I'm going to put this very bluntly: How is LDK Solar (NYSE: LDK ) still in business? The company is drowning in debt, is losing money on everything it sells, and is seeing sales volume fall when competitors are starting to see improvement. Without the backing of the Chinese government there is no way this company would still be standing.
Yesterday LDK reported first-quarter earnings and there wasn't a lot to cheer about. Sales fell more than 50% from the fourth quarter to $200 million, gross loss was $131 million, and net loss was $177.2 million. Even after adjusting for $96.8 million in writedowns related to inventory and U.S. tariffs the company still had a -19.5% gross margin.
All of this is bad enough, but when you stack it on top of $3.4 billion in debt and only $136 million in cash there's real trouble ahead.
These results make solar bottom feeders Jinko Solar, Renesola (NYSE: SOL ) , and Hanwha SolarOne (Nasdaq: HSOL ) look like models of operational efficiency. These three had gross margins of 0.7%, -3.8%, and -9.4% respectively, even when including writedowns.
The future doesn't look bright
Management said the high production cost of polysilicon required a writedown, a red flag in my book. If your polysilicon production isn't cost-effective today, it won't be tomorrow, either. The cost structure for poly isn't going to decline precipitously overnight, it's going to have to be attained through improved equipment. In a conversation with GT Advanced Technologies' (Nasdaq: GTAT ) CEO, he said companies that can't upgrade equipment as technology improves and lower their cost structure as a result will be left in the dust. LDK Solar is one of those companies.
Considering the debt load and terrible financial performance of LDK Solar, I have to wonder why lenders keep handing this company money. Management said in the conference call that lenders were "committed to working with LDK to assure long-term support," so there's clearly someone who has faith in a turnaround. I'm not one of those people and would stay far away from this stock, instead going for much safer investments, like one our analysts call one of the best stocks in energy. Find out what it is in our free report found here.