How Does Trina Solar's Q2 Earnings Report Impact The Stock?

Sep. 3.14 | About: Trina Solar (TSL)

Summary

Trina Solar Limited’s reported EPS of $0.14 on revenue of $519.4 million during the second quarter.

As the shipments to China saw a rising trend, the average selling price for Trina Solar fell from 67 cents to 65 cents per watt.

For the third quarter the company is expecting a lower gross margin due to the increase in shipments to China.

Trina Solar Limited (NYSE:TSL) released its second quarter's earnings results on August 26th 2014. TSL dropped by 8 percent in early trading to $12.23 following the earning release. The earnings per share for the company were reported as $0.14 compared to the second quarter in the prior year where earnings per share came out to be $0.47. The revenue for the second quarter was stated to be $519.40 million. The revenue figure had shown an increase by 17.9% on a year over year basis. This rise was due to the increase of 69.1% in solar module shipments from 558 megawatts in the first quarter to 943.3 megawatts in the second quarter of fiscal year 2014.

The stock for TSL closed at $12.52 on August 29th 2014. A 52-week high for the company is $18.77 whereas a 52-week low for the company is $8.62. The market capitalization for Trina Solar Limited is of $985.4 million and the Price/Earnings Ratio for the company is 52.23. The 50-day moving average for the stock is $11.74 and a 200-day moving average is $12.86.

Chinese market and rising demand

As the shipments to China saw a rising trend, the average selling price for Trina Solar fell from 67 cents to 65 cents per watt. The demand in China rose especially for solar cells. The total shipments to china increased by 12% in the second quarter compared to the first quarter of fiscal year 2014. Therefore China comprises 34% of Trina Solar's shipments.

Guidance restatement while downstream projects boost

Trina Solar has stated that 30% to 35% of its total shipments will be to China in the third quarter of this year as the demand for the company's solar cells continues to remain strong in the Chinese market. For the third quarter the company has stated total shipments would lie between 1.06 gigawatts and 1.12 gigawatts. For the entire year 2014, it is expected that shipments would total 3.6 gigawatts to 3.8 gigawatts out of which 400-500 megawatts are expected to be utilized for downstream projects. This estimate suggests that the shipments for the fourth quarter of fiscal year 2014 would be flat and insignificant.

Click to enlarge

Source: Trina Solar

85% of the company's downstream projects for 2014 are in China. TSL has finished projects worth 24 megawatts during this year and still projects worth 310 megawatts are on their way to completion. Currently Trina Solar's pipelines are at 682 megawatts. TSL plans to continue with its projects in China and keep them on its balance sheet and it has also planned to sell many of the projects that it has developed in other countries.

Average selling prices weaken

The revenue estimate by the company for the second quarter was not achieved mostly due to the fall in average selling price and because of the lesser amount of shipments. Also for this quarter, the solar module maker did not identify any revenue generation from the projects.

For the second quarter Trina Solar Limited reported a gross margin figure of 15.4%, this was around the estimate of the guidance which was in the mid-teens. For the third quarter the company is expecting a lower gross margin due to the increase in shipments to China. The yearly gross margin is also expected to lie in the mid-teens.

Reviewing estimates

For the third quarter, Trina Solar Limited's revenue is expected to increase from $636 million to $665 million. The earnings per share are expected to be 11 cents per share. The whole year estimate for TSL revenue is dropped from $2.385 billion to $2.284 billion. For full fiscal year 2015 the revenue estimate has also increased from $2.611 billion to $2.652 billion. The earnings per share figure is expected to increase from 66 cents to 74 cents. And the share price for TSL stock is estimated to be $15 per share for the year.

Conclusion

The second quarter missed consensus estimates for revenues as solar module shipments were lower than the company's earlier guidance, and it also warned of lower gross profit margin in the third quarter. Trina Solar Limited has reiterated its guidance for the third quarter and stated that the total shipments are now expected to rise but potential shareholders cannot be sure of this statement as the company previously failed to achieve its estimate for the second quarter.

After the earnings report got public, Trina Solar Stock fell by 8.6% to a figure of $12.23. This was more than the stock's 50-day moving average mark of $11.6 but below the stock's 200-day moving average mark of $12.90.

Chinese solar company JinkoSolar (NYSE:JKS) declined by 1.5% after the earnings report was released whereas Yingli Green Energy (NYSE:YGE) rose by 4% after the results.

Therefore the second quarterly earnings report for 2014 led to a sudden dip in the stock price for Trina Solar but due to the company's strong position in the Chinese market and its success in the downstream business, the stock has gained momentum yet again and has reached a stable value.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.