Suntech Power Holdings Company Ltd. (STP) posted strong fourth-quarter earnings of 27 cents, which far exceeded the Zacks Consensus Estimate per American Depository Share (EPADS) of 12 cents.
 
The upbeat trend, however, was not reflected in fiscal 2009 results where the EPADS of 53 cents fell short of the Zacks Consensus Estimate of 69 cents. However it comfortably beat fiscal 2008 EPADS of 20 cents.
 
Operational Results
 
Suntech registered total net revenue of $583.6 million in the reported quarter, compared to $473.1 million in the third quarter of fiscal 2009 and $414.4 million in the year-ago quarter. The upside came from higher shipments along with a boost in demand from Germany due to the expectation of a mid-year subsidy adjustment in Germany.
 
However, fiscal 2009 revenue of $1.7 billion was lower, compared to $1.9 billion in fiscal 2008. The decline was primarily due to the decrease in the average selling price of PV products.
 
Gross margin was 26.3% in the fourth quarter of fiscal 2009, compared with 20% in the third quarter of fiscal 2009. For the fourth quarter of 2009, consolidated gross profit was $138.7 million and gross margin was 23.8%, compared to consolidated gross profit of $84.1 million and gross margin of 17.8% in the third quarter of 2009.
 
The increase in gross margins was primarily due to a decrease in both the cost of silicon wafers and processing cost. Operating expenses for the fourth quarter of 2009 were $51.7 million compared to $39.3 million in the third quarter of 2009.
 
The increase in operating expenses was primarily due to an increase in selling expenses in line with revenue growth and an increase in R&D expenses due to continued investments in the company’s proprietary Pluto technology, process automation, and new technology development. Income from operations increased 95% to $87 million for the fourth quarter of 2009, compared to $44.8 million in the third quarter of 2009.
 
Financial Condition
 
Suntech reported cash, cash equivalents and short-term principal guaranteed investment of over $1 billion at fiscal-end 2009 from $855.7 million after the end of the third quarter of fiscal 2009. The increase was primarily due to positive cash flows from core business and stringent working capital management.
 
Suntech’s capital expenditures totaling $142.6 million during fiscal 2009 was primarily related to the construction of production facilities in Shanghai and other infrastructure projects to support expansion of capacity. The company at fiscal-end 2009 had outstanding long term bank borrowings of $138 million and convertible notes worth $516.9 million.                                
 
Outlook
 
Wuxi, China-based Suntech is a leading solar energy company in the world. The company designs, develops, manufactures and markets photovoltaic (PV) cells and modules. Looking forward, Suntech expects shipments to increase by 5% – 10% in the first quarter of fiscal 2010, compared to the fourth quarter of fiscal 2009.
 
Consolidated gross margin in the first quarter of fiscal 2010 is expected to be in the range of 18% – 20%. Suntech targets to ship more than 1.25 GW of PV products in fiscal 2010. The Zacks Consensus Estimate currently stands at 69 cents for fiscal 2010.
 
Suntech continues to target expansion to 1.4GW of PV cell and module production capacity by the middle of fiscal 2010, of which 450MW will be its proprietary Pluto technology-enabled. Capital expenditures are expected to be approximately $200 million in fiscal 2010.
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