Suntech Power Holdings Company Ltd. (STP) posted lower first quarter results of 11 cents, compared to the Zacks Consensus Estimate per American Depositary Share (EPADS) of 15 cents.
Operational Results
Suntech registered total net revenues of $588.0 million, an increase of 0.8% from $583.6 million in the fourth quarter of 2009 and an increase of 86.3% from $315.7 million in the first quarter of 2009. Total photovoltaic (PV) products shipment increased 11% over the fourth quarter of 2009 and 182% year-over-year.
In the reported quarter, Suntech’s consolidated gross profit was $114.5 million and gross margin was 19.5%, compared to consolidated gross profit of $138.7 million and gross margin of 23.8% in the fourth quarter of 2009. The sequential gross margin decline was primarily due to a lower average sales price as a result of the substantial depreciation of the Euro versus the U.S. Dollar.
Operating expenses decreased to $51 million compared to $51.7 million in the fourth quarter of 2009. Income from operations was $63.5 million compared to $87.0 million in the fourth quarter of 2009.
Suntech digested foreign currency exchange losses of $24.5 million in the reported quarter compared to $13.2 million in the fourth quarter of 2009. The foreign currency losses in the reported quarter were primarily related to the substantial depreciation of the Euro versus the US Dollar. Net income was $20.7 million compared to net income of $44.0 million in the fourth quarter of 2009.
Financial Condition
Suntech reported Cash and cash equivalents of over $677.2 million at first quarter-end 2010 compared to $833.2 million at fiscal-end 2009. The decrease was primarily due to an additional investment made into Global Solar Fund (GSF), its repurchase of its 0.25% Convertible Senior Notes due 2012, and sequential increases in restricted cash, accounts receivable and inventory.
GSF is an investment fund created by the company to make investments in private companies that own or develop projects in the solar energy sector. Suntech’s capital expenditure — totaling $72.4 million during the reported quarter — primarily relates to the addition of new production equipment.
The company at the end of the reported quarter had outstanding long-term bank borrowings of $132.4 million and convertible notes worth $524.2 million.
Outlook
Wuxi, China-based Suntech is a leading global solar energy company. The company designs, develops, manufactures and markets photovoltaic (PV) cells and modules. Looking forward, Suntech expects shipments to experience single-digit percentage growth in the second quarter of fiscal 2010 compared to the first quarter of fiscal 2010.
Consolidated gross margin in the second quarter of fiscal 2010 is expected to be in high teens or in the range of 17% – 19%. The Zacks Consensus EPADS estimate currently stands at 21 cents for the second quarter of 2010.
Due to strong demand, Suntech has increased its fiscal 2010 shipment target from 1.25 GW to more than 1.3 GW, which is 85% higher than 2009 shipments. The company is on track to expand its PV cell production capacity to 1.4 GW by the end of the second quarter 2010, of which 450 MW will be the company’s internally developed Pluto technology enabled. To achieve 1.4 GW capacity, Suntech expects to incur capital expenditures of approximately $200 million.
Suntech Power is one of the largest producers of PV solar modules, with a geographically-diversified customer base. Positive factors include ongoing expansion programs, higher conversion efficiency through its Pluto technology-enabled modules, subsidy program in China and improving operating efficiencies. However, apprehensions over the tepid module demand in Europe, rising competition and financial stability of its customers overshadow the positives.
Our Neutral recommendation on the stock indicates that it would perform in line with the broader market. In the near term, we believe its peers like Real Goods Solar Inc. (RSOL), China Sunergy Co. Ltd. (CSUN) and ReneSola Ltd. (SOL) are more promising compared to the Zacks #3 Rank (Hold) Suntech Power stock.
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