Trina Solar Forecasts Brighter Future

(Trina Solar earnings story updated with additional commentary and closing stock prices.)

CHANGZHOU, China ( TheStreet) -- Trina Solar Limited ( TSL) beat quarterly earnings expectations and upped its forecast for solar shipment volume.

Trina Solar said early Tuesday it more than doubled quarterly profits and revenue in its second quarter on record shipment volume, and expects strengthening demand for photovoltaic products to extend into 2011.

"Trina had a good quarter," Wedbush Securities analyst Christine Hersey told TheStreet, commenting on the firm's increased shipment guidance for this year and capacity expansion outlook for next.

Hersey expects a 15% decline in prices next year, which could pressure the margins of some sector players. But she added that Trina will sell more units as well as reduce its costs.

" Trina is the low-cost leader" among sector peers with "the highest gross margin of all silicon module makers," Hersey said. "It has more room to withstand pricing pressure."

American depositary receipts of Trina Solar jumped 5.8% in trading Tuesday, easily outpacing the sector which closed the day mostly in negative territory. Suntech Power Holdings ( STP) and JinkoSolar Holding ( JKS), both also based in China, led the group lower, closing down 5.4% and 5.3%, respectively. Yingli Green Energy Holding ( YGE), another China-based solar company, closed off by 4.4%. First Solar ( FSLR), based in Tempe, Ariz., edged 0.9% lower.

In the second quarter, Trina Solar booked profits of $38.7 million, or 52 cents per American depositary share, compared with year-earlier earnings of $18.9 million, or 71 cents per ADS. Results topped expectations for earnings of 49 cents per ADS.

Net income for the Chinese manufacturer of solar photovoltaic products was negatively impacted by $29.2 million, or 37 cents per ADS, in foreign currency exchange losses. Currency-related losses were primarily due to the depreciation of the Euro against the U.S. dollar in the second quarter.

Revenue jumped 147.2% to $370.8 million, from $150 million, easily beating expectations for revenue of $338.7 million.

"Since top-line upside is par for the course, what was most impressive in our eyes was the gross margin of 32.1% (400 basis points above our expectation)," noted Raymond James analyst Pavel Molchanov. "With an equally strong demand outlook for the remainder of 2010 and, more importantly, improving visibility into 2011, we are raising estimates for both years."*

Solar module shipments were 222.8 megawatts (MW), an increase of 248.7% year-over-year, and higher than Trina Solar's guidance for solar module shipments between 200 and 205 megawatts.

Solar module shipments increased 15.7% sequentially from the first quarter, attributed to increased brand recognition in the U.S. and Australia, coupled with increased demand to install new solar power systems ahead of mid-year tariff adjustments in Germany.

CEO Jifan Gao said Trina Solar grew its business in Australia and Southeast Asia in the quarter, and also enjoyed "notable success in the United States." Trina Solar signed a "landmark agreement with Southern California Edison to participate in their California Solar Program, a milestone utility-owned PV generation project in the United States," he said.

For the current quarter, Trina Solar expects to ship between 250 MW and 260 MW of PV modules. Full year module shipments are expected in a range of 900 MW to 930 MW, compared with its prior guidance for 750 MW to 800 MW.

"Trina held its full-year guidance steady a quarter ago, but this time the market got the raise it was looking for," Molchanov added. The analyst reiterated his outperform rating on Trina Solar's shares and maintained a price target of $28.

Trina Solar also expects to increase its percentage of global shipments to the U.S. in the second half of the year.

Trina Solar achieved scale of 700 MW and 850 MW for ingot/wafer production capacity and PV cell and module capacity, respectively, in the second quarter, and expects to achieve scale of 1 gigawatt and 1.5 gigawatts, respectively, by the end of 2011.

Annualized cell and module production is expected to reach up to 950 MW by the end of August. In-house production capacities increased to 700 MW.

Most of the major solar module players have been active in diversifying into the large-scale solar project business, whether by acquisition or simply incremental module sales gains.

A report from Greentech Media last week cited Suntech Power as a potential bidder for privately held solar project developer Recurrent Energy, which has put itself up for sale. Also Last week, Trina Solar announced a deal with SunEdison, a subsidiary of MEMC Electronic Materials ( WFR), to supply 35 MW of modules in the back half of 2010. SunEdison was acquired by MEMC last year to get the solar wafer maker into the solar project management business.

>> Solar M&A Rumor Mill: Suntech, Recurrent

First Solar most recently acquired NextLight Renewable Power in July, raising its U.S. project pipeline to 2.2 gigawatts, which was sold by its private equity owner.

The report in Greentech Media regarding Recurrent putting up a "for sale" sign did not specifically say Suntech would be making a play for Recurrent. It simply listed Suntech, along with MEMC and SunPower ( SPWRA), as solar companies that have been increasing exposure to the solar project market.

--Written by Miriam Marcus Reimer in New York.

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