LDK Solar Co. Ltd. (NYSE: LDK): Third Quarter Earnings Preview 2009

(By Salman - iStockAnalyst Writer)LDK Solar Co. Ltd. (NYSE: LDK), a Chinese maker of parts for solar cells, is scheduled to release its third quarter financial results before the market open on Monday, November 23, 2009. Analysts currently expect the company to report a net loss of 10 cents per share on revenue of $277.20 million. In the year ago period, LDK Solar reported net earnings of 77 cents a share on revenue of $541.8 million.

LDK Solar Co. Ltd., through its subsidiaries, engages in the manufacture and sale of multicrystalline solar wafers to the manufacturers of solar cells and solar modules in the People's Republic of China and internationally.

The solar sector was hit hard by the severe turmoil in the credit market as financial players abandoned U.S. solar energy projects last year. 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 slash prices for their products.

In August, Xinyu City, China-based company reported a second-quarter loss as it wrote down the plummeting value of its inventory. LDK swung to a second quarter net loss of $216.9 million or $2.03 per ADS, compared to net income of $149.5 million or $1.29 per ADS, in the same quarter last year. Quarterly revenue plunged to $228.3 million from $441.7 million a year earlier. Analysts, on average, expected the company to report a loss of $0.91 per share on revenue of $236.09 million for the quarter.

Gross margin for the quarter was negative 90.0%, compared to 25.4% in the second quarter of fiscal 2008. Operating margin was negative 102.9%, compared to 22.7% in the comparable period a year ago. The average selling price per watt was $1.15, a decrease of $0.39 or approximately 25.3% from $1.54 in the prior quarter. During the quarter, LDK shipped 231.7 MW of wafers, up 20.9% year-over-year.

Globally, solar industry depends upon government subsidy programs and incentives to make solar power an economical alternative. However, recent developments suggest that subsidies will inevitably be reduced or phased out. In June, German legislators voted for steeper cuts to subsidized prices for electricity generated from solar panels. Last year the guaranteed price paid for solar-produced electricity was reduced by 5 percent. Some lawmakers had demanded a cut of as much as 30 percent in the subsidized rate. Spain too has taken similar steps. By geography, LDK revenue was 28.1% generated from China, 17.2% from Europe, 53.3% from Asia Pacific, excluding China and 1.4% from North America in the second quarter.

Late in October, LDK Solar lifted its third-quarter revenue estimate. The maker of solar wafers, the main raw material used to make solar cells, now expects its third-quarter revenue to be in the range of $270 million to $290 million compared with its prior forecast in of $240 million to $270 million. The company now anticipates third-quarter wafer shipments to be between 310 megawatts and 330 megawatts compared to its previous estimate of 260 megawatts to 300 megawatts and currently projects module shipments to be in the range of 5 megawatts to 10 megawatts compared with its previous range of 10 megawatts to 20 megawatts for the quarter.

Early in November, the company suffered a major setback after its Germany-based top customer Q-Cells announced that it is terminating its long-term supply agreement with the solar-wafer maker, saying that LDK didn't fulfill "significant contractual obligations." Q-Cells also said it may reclaim a $244.5 million payment it made to LDK in the beginning of 2008.  Under the supply agreement, LDK was to supply solar wafers to Q-Cells on the basis of contractually fixed amounts of polysilicon totaling 43,000 metric tons between 2009 and 2018.

The company recently completed the sale of a 15% ownership stake in its 15,000 metric ton or MT annualized capacity polysilicon plant in Xinyu City, China, to Jiangxi International Trust and Investment Co., Ltd. for RMB1.5 billion. The deal is expected to strengthen its financial position and increase its operating flexibility in the short term.

In terms of stock performance, LDK shares are down about 42% year to date. Shares of the company rose 33 cents or 4.27% to $8.06 in midday trade on Friday.

Disclosure: Author doesn't own any of the stocks discussed here.