Solar cell manufacturer Canadian Solar Inc. (CSIQ - Analyst Report) reported earnings of $1.75 per share, beating the Zacks Consensus Estimate by 52.2%. The reported number was considerably higher than 56 cents per share earned in the year-ago quarter.

The upside was driven by an increase in shipment volumes and higher revenues.

Total Revenue

Canadian Solar posted revenues of $914.4 million in the third quarter, beating the Zacks Consensus Estimate by 13.9%. Total revenues were 86.3% higher than $490.9 million reported in the prior-year quarter.

Canadian Solar generates a major part of its revenues from global operations. Geographically, in the third quarter of 2014, sales in the American markets comprised 71.7% of net revenues; sales in the Asian market and others comprised 20.9% while sales in the European markets represented 7.4% of net revenues.

Contributions from Asia declined significantly year over year as well as sequentially, while the American markets performed remarkably well over that period. Europe saw a downfall after gaining traction in the second quarter of 2014.

Operational Update

Solar module shipments in the reported quarter totaled 770 megawatts (MW), up 61.1% year over year and 19.2% sequentially. Shipments also exceeded the previous guidance range of 720 MW to 750 MW.

Gross profit in the third quarter was $209.3 million, much higher than the year-ago gross profit of $100.2 million and $118.2 million in the preceding quarter. The increase in gross profit was primarily due to more revenues coming in from the company's higher-margin total solutions business, lower module manufacturing cost, higher module average selling price (ASP) as well as higher module shipments.

Total operating expenses were $53.2 million in the quarter, up 18.4% year over year and 5.3% sequentially.

Although operating expenses saw a spike, Canadian Solar boosted its operating margin considerably by 580 basis points (bps) year over year and 620 bps sequentially.

Research and development expenses were $3.2 million in the third quarter of 2014, up from $3.0 million a year ago and $2.9 million in the last reported quarter.

Interest expenses declined significantly to $12 million from $12.8 million in the second quarter of 2014 on account of lower interest rates and lower bank borrowings.

Financial Update

As of Sep 30, 2014, cash and cash equivalents were $408.1 million, higher than $228.3 million as of Dec 31, 2013.

Long-term debt as of Sep 30, 2014, was $146.7 million, down from $151.4 million as of Dec 31, 2013.

Business Update

At the end of Oct 2014, Canadian Solar had numerous utility-scale solar projects totaling approximately 1.4 gigawatts (GW) DC in its basket. These projects comprise owned and joint-venture projects along with projects where the company provides engineering, procurement and construction (EPC) services.

Guidance

Canadian Solar expects shipments in the range of 810 MW to 860 MW in the fourth quarter of 2014. Total revenues are expected in the range of $925 million to $975 million with gross margin between 17% and 19% for the fourth quarter of 2014. The 2014 outlook takes into consideration project sales mix that the company expects to close in Canada and the appreciation of the U.S. dollar.

For 2014, the company expects shipments to be in the range of 2.73 GW to 2.78 GW from the previous guidance range of 2.5 GW to 2.7 GW. Further, it expects revenues to be in the range of $2.93 billion to $2.98 billion from the previous range of $2.7 billion to $2.9 billion.

Peer Comparison

SolarCity Corp. (SCTY - Snapshot Report) incurred a third-quarter 2014 loss of 75 cents per share narrower than the Zacks Consensus Estimate of a loss of $1.09.

First Solar Inc. (FSLR - Analyst Report) reported adjusted third-quarter 2014 earnings of 61 cents per share, missing the Zacks Consensus Estimate by 3 cents.

SunPower Corp. (SPWR - Analyst Report) reported third-quarter 2014 adjusted earnings per share of 30 cents, ahead of the Zacks Consensus Estimate by 7 cents.

Zacks Rank

The company presently holds a Zacks Rank #2 (Buy).

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