Module price slump weighs on Canadian Solar Q3 revenue

Having beaten shipment and revenue guidance in the second quarter (Q2) of the year, Chinese vertically integrated solar company Canadian Solar has posted a contraction in revenue and shipments for the third quarter (Q3).

Revenue of $657.3 million was 18.4% below Q2’s $805.9 million and some 22.7% less than the $849.8 million delivered in Q3 2015. This meant that Canadian Solar just failed to hit the bottom end of its guidance for Q3, which was $660 to $710 million, largely due to falling module, cell and wafer average selling prices (ASPs).

However, module shipments also came in below guidance, reaching just 1,185 MW, below the expected bracket of 1,200 to 1,300 MW. Shipments were also down sequentially from 1,290 MW in Q2, but year-on-year Q3 shipments were slightly higher, up from 1,150 MW in Q3 2015.

Canadian Solar’s downstream projects accounted for 16.3 MW of these shipments, which is a similar proportion to Q2 but vastly down on Q3 2015, when 110.5 MW of modules went to internal solar power projects.

Nevertheless, Canadian Solar was still able to post a Q3 gross profit of $117.3 million, which although both sequentially and annually lower (Q2: $138.5 million, Q3 2015: $126.8 million) helped to drive gross margin to a slight increase of 17.8% as the firm managed to reduce its operating expenses (down 8.7% to $90.3 million) and general and administrative expenses (down 13.8% to $51.7 million). These reductions were partially tempered by a slight increase in labor costs, but aided by reduced shipping and handling expenses and lower external sales commission.

Hence, despite lowered revenue and shipments, Canadian Solar was able to manage the potential disruption to its balance sheets caused by the macro impact of solar module, wafer and cell prices, said company CEO and chairman Shawn Qu.

"We achieved a gross margin of 17.8%, which was well above our guidance and reflects our strong inventory management and continued improvement in manufacturing efficiencies," said Qu. "During the quarter, we continued to develop our downstream energy business. At the end of the quarter, our late-stage solar project pipeline stood at 2 GWp and our portfolio of solar plants in operation totaled 948 MWp."

The CEO added that Canadian Solar hopes to sell additional power plans in Canada and China by Q1 next year, and is also in the process of preparing the sale process for some U.S. projects. "Developing and transferring will be an important strategy in our downstream energy business as it bolsters our balance sheet, reduces market risk and allows us to redeploy our capital."

Canadian Solar’s CFO Huifeng Chang added that improvements in inventory control and manufacturing efficiencies helped to offset the impact of further module ASP declines. These include work on restoring the firm’s Funing cell factory and the completion of two of ten production lines in the pipeline.

During Q3, Canadian Solar adjusted its year-end manufacturing capacity to 5.8 GW for module, 2.4 GW for cell and 1 GW for wafers – the latter of which will increase to 1.3 GW by April next year, largely in diamond wire-saw technology. Cell output, on the other hand, will end 2016 below guidance due to a delay in the construction of Canadian Solar’s 850 MW cell plant in Southeast Asia.

Looking ahead, Canadian Solar expects module shipments in Q4 to reach between 1.4 GW to 1.5 GW, with downstream projects receiving just 30 MW of those modules. Revenue will be in the range of $600 million to $750 million, with gross margin set to contract slightly to 11-16%.

For the full year, Canadian Solar’s guidance projects total module shipments to be in the range of 5.073 GW to 5.173 GW – which is below previous guidance of 5.4 GW to 5.5 GW, and revenue to also come in below previous guidance (down from $3 – $3.2 billion to $2.78 to $2.94 billion).

"We remain confident in our long-term outlook and in our proven ability to navigate through disruptive, lower visibility market environments," concluded Qu. "We expect to further benefit from our global brand and flexible capacity structure."