Tuesday, May 4, 2010

Evergreen Solar Inc. (NASDAQ: ESLR): Q1 Earnings Preview

Evergreen Solar Inc. (NASDAQ: ESLR) is scheduled to release its first-quarter financial results after the closing bell on Tuesday, May 4, 2010. Analysts, on average, currently expect the company to report a loss of 8 cents a share on revenue of $74.61 million. In the year ago quarter, the company posted a loss of 40 cents per share on revenue of $55.81 million.

Evergreen Solar, Inc. engages in the development, manufacture, and marketing of solar power products primarily in the United States and Europe. It utilizes its proprietary String Ribbon technology process to produce multi-crystalline silicon wafers by growing thin strips of multi-crystalline silicon that are then cut into wafers.

The solar industry has undergone significant changes in the past few years. The industry suffered heavily during recession as turmoil in the credit market forced financial players to abandon U.S. solar energy projects. The 2008 collapse of top solar financier Lehman Brothers and the freeze-up in the global credit markets drove nearly all banks to halt funding for major new solar projects, forcing the makers of systems that turn sunlight into electricity to cut prices for their products and sending their stocks crashing. The problems of solar companies had been further compounded by an oversupply of polysilicon, a material used in solar panels. Moreover heightened competition from Chinese solar companies too has impacted the US solar industry.

In the preceding fourth quarter, the Marlborough, Massachusetts based-company posted a loss of $98.14 million or $0.48 per share, in comparison with a loss of $53.82 million or $0.33 per share in the previous year quarter. Quarterly total revenues rose to $74.55 million from $44.19 million in the same quarter a year-ago. Analysts, on average, expected the company to report a loss of $0.09 a share on revenue of $74 million for the quarter.

Last month, the company said that shipments for the first quarter of 2010 increased to a new company record of approximately 35.4 megawatts. Revenues for the quarter were approximately $78.5 million and average selling price was approximately $2.20 per watt. Manufacturing costs were about $2.05 per watt, which is consistent with the fourth quarter of 2009. The average selling price in the first quarter declined about 4 percent to $2.20 per watt, mostly due to the stronger US dollar. Evergreen said its manufacturing costs were $2.05 per watt, flat with the fourth quarter.

The company expects production and sales to increase to between 37 to 38 megawatts for the second quarter of 2010.

Richard M Feldt, Chairman, CEO and President of Evergreen, said in April that the company's progress in Wuhan, China is on schedule and it expects to begin production in mid 2010. "I am particularly pleased to report that we produced our first wafers from Quad furnaces initially being used for training purposes, which were installed in Wuhan in mid-March,” Feldt said.

Globally, solar industry depends upon government subsidies and incentives and support to remain competitive. However, recent developments suggest that subsidies will inevitably be reduced or phased out. Evergreen Solar sells bulk of its panels in key European markets like Germany and Spain, where generous federal subsidies ensured high electricity rates for solar energy system. In Germany, Solar subsidies for rooftop-installed solar power will see a one-off cut of 16 percent from July, while most open-field installations will be cut by 15 percent.Support for farmland solar systems is to be scrapped completely, according to media reports.

However, the industry as a whole is likely to benefit from growing attention to global warming, skyrocketing oil prices, cheap financing and technological advances. At the Copenhagen Summit held in December 2009, the five major polluters of the world agreed to take action to reduce CO2 aggressively, with $100B per year pledged to help developing nations adopt green energy technology to cut greenhouse gas. Meanwhile, the US, China, Brazil and India continue to invest heavily in wind and solar energy with China's $454B in the next 5 year period as the most aggressive one. As part of the stimulus bill signed last year, the federal government approved around $60 billion in loan guarantee authority and $30 billion in energy grants for renewable energy and transmission companies. Congress has also granted a 30% renewable-investment tax credit to help expand the development of alternative sources of energy. As of February this year, the industry had gotten Treasury grants worth $81 million. That grant program is scheduled to end Dec. 31. The industry is still hoping that Congress will approve further policies to aid solar.

In terms of stock performance, Evergreen Solar shares have lost almost 47 percent over the past year.

Full Disclosure: None.

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