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Did Trina Solar Meet Analysts’ 2Q16 Earnings Estimates?

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Part 4
Did Trina Solar Meet Analysts’ 2Q16 Earnings Estimates? PART 4 OF 8

How Did Trina Solar’s Costs Affect Its Gross Margin in 2Q16?

Trina Solar’s gross margin

In 2Q16, Trina Solar (TSL) reported a gross profit of $176.3 million, compared to $139.7 million in 1Q16. On a YoY (year-over-year) basis, the company’s gross profit increased by nearly 21.7% from $144.9 million in the second quarter of 2015.

How Did Trina Solar’s Costs Affect Its Gross Margin in 2Q16?

How Did Trina Solar’s Costs Affect Its Gross Margin in 2Q16?

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Trina Solar’s gross margin for 2Q16 came in at 18.3%, beating analysts’ expectation of 17.1%. Trina Solar reported gross margins of 17.1% and 20.0% in 1Q16 and 2Q15, respectively.

According to the company’s filings, an increase in shipments to the United States from TSL’s Thailand manufacturing facility resulted in lower blended costs in 2Q16 due to a significant decrease in antidumping and countervailing duties. This, in turn, resulted in a higher gross margin on a quarter-over-quarter basis. However, the company’s gross margin decreased on a YoY basis primarily due to the faster rate of decline in module ASP (average selling price) compared to cost reductions.

Selling, general, and administrative expenses

Trina Solar’s selling expenses were $44.8 million in 2Q16, which represents a 6% increase from $42.4 million in 1Q16. Also, its selling expenses increased by nearly 3% on a YoY basis.

Meanwhile, its G&A (general and administrative) expenses came in at about $43.2 million in 2Q16—a 7% decrease from $46.4 million in 1Q16. However, G&A expenses increased by nearly 33% from $32.5 million in 2Q15.

Overall operating expenses

The company’s total operating expenses in 2Q16 were about $92.6 million, compared to $94.9 million in 1Q16 and $84.2 million in 2Q15. However, operating expenses came in at 9.6% of net revenues in 2Q16, compared to 11.6% of net revenues in both 1Q16 and 2Q15.

According to the company’s filings, the YoY decrease in operating expenses as a percentage of net revenues was mainly due to a decrease in shipping expenses, as the majority of shipments in 2Q16 were confined to China.

R&D (research and development) expenses are required for upstream solar (TAN) companies such as First Solar (FSLR), SunPower (SPWR), SunEdison (SUNEQ), Canadian Solar (CSIQ), and Trina Solar to remain competitive. Notably, Trina Solar increased its R&D expenditure by nearly 46% to about $11.7 million in 2Q16, compared to $8.0 million in 2Q15.

Next, let’s look at Trina Solar’s operating and net income for 2Q16.

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