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MEMC Electronic (WFR) reported first quarter net sales of $501.4 million versus fourth quarter 2007 net sales of $535.9 million and first quarter 2007 net sales of $440.4 million. Non-GAAP diluted EPS, excluding warrants, was $0.84 per share, compared to the consensus analyst estimate of $0.85.

As previously disclosed, the impact associated with the accelerated chemical deposit buildups at the company’s Pasadena, Texas polysilicon manufacturing facility was the primary factor contributing to the sequential reduction in volumes, revenue and gross margin.

The problems in Pasadena continued after yesterday’s report. “The company reported that at approximately 4:20 PM this afternoon a transfer line from a transport vehicle developed a leak and caused a release of STF, a raw material gas used in the manufacturing process. The leak was quickly contained by the on-site emergency response team and the flow of material was stopped. At this time the company does not believe there was any offsite impact from the release due to the quick dissipation of the material in the atmosphere. Approximately 18 people were transported to area hospitals for further evaluation and/or treatment.”

During the first quarter, the company generated operating cash flow of $197.2 million, compared to $238.5 million in the 2007 fourth quarter. Capital expenditures for the first quarter totaled $81.9 million, or 16.3% of sales. The resulting lower trailing 12-month free cash flow yield curbs my enthusiasm for WFR shares.

“Although we are pleased with the results of the actions we have taken to address the issues that caused the lower than targeted polysilicon volume in the first quarter, given the unplanned issues that were encountered with our expected polysilicon ramp in the first quarter, we feel it is prudent to be extra cautious regarding our polysilicon output expectations in the second quarter. As a result, we are targeting revenues of approximately $540 to $570 million for the second quarter. In addition, we are targeting gross margin of approximately 54%-55%, with operating expenses of less than $40 million,” added Gareeb. The consensus sales estimate for next quarter was $566 million.

The stock is looking to open down today, but I think if it can maintain above its 200-day moving average it will signal that investors continue to view the disruptions as temporary. Below the 200-day moving average, I’d say all bets are off.

Disclosure: At time of publication, William Trent holds no financial position in the companies mentioned in this article.

Source: MEMC Electronic’s Problems Continue with Latest Earnings