Canadian Solar earnings slip 63% sequentially in Q1, beats expectations for quarter

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Canadian Solar, a tier-1 Chinese solar company, has posted a 63% decline in earnings in the first quarter of 2016 when compared to the previous quarter.

The first three months of the year generated net income of $22.6 million, or $0.39 per diluted share, compared to the $62.3 million ($1.05 per diluted share) achieved in Q4 2015. This performance beat Q1 guidance, but saw net revenue slip from 30.7% in Q4 2015 to just 6.3% in Q1 2016.

Total revenue reached $721.4 million, which was above the guidance range for the quarter of $645 million to $695 million, but 35.6% down on Q4 2015, when revenue topped $1.12 billion. Canadian Solar CEO and chairman Shawn Qu remarked that "robust demand" in the company’s solar module business helped the company post revenue above guidance, but stressed that the quarter’s results did not include the benefit of any solar project sales achieved in its downstream activities.

"In the future we will continue our balanced approach of project retention and project sales to maximize both flexibility and valuation, as well as to balance our cash flow," Qu said.

Module shipments reached 1,198 MW for the quarter, of which 1,172 MW were recognized in the revenue figure (the remainder being used for Canadian Solar’s project activities). This was down on the 1.4 GW of recognized shipments in Q4 2015, but above guidance figures (which ranged from 1,085 MW to 1,135 MW).

Operating margin slips

The Americas accounted for 43.1% of Canadian Solar’s net revenue, while Asia continued to be the company’s dominant market, responsible for 44.4% of revenue. European sales continued to slide, however, accounting for just 12.5% of revenue – in Q1 2015 that figure was 18.4%.

The company managed to bring its total operating expenses down 22.1% quarter-over-quarter to $74.1 million. However, income from operations hit just $38.4 million, whereas in Q4 2015 it topped $105 million. Canadian Solar’s operating margin, therefore, was 5.3%, compared to 9.4% in Q4 2015 and 9.1% in Q1 2015.

At the end of the first quarter, Canadian Solar’s cash balance stood at $1 billion, a slight reduction on Q4 2015 when it was $1.1 billion, but the company expects a strong pick up throughout the year, raising its revenue guidance for 2016 from $2.9-3.1 billion to $3.0-3.2 billion.

In the downstream sector, Canadian Solar energized 39.4 MWp of solar capacity in the U.K. to take its project portfolio to 437.5 MWp of operational power plants – a segment of the business that is worth an estimated $950 million in resale value, contributing 20%+ gross margins.

"The company does plan to sell some of these assets in the second half of this year, at the same time as we bring additional solar power plants into operation," revealed Qu.

Outgoing Canadian Solar SVP and CFO Michael G. Potter added that a combination of lower-than-expected costs due to strong execution in its factories, and a favorable country mix, meant that the company was able to deliver gross margins "substantially above our expectations".

Potter explained that the downstream sector continues strong, "with on schedule progress for construction in the U.S., Japan and the U.K.". Canadian Solar’s utility-scale PV pipeline stands at 13.5 GWp of projects, including 2.1 GW in late-stage development and 11.4 GW in early-to-mid-stage development, albeit not all is likely to secure required grid connection approvals, the company warned. Potter has been replaced in the roles of SVP and CFO by Huifeng Chang, the company confirmed today.

Manufacturing expansions

To meet these targets as well as wider global demand, Canadian Solar is increasing its manufacturing capacity, aiming for 1 GW of wafer (up from 400 MW), 3.9 GW of cell (up from 2.7 GW) and 6.43 GW of module (up from 4.3 GW) production capacity be year’s end.

Wafer capacity will be expanded at the company’s Luoyang plant in China, while 700 MW of new cell manufacturing capacity is expected to be commissioned at a new fab located in South East Asia by the second half of 2016.

For modules, in addition to capacity expansions at Canadian Solar’s domestic fabs, new and existing locations outside of China will also take up the slack. By the end of 2016 the company will have module production capacity of 500 MW in Canada, 300 MW in Vietnam, 30 MW in Indonesia, 300 MW in Brazil and 600 MW in South East Asia (exact location undisclosed).

"Our efforts to upgrade our technology and to improve our cost structure through selected capacity expansion are on track, and we expect to end 2016 with 3.9 GW of internal cell capacity, including 700 MW in a tariff-free location in South East Asia," said Qu.