For Immediate Release
Chicago, IL – November 22, 2010 – Zacks.com Analyst Blog features: American Eagle Outfitters Inc. (AEO), Canadian Solar Inc. (CSIQ), STR Holdings Inc. (STRI), ReneSola Ltd. (SOL) and JA Solar Holdings Co. Ltd. (JASO).
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Here are highlights from Friday's Analyst Blog:
American Eagle Meets, Cuts Costs
American Eagle Outfitters Inc.'s (AEO) third-quarter 2010 adjusted earnings skipped to 29 cents per share from the year-ago earnings of 25 cents per share, but remained in line with the Zacks Consensus Estimate. The adjusted quarterly earnings excluded a loss of 12 cents per share on sale of investment securities.
During the quarter, American Eagle's net sales edged up 2.2% year over year to $752.0 million, slightly ahead of the Zacks Consensus Estimate of $751 million. Same-store sales reported a slight increase of 1.0%. In the reported quarter, the company opened five American Eagle ("AE") stores, three aerie and two 77kids stores, and remodeled six AE stores and one aerie store. The company closed 4 AE stores in the quarter.
American Eagle's gross profit increased 3.0% year over year to $312.0 million, while gross margin expanded 30 basis points (bps) to 41.6%. Merchandise margins recorded a growth of 90 basis points, attributable to higher sales during the back-to-school season.
Selling, general and administrative expenses, as a percentage of sales, fell 50 bps year over year to 24.6% due to the company's continuous effort to reduce expenses. Consequently, operating income increased a smart 7.1% year over year to $91.0 million, while operating margin expanded 70 bps to 12.2%.
American Eagle ended the quarter with cash and cash equivalents of $631.0 million, compared with $512.6 million in the year-ago period. Year to date, the company generated $146.4 million of cash from operations and received $177.5 million from sale of investments. The company also deployed $192.3 million of cash for share buybacks, $65.4 million toward capital expenditures and $30.0 million for debt repayment.
Canadian Solar Beats Estimates
Canadian Solar Inc. (CSIQ), boosted by higher demand for photovoltaic solar modules, reported an adjusted EPS of 47 cents in the third quarter of fiscal 2010, which beat the Zacks Consensus Estimate of 43 cents. The company's results, however, came short of the year-ago quarterly earnings of 69 cents.
Operational Performance
Canadian Solar had revenues of $377.2 million, beating the Zacks Consensus Estimate of $346 million. Revenues were also greater than $328.7 million in the second quarter of 2010 and $213.1 million in the third quarter of 2009. In the reported quarter, the company witnessed high shipment volumes and gross margins. Gross margin was 17.3% in the reported quarter compared to 13.6% in the second quarter of 2010. Increased vertical integration and improved non-silicon processing costs provided most of the gross margin improvement.
Shipments in the reported quarter rose to 200.4 MW, compared to shipments of 181.2 MW for the second quarter of 2010 and shipments of 102.6 MW in the year-ago quarter.
Canadian Solar's upside in quarterly sales came from its global markets, with Europe continuing to be its largest contributor. Revenues from the European market in the reported quarter accounted for 77% of total sales, down from 87.6% in the year-ago quarter.
However in real terms, revenues from the European market increased to $290.3 million from $186.6 million in the year-ago quarter. Canadian Solar has significantly increased its sales to the Asia-Pacific region and America as part of its market diversification strategy. The company generated $25.6 million in revenues from the Americas in the reported quarter compared to $12.9 million last year. Asia and others accounted for $61.3 million of revenues, compared to $13.6 million last year.
Overall net income was $20.3 million in the reported quarter, compared to $3.2 million in the second quarter of 2010 and a net income of $25.3 million in the third quarter of 2009.
Financial Condition
Canadian Solar reported cash and cash equivalents of $296.4 million at the end of the reported quarter, up from $160.1 million at fiscal-end 2009. Long term borrowings increased to $58.7 million from $29.3 million at fiscal-end 2009.
Outlook
Looking forward, Canadian Solar in the fourth quarter of 2010 expects shipments of approximately 220 MW–230 MW, with gross margins in the range of 17%–18%. For fiscal 2011 the company expects shipments of approximately 1,200 MW–1,300 MW. Canadian Solar's focus on hiking production capacity, product differentiation and corporate branding efforts, increasing the conversion efficiency of its solar cells will lower processing costs and benefit gross margin. Canadian Solar has already expanded its annualized internal cell capacity to 800 MW and by mid-2011 plans to expand capacity to 1,300 MW. Margins are expected to improve further in the range of 18%–19% in the first quarter of 2011 itself.
Our Neutral recommendation on the stock indicates that it would perform in line with the broader market. In the near term we believe its Zacks #1 Rank ('Strong Buy') peers like STR Holdings Inc. (STRI), ReneSola Ltd. (SOL) and JA Solar Holdings Co. Ltd. (JASO) are more promising compared to Canadian Solar, a Zacks #3 Rank ('Hold') stock.
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