This Could Be LDK Solar’s Last Chance to Shine

Next Tuesday, LDK Solar (NYSE: LDK) will release its latest quarterly results. Lately, investors have had to wonder whether the Chinese solar company will be able to continue operating, as LDK is one of many solar companies in the emerging-market nation going through a cash crunch due to large losses.

LDK Solar isn’t the only Chinese solar company having to deal with a dearth of cash and extensive debt, but its negative margins have produced huge losses that are clearly unsustainable in the long run. If LDK can emerge as a survivor in the coming shakeout in the industry, then it might have a chance to reach profitability if the resulting contraction in supply pushes prices higher. Let’s take an early look at what’s been happening with LDK Solar over the past quarter and what we’re likely to see in its quarterly report.

Stats on LDK Solar

Source: Yahoo! Finance.

Can LDK Solar’s earnings have a turn in the sun this quarter?
Analysts have no optimism about LDK’s earnings prospects, having widened their loss estimates for the March quarter by about 10% and adding 15% to their loss projections for the full 2013 year. The stock has oscillated wildly, with a drop of about 11% since early March.

The big news on the financial front for LDK Solar came in April, when the company partially defaulted on bonds that came due. The company managed to arrange a settlement with holders of about 70% of the outstanding debt issue, but given that the amount due is less than 1% of the total amount of debt LDK has on its balance sheet, it’s hard to see how LDK can survive without a huge long-term transformation for the company.

Even worse for LDK Solar, European tariffs could exact a huge price that LDK will have to pay. With LDK and Trina Solar (NYSE: TSL) both potentially having to pay 50%-60% in tariffs, the European move would give U.S. manufacturers First Solar (NASDAQ: FSLR) and SunPower(NASDAQ: SPWR) a chance at a reversal of fortune in Europe, as higher effective prices for Chinese modules could make both of them much more competitive on price. Earlier this week,Europe followed through with a smaller 11.8% tariff on China’s solar products, reserving the right to boost tariffs to higher levels by early August.

One big issue that LDK will increasingly face is that buyers will want to work with suppliers that can actually stand behind their warranties with solid balance sheets. With sales having plunged over the past year, it’s getting more difficult to convince customers that LDK will be able to survive.

In LDK’s report, watch closely to see if the company can get any further financing. Without a big infusion of capital, LDK’s prospects look dim indeed.