Yingli Green Energy (YGE) reported third quarter earnings in the last week of November, and I can only describe them as “mixed”.
Revenues were $551 million, below consensus estimates of $655 million.
Module shipments of 903.4 megawatts squeaked in above the low end of the company's 900-1000MW guidance.
Margins, though, came in much higher than expected at 20.9%, versus guidance of 15-17%.
Full-year guidance was reduced by 400MW to 3.3-3.35GW. That means Yingli will likely be dethroned as the world's solar module volume production leader. Full-year margins were also guided back to 15-17%.
It paints a bad picture. The stock has been pushed down more than 20% since the release and now sits at $2.17.
But a few things were lost in the shuffle, and the bottom line is chief among them.
Cost-Cutting Keeps the Bottom Line Solid
While Yingli missed on the top line, it surprised to the upside on the bottom line. Estimates were for a $0.13 per share loss. The number came in at $0.10.
Also lost was why margins were so much higher than the same quarter in 2013 (20.9% vs. 13.7%). The answer is cost cutting.
Yingli produced panels at $0.48 per watt last quarter. That's only a single penny more than JinkoSolar ($JKS) , the low-cost leader. Because of those low costs, Yingli reported an operating income of $32.5 million – the first time it's done that since the second quarter of 2011.
But it's still hurt by its debt, which it mounted in an effort for growth. It has a total liability of $4.2 billion. And the company is now tackling that. On the conference call, management indicated it's willing to walk away from low and negative original equipment manufacturer revenues and reduced shipment guidance. That wasn't an easy decision, given it meant giving up Yingli's position as volume leader.
That's now two quarters in a row of cost cutting and operational improvements. And costs should fall further. Yingli is cash-flow positive in spite of massive debt. It will be profitable if it can increase average selling prices by a few cents.
I think Yingli remains a decent long-term speculative bet, especially given what's in store for solar stocks in 2015.
