September 2, 2010 / 10:51 AM / 8 years ago

UPDATE 2-Canadian Solar Q2 profit lags, shares fall

* Q2 shr $0.07 vs est of $0.15

* Revenue nearly triples to $328.7 million

* Higher expenses offset jump in shipments

* Co sees higher Q3 shipments, margins growing

* Shares fall 2.2 pct (Adds details, CEO, analyst comments, share price)

By Matt Daily

NEW YORK, Sept 2 (Reuters) - Canadian Solar Inc (CSIQ.O) reported a lower-than-expected quarterly profit, as higher costs offset a jump in shipments.

But the Chinese solar company said on Thursday that its profit margins would rise, as it produced more of its own solar equipment.

Net income for the second quarter was $3.2 million, or 7 cents per share, compared with a profit of $17.7 million, or 49 cents per share, last year, trailing the analysts’ average forecast of 15 cents per share, according to Thomson Reuters I/B/E/S.

Weakness in the euro versus the U.S. dollar cost the company $9 million in the quarter.

Total operating expenses nearly tripled to $27.6 million, and revenue jumped to $328.7 million from $114.2 million. Revenue beat the average of analysts’ forecasts of $305.7 million.

The company, like others in the sector, has benefited from surging demand for renewable energy systems in Europe, where it sold more than 86 percent of its solar modules.

But it buys many of the wafers and cells that are used in its solar modules from other companies, and rising prices for those parts have kept its gross profit margins at about half the level of some of its peers, which produce their own.

Canadian Solar has been working to boost its own manufacturing, and its cell output in the quarter totaled 110 megawatts (MW). That figure was expected to climb to 127 MW in the third quarter and 180 MW in the fourth quarter.

“They’re making steps in the right direction,” said Mark Bachman, analyst with investment firm Auriga in New York. “But they’re clearly at the mercy of their suppliers.”

The company, which is currently being investigated by the U.S. Securities and Exchange Commission for its accounting practices, did not disclose more details of the probe. It has previously said its own investigation showed its practices were in line with U.S. regulations.

The company said module shipments nearly quadrupled to 181.2 MW in the second quarter, topping the 173 to 177 MW it had forecast two weeks ago.

Those shipment levels are forecast to rise to 190 MW to 200 MW in the third quarter. It also backed its full-year shipment forecast of 700 MW to 800 MW.

The strong demand for solar systems was pushing higher prices for wafers and the polysilicon that is used to make them, Chief Executive Shawn Qu said.

Spot market prices for polysilicon, the material that turns sunlight into electricity, have risen above $70 per kilogram from the mid-$50s a few months ago.

“The market is not stable right now,” Qu said during a conference call. “The demand situation is very strong, but the supply situation is not so stable ... but I do see that (our) gross margin will continue to increase.”

The company expects its gross margins to rise to between 14.5 percent to 15.5 percent in the third quarter, up from about 13.6 percent in the second quarter.

Shares of the company fell 2.2 percent to $11.93 per share on the NASDAQ, bringing their year-to-date decline to 58.5 percent. (Additional reporting by Adveith Nair in Bangalore; Editing by Jarshad Kakkrakandy and Ilaina Jonas)

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