American Superconductor (AMSC) announced its first-quarter fiscal 2010 operating earnings of 28 cents per share, which surpassed the Zacks Consensus Estimate of 15 cents and is over 2x its year-ago earnings of 12 cents per share.

The GAAP earnings of the company during the quarter were 20 cents per share versus 4 cents per share reported in the first quarter of fiscal 2009. Operating net income of American Superconductor at the end of the first quarter of fiscal 2010 was $13 million, versus GAAP net income of $9.2 million.

The difference between the GAAP and operating earnings during the reported quarter was due to the impact of a few one-time items: a loss of $0.4 million for amortization of acquisition-related intangibles, payment of stock-based compensation expenses of $3.5 million and a benefit of $0.1 million due to tax effects.

Total Revenue

American Superconductor’s total revenue of $97.2 million in the reported quarter was 33% above $73.0 million in the year-ago period. Reported revenue in the quarter was also higher than the Zacks Consensus Estimate of $93 million by $4.2 million. This growth was primarily driven by higher contribution from its Power Systems segment, which was partially offset by lower contribution from Superconductors segment.

Operational Update

Cost of goods sold as a percentage of revenue in the first-quarter fiscal 2010 was 60%, down substantially from 69% reported in the year-ago quarter. This relative decline in input costs was reflected in the company’s gross profit growth.

Selling, general and operating (SG&A) expenses of the company increased sequentially as well as on a year-over-year basis. The increase was driven by head count and payroll increases, attributable to company expansion.

Operating income at the end of the first quarter was $16.1 million versus $6.4 million a year ago, which reflects a whopping growth of 151.6%. The increase was driven by a more favorable product mix and foreign exchange effects.

American Superconductor reported a backlog as of June 30, 2010, of $952 million compared with $588 million as of March 31, 2010. This company received a multi-year order worth US$445 million from Sinovel Wind Group Co. Ltd., which primarily drove the sequential spike.

Financial Update

Cash and cash equivalents at the end of June 30, 2010, were $64.9 million versus $66.8 million at the end of June 30, 2009.

Cash used in operating activities at first-quarter fiscal 2010 end was $18.5 million versus $14.1 million at the end of the first quarter of fiscal 2009.

Guidance

American Superconductor increased the revenue forecast for fiscal 2010 to a range of $420–$430 million from a prior range of $415–$425 million.

The company raised its GAAP net income forecast to the range of $39.5 million to $42.0 million from $37.5 million to $40.0 million. Earnings per diluted share are now expected in the range of 85 cents to 90 cents, up from the previous expectation of 80 cents to 85 cents.

The company also boosted its non-GAAP net income forecast range to $56.0–$58.5 million from $54.0–$56.5 million previously. Consequently, the earnings per share guidance for fiscal 2010 increased to $1.20–$1.25 from $1.15–$1.20 earlier.

Our Take

The revision in the guidance for fiscal 2010 reflects the positive impact of the consistent performance of the company. We believe American Superconductor is also managing its financial position well and plans to fund its capital expenditure for fiscal 2010 — in the $40 million to $50 million range — from the cash generated from operations.

We also appreciate the initiative taken by the company to explore new markets to continue with its growth trajectory. The company has entered into an agreement with Sinovel, in China, which will ensure a steady flow of income. The company is also in talks with Korea’s Hyundai Heavy Industries, which can likely prove to be a tailwind.

We have a short-term Zacks #3 Rank, which translates into a Hold recommendation on the stock.

Devens, Massachusetts-based American Superconductor provides megawatt-scale wind turbine designs and electrical control systems. It operates through two segments: AMSC Power Systems and AMSC Superconductors.
 
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