Suntech Power Holdings Company Ltd. (STP - Analyst Report) posted a third quarter adjusted loss of 64 cents per American Depositary Share (ADS), falling behind the Zacks Consensus Estimate of 21 cents loss per ADS. Results also came in below the year-ago adjusted earnings of 18 cents per ADS.
Operational Results
Suntech registered total net revenues of $809.8 million, compared to $830.7 million in the second quarter of 2011 and $743.7 million in the third quarter of 2010. Revenues in the reported quarter also missed the Zacks Consensus Estimate of $772 million.
The sequential decline of revenues was primarily due to a decline in the average selling price of Photovoltaic (PV) products. This was partially offset by an increase in shipments. Total PV shipments increased 16% sequentially, and increased 36% year-over-year.
In the reported quarter, cost of revenues was $702.0 million, compared to $797.0 million in the second quarter of 2011 and $610.6 million in the third quarter of 2010. Cost of revenues in the third quarter of 2011 however, included an inventory provision of $20.2 million, compared to an inventory provision of $29.5 million in the second quarter.
In the reported quarter gross profit was $107.8 million and gross margin was 13.3% compared to $33.7 million and 4.1%, respectively, in the second quarter of 2011; and $133.1 million and 17.9%, respectively, in the third quarter of 2010. However, gross profit in the second quarter of 2011 was impacted by a $91.9 million write-off of the unamortized cost of warrants previously issued to MEMC Electronic Materials Inc. (WFR - Analyst Report) in conjunction with a supply agreement, which was terminated in the second quarter of 2011.
In the reported quarter operating expenses decreased to $123.8 million, which represented 15.3% of revenues, compared to $204.0 million, or 24.6% of revenues, in the second quarter of 2011, and $70.5 million, or 9.5% of revenues, in the third quarter of 2010.
Operating expenses in the reported quarter were affected by a $17.5 million provision for ongoing litigation with Q-Cells. Q-Cells alleged a breach of solar cell supply contract against Suntech Power. Overall net loss came in at $116.4 million versus a net gain of $33.1 million in the year-ago quarter.
Financial Condition
As of September 30, 2011, Suntech reported cash and cash equivalents of $458.4 million, compared with $946.2 million as of September 30, 2010. The company at the end of the reported quarter had outstanding long-term bank borrowings of $211.5 million and convertible notes worth $572.2 million.
Outlook
Wuxi, China-based Suntech is a leading solar energy company. The company designs, develops, manufactures and markets photovoltaic (PV) cells and modules. The company achieved 1.6 GW of silicon ingot and wafer capacity and 2.4 GW of cell and module capacity as of the end of the third quarter of 2011.
Looking forward, Suntech in the fourth quarter of 2011 expects PV shipments to decrease by about 20% compared with the sequential quarter. Suntech anticipates that gross margin would be in the range of 9% to 11% in the fourth quarter of 2011. For the fiscal year ending December 31, 2011, Suntech expects to ship at least 2GW of solar products and generate revenues of $3.0 billion to $3.1 billion.
In the near-term we assign a Zacks #3 Rank (short-term Hold recommendation) for the stock. Over the longer run, our Neutral recommendation on the stock indicates that it should perform in line with the broader market.