Can Yingli Green Energy Earnings Survive U.S. Tariffs?

On Tuesday, Yingli Green Energy (NYSE: YGE  ) will release its quarterly report, and investors remain nervous about the Chinese solar company's results. Even as Yingli has faced huge competition from its Chinese peers, recent U.S. tariffs have led major customer SolarCity (NASDAQ: SCTY  ) to make other supply arrangements and could give SunPower (NASDAQ: SPWR  ) and other tariff-compliant module producers competitive advantages over Yingli and other producers in China.

Yingli Green Energy has sent its shareholders on a roller-coaster ride lately as conditions continually change in the solar market. Even as some companies in the crowded Chinese solar market have started to default on outstanding loans, China's government has set ambitious targets for solar installation in the emerging-market nation, helping to bolster Yingli's prospects. Yet with trade concerns in various areas of the world, Yingli might not be able to fully benefit from the increase in global solar demand. Let's take an early look at what's been happening with Yingli Green Energy over the past quarter and what we're likely to see in its report.


Source: Yingli Green Energy.

Stats on Yingli Green Energy

Analyst EPS Estimate

($0.24)

Year-Ago EPS

($0.63)

Revenue Estimate

$464.04 million

Change From Year-Ago Revenue

7.6%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Can Yingli earnings ever recover?
In recent months, investors have cut their views on Yingli earnings, widening their first-quarter and full-year 2014 loss estimates by about half. The stock has suffered as well, falling 43% since mid-March.

Yingli Green Energy's fourth-quarter results disappointed investors and set the gloomy tone for the stock's performance this quarter. Revenue jumped 31%, but weakness in gross margins didn't produce as much operating income as Yingli needs to cover the payments on its extensive debt load. Even somewhat rosy guidance wasn't enough to inspire shareholders, and potential growth of as much as a full gigawatt of module production for 2015 isn't certain to raise gross margins enough to put Yingli into the black next year.

Source: Yingli Green Energy.

Later in the quarter, Yingli Green Energy reined in expectations for its first-quarter results, citing lower shipments due to delays in projects in both China and Algeria. China makes up more than half of Yingli's panel-shipment volume, which is higher than most of its major Chinese peers and gives Yingli geographical risk. Yet with higher-margin sales elsewhere, Yingli's net results could end up looking better from a profit and margin perspective.

Part of the challenge that Yingli faces is common to SunPower and other global producers as well. In Europe, for instance, falling subsidies are reducing demand for new panels, and that has cut Yingli's projections for its share of sales coming from Europe in half this year compared to 2013. SunPower has less exposure to Europe, though, and so the continent's troubles haven't affected its earnings nearly as much.

But the biggest concern for Yingli Green Energy lately was the decision from the U.S. earlier this month to impose new tariffs on Chinese producers. With Yingli facing tariffs of almost 27%, SunPower will get a huge competitive advantage, because it makes its solar products in Malaysia. Moreover, the tariffs inspired U.S. residential-solar installation specialist SolarCity to enter into a huge supply agreement with Norway's REC Group to provide between 100 and 240 megawatts of modules, citing "the availability of competitively priced, U.S. trade-compliant PV modules" as a contributing factor to the decision. That could take away business from Yingli and other Chinese manufacturers, at least until the tariff situation gets resolved.

In the Yingli earnings report, watch for company comments on the early impact of U.S. tariffs. In the long run, Yingli Green Energy can't afford any further hits to its margins, or else the company will never be able to reach consistent profitability.

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