Margin Collapse at Trina Solar

Trina Solar Ltd. (NYSE: TSL) reported a second quarter net loss of $1.30 per ADS on $346.1 million in sales before markets opened this morning. In the same period a year ago, the solar-power products manufacturer reported earnings of $0.17 per ADS on revenue of $579.46 million. Second-quarter results compare to the Thomson Reuters consensus estimates for a loss of $0.79 per ADS and $398.62 million in revenue. One ADS is equal to 50 shares of common stock.

The company’s chairman and CEO said:

Industry overcapacity and demand constraints in newer and traditional PV markets contributed to deflationary pricing pressures in the second quarter, which adversely affected our operating margins and profitability. Market demand challenges included uncertainty caused by changes in the system of feed-in-tariffs in markets such as Italy, the influence of potential anti-dumping tariffs in the United States, inventories due to project delays from U.S. customers that made purchases under the U.S. federal government’s 1603 Program and project start-up delays by certain of our customers in China due to revised network planning and related bid award delays and financing limitations.”

In its outlook statement, Trina lowered its estimates on module shipments both for the third quarter and for the full fiscal year. The company now says it expects to ship 450 to 480 megawatts of solar PV products in the third quarter and 1,750-1,800 megawatts for the full year. The full-year estimate has been lowered from 2,000 to 2,100 megawatts.

As with other solar makers, margins at Trina have been pounded. Operating margin fell to a negative 22.7%, more than double the negative margin in the first quarter and about four times the negative margin a year ago. Net margin was even worse: a negative 26.6% in the second quarter, down sequentially from negative 8.5%. In the second quarter of 2011, the company’s net margin was a positive 11%.

Trina appears to be banking on domestic projects to carry it through:

The Company has entered into framework agreements with local municipal governments in China to develop multi-year power plant projects commencing in late 2012 and 2013. Commencement of the projects is conditional upon a number of factors, some of which are beyond the Company’s control, such as the availability of network transmission and interconnection facilities, project rights assignment, and investments in land or local manufacturing facilities.

Notice the caveats. Not encouraging.

Trina’s shares were up 0.2% in after-hours trading at $4.86. The current 52-week range is $4.12 to $16.78. Thomson Reuters had a consensus analyst price target of $7.32 before today’s results were announced.

Paul Ausick