Why Canadian Solar Plunged after 3Q Results?
Nov 14, 2019 by InvestorDestination Team
Investors’ enthusiasm for Canadian Solar Inc (NASDAQ: CSIQ) crashed after the company announced its 3rd quarter results on Tuesday. Its stock plunged more than 16%. In the third quarter, it generated 760M in revenue, which was lower than its guidance of $780 million to 810 million, and also lowered its full-year revenue guidance from $3.5 – 3.8 billion to $3.13 - $3.16 billion.
The company is blaming its lower revenue on project delays. Instead of closing certain projects in Q4 this year, the company expects to close them in next year Q1. It is still expecting 8.4 GW to 8.5 GW module shipments and doesn’t expect a drastic decline in ASPs.
| Q3 2019 | Q3 2018 | Growth | |
|---|---|---|---|
| Revenue (in millions) | $760 | $768 | (1%) |
| GAAP Net income (in millions) | $80 | $96 | (16%) |
| GAAP EPS (diluted) | $0.96 | $1.09 | (12%) |
Project delays are part of doing business. We are not overly concerned about that. In 2017, the company experienced project delays. As a result, in 2018, project sales accounted for 42% of its total revenue compared to 20% in 2017.
| 2016 | 2017 | 2018 | |
|---|---|---|---|
| Revenue (in millions) | $2,853 | $3,390 | $3,745 |
| EPS | $1.12 | $1.68 | $3.88 |
| Revenue from Modules Sales % | 96% | 80% | 58% |
| Revenue from Project Sales % | 4% | 20% | 42% |
| Module Production Capacity (Gw) | 6.17 | 8.11 | 8.88 |
| FCF (in millions) | ($565) | ($73) | ($100) |
| Debt to Asset | 51% | 46% | 39% |
The solar industry is cyclical, and every company is prone to that. The company is trying to protect its margin by limiting its exposure to lower-margin markets such as India and China. It is increasing its penetration in Japan, the US, Brazil, and Australia. However, in the last few years, the company has not generated positive free cash flow. Its debt to asset ratio is approximately 40%. Like many Chinese solar players, the company has more short-term debt on its balance sheet, and every year it takes new short–term debt. In the long-run, the company can be debt-free only if it can generate positive cash flow to pay off its debt.
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