Chinesesolarmanufacturer Trina Solar watched shares plummet more than 20 percent Wednesday after posting a third-quarter profit that wasn't up to snuff. The company blamed some of its hardship on a tight silicon supply that has plagued the solar industry.
Net income jumped 86.8 percent to $7.2 million, or 28 cents per share, from $3.9 million a year earlier. Because Trina Solar went public in December, it didn't have earnings-per-share figures for the third quarter of 2006.
Revenue also jumped to $82.6 million from $32.4 million last year, beating analyst expectations of $80.8 million.
Although revenue beat expectations, Trina Solar's earnings, which analysts expected to reach 34 cents per share, left Wall Street disappointed.
The company blamed low sales prices for solar panels and high costs for silicon for weakening profit margins that lowered earnings.
The story has become common in the solar industry, which is in the midst of a silicon shortage that has squeezed company margins, especially for new entrants (see Could China Steal the Solar Throne?, Silicon Shortage Has Big Impact, Silicon Starvation, Panelists Debate When the Silicon Shortage Will End).
Wall Street unleashed its frustration by sending company shares down $11.51 per share to close at $37.37 per share Wednesday.
Rick Hanna, an equity analyst for Morningstar, thinks investors have several motives.
"I can't imagine missed earnings are the only reason for a big sell off," he said.
For one, Trina Solar is rapidly expanding, but -- during the third-quarter conference call with analysts -- failed to share details about how it plans to finance the building of a silicon-production plant that its board already approved.
Hanna estimates the plant will cost about $400 million to $500 million to build, which means the company will need an injection of capital from the equity markets or from long-term debt financing.
Although debt financing appears to be a better fit for the company, Hanna said, the company will have to pursue the backing in the wake of the credit-industry turmoil that has rocked the markets.
Perhaps the failure to share details made investors feel there were too many unknowns, and Wall Street doesn't like surprises, he said.
Hanna said investors also could have inflated growth expectations that were reinforced earlier this month, when thin-film solar manufacturer First Solar (NSDQ: FSLR) posted dazzling third-quarter earnings (see Thin-Film Solar Production to Leap Forward, Thin-Film Solar Gets Another Boost).
Trina Solar wouldn't be the first company suggested to fall prey to such a comparison. Earlier this month, JA Solar (NSDQ: JASO) took a 21.64-percent nosedive, despite posting a third-quarter profit that beat analyst expectations and raising its full-year revenue forecast (see JA Solar Gets No Reward From Investors).
A side note to Trina Solar's quarterly report was a mention of changes to come in the amount of silicon the company has in storage.
The company said its silicon stock includes reclaimable silicon that might not be usable and that might have to be removed from its books.
The extra effort to showcase such detail is no doubt in reaction to the scrutiny that befell LDK (NYSE: LDK) after a former employee raised allegations of discrepancies in the company's silicon inventory (see LDK Says SEC Is Inquiring Into Inventory Discrepancy Allegations, New Details Surface as LDK's Stock Continues to Plunge).
But Hanna doesn't think the inventory issue is a huge red flag for Trina Solar. He said the note implies the company will have to write down $500,000 out of $50 million of inventory.