall, Canadian Solar seemed to experience more losses than gains in the second quarter. Dr. Shawn Qu, chairman and chief executive officer, and Michael Potter, senior vice president and chief financial officer, of Canadian Solar were the bearers of both good and bad news.

Although Canadian Solar a photovoltaic manufacturer, saw an increase in shipments from the first quarter to the second quarter of 2012, year-over-year (YoY) shipments were down significantly. Shipments of solar modules were 412 megawatts (MW) compared to 343 MW in the first quarter of 2012. (The company had projected that it would ship between 430 and 450 MW.) Looking forward, the company expects shipments to be between 390 MW and 420 MW; however, management did express concerns that this amount could be different than they project due to the unpredictable nature of the solar module market and the volatile conditions of the global macro economy.

Although Canadian experienced many losses YoY, Qu and Potter seemed to keep an optimistic tone during the conference call. They explained that the company did reach several development milestones and continues to expand its geographical footprint, despite the increase in operating expenses and the decrease in gross profit YoY. "We expect to gain further market share as we deliver reliable, high-performance PV [photovoltaic] solutions, and expand sales of our high efficiency ELPS modules in key solar markets," Qu said.

Industrial Info is tracking a total of 17 projects (which are worth $706 million) that Canadian Solar is involved in, including 14 projects are in Canada. Canadian Solar is currently working with SkyPower Limited on a project in Canada that has a total investment value of $69 million. The companies are in the planning and scheduling stages for a 11.5-MW grassroot solar photovoltaic power station. The project is expected to be completed by April 2013. The remaining projects that Industrial Info is tracking are located in the U.S. and the Philippines.

Canadian Solar recently announced that it signed a $93.8 million loan agreement with China Development Bank. The company will use this loan to partially finance the $186.6 million acquisition of a majority interest in 16 solar projects. These projects represent about 190 to 200 MW direct current.

The company's second-quarter financial earnings' results were positive and negative. Canadian Solar's net revenue rose slightly from the first quarter to the second by 6.6%, sequentially. It was $348.2 million in the second quarter of 2012, after being $325.8 million in the first; however, YoY, net revenues fell 27%. Net losses slid in the second quarter of 2012 from $21.3 million ($-0.49 per diluted share) in the first quarter of 2012. Overall, net losses for the first half of the year was $46.9 million. This was quite a change from the company's 2011 second-quarter net income, which was about $7 million.

Canadian Solar, which has a majority of its productions in China, experienced gains in gross margins from the first quarter of 2012 to the second. Gross margins were 12.4% in the second quarter, after being 7.7 % in the first. Executives from Canadian Solar mentioned that the increase in gross profits can be attributed to the increase in revenue that came from a higher shipment volume for the quarter. Potter also attributed the increase in gross profit to an adjustment of $14 million, which came because of the recognition of benefits from the company's warranty insurance. Although gross profit rose from the first quarter to the second, it was not nearly as high as it was in the second quarter of 2011. The 2012 second-quarter amount was 3.2 million, while the 2013 second-quarter amount was 63.7 million.

Potter explained that gross profits had a YoY decline because of decreased selling prices and higher shipping prices per unit. He also mentioned that the decline in gross profits was partially offset by lower manufacturing costs and higher shipment volumes. As of June 2012, Canadian's Solar had $692.1 million in cash, cash equivalents and restricted cash. In March 2012, the company had $625.2 million.

Since first-quarter 2012, the solar market has been gaining momentum in Europe and declining in North America. In the second quarter, solar sales to the European market represented 69.4% of the company's net revenue. In the first quarter of 2012, this amount was only 42.6%. Canadian Solar's sales to North America represented 15.7% of net revenue in the second quarter after being 45.1% in the first quarter. In the second quarter of 2011, sales to North America accounted for 73% of the net revenue. The executives did not comment on why there has been such a huge decrease of sales to the North America compared to 2011 and from the first quarter of 2012. Currently, sales to Asia and all other markets represent 14.9% of the company's net revenue.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.