STRI STR Holdings Inc (CE)

With the backdrop of an industry-wide glut, ReneSola Ltd. (SOL) in the third quarter of 2011 incurred an adjusted loss per American Depositary Share (ADS) of 25 cents, missing the Zacks Consensus Estimate of a loss of 18 cents. The quarterly loss also was way below the year-ago quarterly earnings of 70 cents.

Operational Results

In the reported quarter, ReneSola’s revenues fell 47.3% year over year to $189.1 million, short of the Zacks Consensus Estimate of $219 million. The decrease in revenues was driven by a decline in the average selling price (ASP) of solar wafers and modules.

ReneSola’s product shipments were 328.5 MW versus 324.9 MW (up 11.2%) in the year-ago quarter. In the reported quarter, solar wafer and module shipments were 294.8 MW and 33.7 MW, respectively.

The increase in solar product shipments was the result of increased solar wafer shipments due to strong overall demand for the company’s Virtus wafers. This was offset by a decrease in solar module shipments, which were influenced by relatively weak market demand and Europe’s challenging financing environment.

ReneSola digested a gross loss of $7.7 million, compared to a gross profit of $116.7 million in the year-ago quarter. The decrease was primarily due to the declines in solar wafer and module ASPs, as well as an inventory write-down of approximately $19.4 million to reflect the significant drop in prices for polysilicon, solar wafers and solar modules.

ReneSola’s operating expenses in the reported quarter fell to $26.8 million versus $30.3 million in the year-ago quarter. The operating expenses decreased primarily due to lower general and administrative expenses. Overall the company incurred a net loss of $8.2 million versus net income of $60.1 million in the year-ago quarter.

Financial Condition

ReneSola at the end of the reported quarter had cash and cash equivalents of $406.3 million, compared with $211.6 million at the end of the year-ago quarter. Total debt was $691.4 million, compared to $542.2 million at the end of the year-ago quarter. The company used $46.8 million from operating activities in the first nine months of 2011 versus $287.1 generated in the year-ago period.

Outlook

For the fourth 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 280 MW–300 MW, and revenues in the range of $140 million–$150 million. For fiscal 2011, the company expects total solar wafer and module shipments in the range of 1.23 GW–1.25 GW and revenues in the range of $935 million–$945 million.

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) and STR 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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