Canadian Solar Misses Badly, Shares Sink

Aug.18.11 | About: Canadian Solar (CSIQ)

The headlines for Canadian Solar’s (NASDAQ:CSIQ) earnings report today focused on the big quarter over quarter growth, but the real story today was the fact the company missed analyst estimates by a wide margin on the EPS side, posting .16/share vs the estimate for .28/share. Revenues came in higher than expectations at $482 million. No doubt a strong quarter over the year ago quarter, but not what analysts were looking for, which is why the stock was off about 5% today.

This is a company that is still highly leveraged to the European market where it gets 77% of its revenue, so it’s understandable that EPS was off (the company is doing a better job of diversifying considering its European exposure was 86% in the year ago quarter). It’s been a common theme with the solar earnings reports this quarter – beating on revs, off on EPS - as average selling prices continue to decline. What did CEO Shawn Qu and CFO Michael Potter have to say about the quarter? Here are some highlights…

- We are confident we can continue to gain market share, based on continued strength in Germany, Italy, and the U.S., along with a rebound in Japan and the benefit of new regions, including India. (first time I’ve seen a CEO say this about Germany and Italy this quarter!)

- Seeing pickup in Canada in past month

- Successfully operating in challenging environment

- While company is cutting costs and benefiting from raw material price declines, declining ASP continue to cut into margins

- Moving towards more substantial cell and module vertical integration

- Expect to bring internal name plate cell capacity to 1.9 GW by early 2012

- Expect to start commercial shipment of our high-efficiency ELPS modules in the fourth quarter of 2011

For the third quarter of 2011, recognized shipments are expected to be in the range of approximately 350 MW to 360 MW, with gross margin expected to be between 9% and 12%. Internal cell and module capacities are expected to reach 1,300 MW and 2,000 MW, respectively, during the third quarter of 2011, with utilization levels at around 90%. The company remains on track to expand annualized module capacity to 2GW within a month. For the full year, the company is reiterating previous shipment guidance of 1.2 – 1.3GW.