Trina margin forecast sparks solar sell-off

LOS ANGELES Tue May 17, 2011 3:16pm EDT

LOS ANGELES (Reuters) - Chinese solar panel maker Trina Solar Ltd said profit margins in the current quarter would be hurt by a rise in global inventories, sending its shares to a five-month low and sparking a broad sell-off in solar stocks.

Trina, which also reported a lower-than-expected first-quarter profit on Tuesday, warned last week that shipments in the January-March period would miss previous estimates by 10 percent because of a cut in solar power subsidies in Italy, which has hampered demand and sent solar panel makers' inventories climbing.

On Tuesday, the company said that weakness would persist in the current quarter. On a conference call with analysts, Trina executives said second-quarter gross margins would slip to the low 20s on a percentage basis from 27.5 percent in the first quarter. Trina is one of the world's lowest-cost manufacturers of solar panels and had margins above 30 percent for all of 2010.

Solar companies are rapidly increasing their capacity to produce equipment despite fears that demand could slip this year as countries such as Italy cut solar power subsidies.

That is heightening competition in the sector and pushing prices for solar equipment down sharply as companies battle for customers and scramble to cut costs to keep up with falling prices on their products.

Trina shares were down nearly 10 percent in afternoon trade on the New York Stock Exchange. The news also pressured stocks of rival solar companies including LDK Solar Co Ltd, Yingli Green Energy Holding Co Ltd, Suntech Power Holdings Co Ltd, JA Solar Holdings Co Ltd and Hanwha Solarone Co Ltd.

"All of these companies are facing increasing pressure to find homes for their modules," said Mizuho Securities USA analyst Paul Clegg. "You don't do that for free."

Clegg has a "buy" rating on Trina shares.

Trina's first-quarter net income was $44.7 million, or 63 cents per share, compared with $44.5 million, or 66 cents per share, a year earlier.

That was far short of analysts' average forecast of $1.00 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 64 percent to $551 million as the company shipped 320 megawatts of modules, compared with an original forecast of more than 351 MW.

Operating expenses jumped 137 percent from a year ago to $66.8 million, and currency losses totaled $24.1 million.

Trina stood by its full-year forecast for shipments of 1,750 to 1,800 MW of solar modules, and said second-quarter shipments would rebound from the first quarter to between 430 MW to 450 MW.

Other solar companies, including JA Solar and First Solar, also expect sales to perk up in the second half of the year.

But one analyst warned there was more bad news to come as the industry gears up for its major trade show, Intersolar, in Germany next month.

"This is not going to be a one-month or a two-month or a one-quarter pause," said Susquehanna International analyst Mehdi Hosseini, who has a "sell" rating on Trina shares. "I expect similar disappointing data points to flow into the market."

Trina shares fell 9.9 percent to $22.34, their lowest level since early December.

(Additional reporting by Matt Daily in New York; Editing by Lisa Von Ahn, Gunna Dickson and John Wallace)

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