Why Trina Solar Earnings Could Get Brighter This Quarter

Trina Solar (NYSE: TSL  ) will release its quarterly report on Tuesday, and investors who've followed the solar industry know how volatile stocks throughout the sector have been lately. Yet even with anticipated improvements in the bottom line, Trina Solar earnings are still likely to post big losses, raising the question of when the company will finally be able to earn a profit.

The solar industry has been plagued by overcapacity and a lack of pricing strength, and from its position as a Chinese solar company, Trina has squarely faced the challenges of high levels of competition. Still, some positive trends in the industry recently have made Trina and other stocks bounce, and further improvements in industry conditions could help the company even further in the future. Let's take an early look at what's been happening with Trina Solar over the past quarter and what we're likely to see in its quarterly report.

Stats on Trina Solar

Analyst EPS Estimate

($0.58)

Year-Ago EPS

($1.30)

Revenue Estimate

$364.95 million

Change From Year-Ago Revenue

5.5%

Earnings Beats in Past Four Quarters

0

Source: Yahoo! Finance.

Will Trina Solar earnings shine this quarter?
Analysts have had mixed views recently about Trina earnings, widening loss estimates for the June quarter by $0.02 per share but narrowing full-year 2013 loss projections by $0.08 per share and slash 2014 loss estimates by 30%. The stock has soared nearly 30% since mid-May.

The big problem in the solar industry is that there's a big gulf between companies that are profitable and those that aren't. Trina is squarely in the latter category, with gross margins that just barely make it into positive territory. Coming into this quarter, Trina and close peers Yingli Green Energy (NYSE: YGE  ) and Canadian Solar (NASDAQ: CSIQ  ) had all seen solar-module shipments fall significantly during the first quarter of 2013 compared to the previous quarter. With substantial amounts of debt, both Trina and Canadian Solar would need to see much higher gross margins in order to support their interest expense.

However, Trina appears to be ready to deliver with improved results this quarter. Just last week, the company gave updated guidance for the June quarter that included a massive 25% jump in expected solar shipments to 630-660 megawatts. That in turn is expected to produce 11%-12% gross margins, supporting the much narrower loss Trina should post this quarter.

Trina is poised to take advantage of some positive trends in the industry. The Chinese government said that it expects to install 35 gigawatts of solar capacity by 2015, and Trina will benefit by both making solar panels and participating in systems development. Moreover, with Europe and China having settled a trade dispute by imposing price floors on solar-panel sales, which could further boost Trina's gross margin -- albeit at the potential cost of lower sales if it can't demonstrate a competitive quality advantage over Canadian Solar, Yingli, and other industry players.

In the Trina earnings report, watch to see how the company fares in comparison to its closest peers. Both Canadian Solar and U.S. solar giant SunPower (NASDAQ: SPWR  ) have seen a big boost in sales to the Japanese solar market, helping their overall results. Trina needs to follow through on its own guidance in order to reassure investors it can weather the industry's dark times and come out shining.

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