Suntech Power Holdings Company Ltd. (STP) posted strong third quarter results of 16 cents, double the Zacks Consensus Earnings per American Depository Share (EPADS) estimate of 8 cents. However, the company fell short of the year-ago EPADS of 33 cents by 17 cents.
Suntech registered total net revenues of $473.1 million in the reported quarter, an increase of 47.4% from $321 million in the previous quarter. Operating expenses were $39.3 million compared to $38.6 million in the previous quarter. Operating expenses included a net $3.5 million reversal of bad debt provision. Income from operations was $44.8 million compared to $21.1 million in the prior quarter.
Gross margin for the core wafer to module business was 20% in the reported quarter, compared with 19.1% in the preceding quarter. Overall consolidated gross profit was $84.1 million and gross margin was 17.8% in the reported quarter compared to consolidated gross profit of $59.7 million and gross margin of 18.6% in the second quarter of 2009.
The lower gross margins were primarily due to the low profitability of the systems integration business in China that has been implementing some of the country’s first utility scale solar projects. Net interest expense was $23.5 million in the reported quarter compared to net interest expense of $24.3 million in the quarter before. Net interest expense includes $11.3 million non-cash expenses.
Foreign currency exchange gain was $10.5 million in the reported quarter compared to $17.5 million in the year-ago quarter. Foreign currency gain was primarily related to the appreciation of the euro versus the dollar in the quarter.
Suntech’s capital expenditures during the quarter were primarily for the construction of thin film production facilities in Shanghai and other infrastructure projects to support the expansion of capacity and totaled $25.4 million.
The company reported cash and cash equivalents of $655.7 million at the end of the first nine months of fiscal 2009 from $760.5 million at the end of the first six months of fiscal 2009. Long term bank borrowings stood at $136.3 million at the end of the first nine months of fiscal 2009 from $136.2 million at the end of the first six months of fiscal 2009.
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 more than 10% spike in shipments in the fourth quarter over the third quarter of fiscal 2009. Gross margin in the fourth quarter of 2009 is expected to be relatively flat compared to the preceding quarter.
Suntech has increased its full-year 2009 PV shipment target from 600MW to a range of 640MW−660MW. Capital expenditures are expected to be approximately $120 million for the full year 2009. For fiscal 2010, Suntech expects at least 75% shipment growth in 2010. The company targets to expand to 1.4GW of PV cell and module production capacity by the middle of 2010, of which 450MW will be Pluto technology-enabled.
Accordingly, Suntech expects capital expenditures to be approximately $200 million in 2010. We maintain our market Neutral recommendation on the shares.
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