Solar stocks moved mostly higher this week, bolstered by Trina Solar's (NYSE:TSL) earnings report and SunEdison's (NASDAQOTH:SUNEQ) plan to spin off its semiconductor business. Trina's results continue to show demand strength in the solar industry and improving margins as well. This week in solar, I'll cover what those results mean for the industry and cover other news and notes of importance.
Trina jumps on earnings news
Predictions of increased solar demand because of China and Japan are beginning to show up in financial performance, and Trina Solar was the beneficiary this week. Shipments were up a whopping 64.6% from the first quarter to 647 MW, and the company raised full-year shipment guidance to 2.3 GW-2.4 GW from a previous guidance of 2.0 GW-2.1 GW.
Trina is actually running over nameplate capacity, which is helping drive margins up. Gross margins hit 11.6% in the quarter, but the company still lost $33.7 million. Trina is facing the same challenge as other Chinese manufacturers, having to pay interest on more than $1 billion in loans. Margins need to increase to over 17% just to break even, something it's hoping to do later this year.
Yingli Green Energy (NYSE:YGE) reports next week, and after upgrading guidance a few weeks ago we should expect similar improvements as Trina reported. But don't expect a profit, because Yingli has $2.5 billion in debt, versus $1.1 billion at Trina. Balance sheets matter in solar, and high debt loads will keep these companies from the profit JinkoSolar reported in the second quarter.
SunEdison bets on solar
The other big mover this week was SunEdison, which announced that it's splitting off its semiconductor business via an IPO. The company will still hold a majority stake in the semiconductor business.
We still don't know what the IPO would be worth, but given the $3.6 million in operating income last quarter, it may not be much. Still, it will give SunEdison a chance to pay down debt and invest more capital in a growing solar systems business.
For investors, this turns SunEdison from a company generating most of its revenue in solar with a side semiconductor business to a company that's 100% focused on solar. That may make this an attractive value proposition, especially considering the desire to own downstream solar companies. But we don't know enough about the split to say whether it makes the company a great buy. We'll have to wait and see terms of the sale.
News and notes
Here are some other noteworthy items from the industry this week.
- First Solar (NASDAQ:FSLR) signed a 10-year power purchase agreement with the City of Roseville, Calif., to sell power from a 32 MW project being built in Kern County. This is the first PPA signed with a municipal utility, and the project will begin construction in early 2014.
- Renesola (NYSE:SOL) completed a 2 MW solar project in Jamestown, Calif., this week, a small but meaningful move in a growing U.S. market. The company reports earnings before the market opens next Friday, so we'll learn more about the company's progress here and internationally.
- SunPower has a new solar loan program with Community First Credit Union in Australia. Leasing has been the dominant financing plan for residential solar in the U.S., but it's conceivable that loans will grow both here and abroad as solar becomes less expensive to install. This may seem like a small development, but it may be significant as the industry explores new financing options. I detailed more of my thoughts here, and readers should look for more about solar loans in the future.
Fool contributor Travis Hoium manages an account that owns shares of SunPower. He also owns shares of SunPower and has long January 2015 $5, $7, $15, $25, and $40 calls on SunPower. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.