STRI STR Holdings Inc (CE)

In the backdrop of European solar subsidy cuts ReneSola Ltd. (SOL) in the second quarter of 2011 clocked adjusted Earnings Per American Depositary Share (EPADS) of 5 cents per share, falling short of the Zacks Consensus Estimate of 15 cents and the year-ago quarterly earnings of 42 cents.

Receding subsidies have affected demand and created an oversupply in the industry. As a result, wafer and module prices have undergone a big crash. On a reported basis the company posted earnings of 2 cents per share versus 42 cents in the year-ago quarter.

Operational Results

In the reported quarter, ReneSola’s revenues fell 30.6% year over year to $249.3 million, short of the Zacks Consensus Estimate of $272 million. The decrease in revenues was driven by a decline in the average selling price (ASP) of solar wafers and modules, as well as decrease in shipments.

ReneSola’s product shipments were 295.5 MW versus 330.4 MW (down 10.6%) in the sequential quarter. In the reported quarter, solar wafer and module shipments were 230.5 MW and 65.0 MW, respectively. Wafer shipments were also affected by the transition toward Virtus wafer production.

ReneSola scored a gross profit of $45.9 million and a gross profit margin of 18.4%, compared to $101.2 million and 28.2% in the first quarter of 2011. The sequential decrease in gross margin was primarily due to the decline in solar wafer and module ASPs and the transition toward Virtus wafer production. This was partially offset by a decline in polysilicon prices.

ReneSola’s operating expenses in the reported quarter fell to $22.9 million versus $25.6 million in the first quarter of 2011. The operating expenses decreased primarily due to lower general and administrative expenses as a result of overall expense control and lower R&D spending.

Operating margins represented 9.2% of total revenues in the reported quarter, a decrease from 21.0% in the sequential quarter. Overall the company clocked a net income of $1.8 million versus $43.3 million in the year-ago quarter.

Financial Condition

ReneSola at the end of the reported quarter had cash and cash equivalents of $480.8 million, compared with $435.9 million at the end of the sequential quarter. Total debt was $560.7 million, compared to $522.8 million at the end of the first quarter of 2011. The company generated $12.1 million from operating activities in the first half of 2011 versus $168.4 generated in the year-ago period.

Outlook

For the third quarter of 2011 ReneSola being apprehensive about margin woes owing to the supply glut in the market expects total solar wafer and module shipments to be in the range of 330 MW–350 MW, revenues to be in the range of $220 million–$240 million and gross profit margin to be between 6%–8%.

In the near-term we retain a short-term Zacks #5 Rank on the stock, which translates into a Strong Sell rating. This is in line with its peers like JA Solar Holdings Co. Ltd (JASO) andSTR Holdings Inc. (STRI).

Over the longer term, however, we maintain our Neutral rating on the stock. Our bullishness stems from ReneSola’s geographically-diversified customer base, ongoing expansion programs, improving operating efficiencies, and material cost savings through its vertically-integrated production structure.

 
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