A Tale of Two Forecasts: Solar Picture Turns Cloudy

What were once clear skies for the first quarter are now turning grey for Trina and Yingli.

Apr 15, 2014 at 2:03PM


Source: Yingli Green Energy

The weather isn't the only difficult thing to forecast. Providing lower guidance for the first quarter, Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE) apparently also have difficulty reading the tea leaves. JA Solar (NASDAQ:JASO) likewise updated its outlook recently, however unlike Trina and Yingli, JA Solar raised its guidance for the first quarter.

It was the worst of times...
Estimating solar module shipments to be in the range of 540 MW to 570 MW, Trina attributes its downward revision to a temporary delay in shipments to the European Union due to uncertainty regarding a new minimum import price. Once resolved, Trina believes that the shipments will resume. The company had previously guided for shipments between 670 MW and 700 MW, including 20 MW to 30 MW for its downstream projects. Although the shipments for the first quarter are expected to be lower, management reiterated its guidance of annual shipments to be between 3.6 GW and 3.8 GW.

Yingli is also looking at lower than expected shipments for the first quarter. Originally, the company had expected shipments to drop around 25% from its Q4 2013 levels. According to management, "soft demand in China" and a delay in shipments to projects in Algeria is resulting in a revised estimate of a drop a little over 30%. The company does not believe that the delay will impact the previously stated annual guidance of 4.0 GW to 4.2 GW of PV shipments.

Margin of safety
Despite the downward revisions in shipments for the first quarter, both Trina and Yingli have positively revised their expected gross margins for the quarter. Originally, Trina had guided for its gross margin to be in the mid-teens. The company revised this estimate, and it now believes that the gross margin will be between 18% and 20%. Management revised the estimate due to increased average selling prices of its modules and from the sale of the company's 50 MW, Wuwei project. If the company meets its guidance, this would be impressive improvement over the 1.7% gross margin from the first quarter in 2013; it would also show quarter-over-quarter improvement over the company's 15.1% from the fourth quarter.

Previously, Yingli had guided for its gross margin to be in the range of 14% to 16%, but, like Trina, due to increased average selling prices for its modules, the company's new expectation is for its gross margin to fall between 15.5% and 16.5%. Should management be right, this would be significant improvement both quarter over quarter and year over year. In Q1 2013, Yingli's gross margin was 4.1%, and in Q4 2013 it was 12.2%.

It was the best of times...
JA Solar is not so pessimistic about its first quarter results. Its new guidance for shipments of its modules exceeds the previous guidance. Originally, the company expected shipments of 580 MW to 610 MW, but it now believes that the shipments will be closer to 620 MW. The guidance for annual shipments remains unchanged at 2.7 GW to 2.9 GW.


Source: JA Solar

Although it did not provide specific guidance regarding its gross margin, in its press release management said that it expects sequential gross margin improvement in the first quarter of 2014 -- the company's gross margin for the fourth quarter was 15.5%.

JA Solar's unaffected guidance for first-quarter shipments reflects the company's efforts to reduce its operations in Europe. Yingli, like Trina, counted on Europe for 30% of its sales in 2013; JA Solar only counted on it for 15%. Most Chinese solar companies have been attempting to diversify globally, reducing their exposure to Europe, where margins have been squeezed as the solar market there matures.

Foolish final thoughts
Long-term investors are not scared off by quarter to quarter fluctuations. For these folks, minor adjustments to guidance are more entertaining than cause for concern, and this case is no different. Reiterating guidance for the full year, management of all three companies have not provided any information that should sway investors considering investment in these companies. 

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