Trina Solar (NYSE:TSL), one of China's largest solar companies, posted a strong set of Q1 2014 earnings on May 21, beating market expectations. The results were primarily driven by improved sales into high priced markets such as Japan and the United States, as well as better cost management. While quarterly revenues rose by around 71% to $445 million, net income came in at around $26.5 million, compared to a loss of about $64 million a year ago. (Trina Solar Q1 2014 Earnings Press Release, Trina Solar, May 2014) Here are some of the key takeaways from the company's results for the quarter.
We have a $18 price estimate for Trina Solar, which is about 40% ahead of the current market price. We will be updating our price estimate to account for the earnings release.
Higher Gross Margins
Trina's gross margins rose from around 1.7% a year ago to around 20.6%, driven by better pricing and lower costs. About 61% of the company's total quarterly shipments were to markets such as the United States and Japan, while just about 12% of shipments were to China.  This has had a positive impact on the company's average selling prices and revenues, since prices in Japan and the United States are comparably higher than in China. Additionally, margins were also aided by lower manufacturing costs, which decreased to around $0.53 per watt from around $0.54 per watt during Q4 2013.
Improving Projects Business
Like many other Tier-1 Chinese manufacturers, Trina Solar has been seeking to bolster its presence in the lucrative solar projects space. (see The State of The Chinese Solar Market). During the first quarter, the company made some progress on executing its large-scale Chinese projects, in addition to completing the sale of a 50 MW power plant in the Gansu province. Trina is also scaling up its downstream business overseas through partnerships. For instance, the company expects countries such as the United Kingdom and Japan to account for about 30% of its total downstream projects in 2014.  This is likely to be an important factor in driving the company's long-term earnings growth, since projects command better margins compared to the panels business.
Strong Q2 Guidance
For the second quarter, the company expects to ship 950 MW to 1,010 MW of modules, out of which around 150 MW to 170 MW of modules will find their way to the company's downstream solar projects. Gross margins, on the other hand, are expected to decline marginally to the "mid-teens" level due to the possibility of higher silicon costs. The company has reiterated its full year shipment guidance of 3.6 gigawatts (GW) to 3.8 GW, with between 400 MW and 500 MW of modules being shipped to the company's downstream solar projects.
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