What happened
Shares of solar manufacturer JA Solar Holdings Co., Ltd. (NASDAQ: JASO) fell as much as 14.7% in trading Wednesday after the company reported third-quarter earnings. At 1:05 p.m. EST, shares were still trading 13.9% lower on the day.
So what
Shipments of solar modules and cells were 1.64 GW with external shipments rising 30.6% year over year. Revenue was up 4.3% from a year ago to $652.6 million, and gross margin fell 4.3% to 11.8%. As a result of declining margins, net income fell from $6.6 million a year ago to just $6.3 million, or $0.13 per share.
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Revenue topped Wall Street expectations of $609.8 million, but the bottom line fell short of the $0.19 that analysts were expecting. When revenue tops expectations but net income falls short, you know there's a problem with the margins and operating costs of a business.
Now what
The third quarter should have been the perfect operating conditions for JA Solar with high demand for solar panels and strong pricing. But that didn't translate the the profitability investors were hoping for and doesn't bode well for the company's financials in 2018, when it looks like demand and pricing may soften, particularly in the U.S. The profitability concern is dire for JA Solar because the company has $780 million in debt and solar panel prices don't look like they're going to rise anytime soon. If the company can't make a profit now and pour the money back into better manufacturing equipment, it could be in trouble long-term.
