First Solar's Profit Dropped And Still Doubled Expectations

Feb. 25, 2016
Photovoltaic energy solution provider First Solar doubled analyst projections, hinting at brighter future for solar energy than previously thought.

First Solar Inc. reported a lower fourth-quarter profit that still was more than double analysts’ expectations as the largest developer of utility-sized solar farms reduced costs and raised its forecast for margins.

Net income slipped to $164.1 million, or $1.60 a share, from $193 million, or $1.90 a share, a year earlier, Tempe, Arizona-based First Solar said in a statement Tuesday after the close of regular trading. That was more than double the 76-cent average of 11 analysts’ estimates compiled by Bloomberg.

Its shares climbed the most intraday in more than three months, gaining 11 percent to $68.80 at 10:56 a.m. in New York.

“First Solar beat estimates across the board and showed strong gross margin,” Ben Kallo, an analyst at Robert W. Baird & Co., said in a research note Wednesday. He raised his price target to $74 from $69 and has the equivalent of a buy rating. “First Solar remains well positioned to expand margins through continued efficiency gains and cost reductions.”

The company raised the low end of its guidance for 2016 gross margin to 17 percent from 16 percent, the “result of better than originally anticipated module and balance of system costs,” Chief Financial Officer Mark Widmar said during a conference call with analysts Tuesday.

CHICAGO - SEPTEMBER 01: Solar photovoltaic panels generate electricity at an Exelon solar power facility on September 1, 2010 in Chicago, Illinois. The 10-megawatt facility located on the city's south side is the largest urban solar installation in the United States. The 32,292 panels can generate more than 14,000 megawatt-hours of electricity per year, enough to meet the annual energy requirements of up to 1,500 homes. (Photo by Scott Olson/Getty Images)

Joint Venture

The company shifted its strategy last year, and now retains some power plants on its balance sheet until it can sell them to a joint venture it formed with SunPower Corp. First Solar previously focused on selling these projects to third parties, and the change affects when it may recognize some revenue.

The company expects to sell its first three projects this year to the venture, 8point3 Energy Partners LP, and a fourth one in 2017, Widmar said.

8point3 sold shares through an initial public offering in June. It was created to buy and operate power plants and in January announced its first such deal, for 22 megawatts of solar systems that SunPower is developing at school sites in California. Widmar is also CFO of 8point3.

First Solar’s shipments last year reached 2.9 gigawatts, almost double the 2014 total of 1.5 gigawatts. The company expects to ship as much as 3 gigawatts of panels in 2016, affirming its forecast from December. That will lead to full-year sales of $3.8 billion to $4 billion, lower than an earlier projection of $3.9 billion to $4.1 billion.

Demand for its power plants is increasing since the U.S. extended tax credits in December, and the company now has a pipeline of projects it’s pursuing with as much as 20.3 gigawatts of capacity, up 17 percent from the third quarter, Chief Executive Officer Jim Hughes said on the call.

“There are a number of new opportunities in the U.S.,” Hughes said. We’re very encouraged by the activity levels around bookings for ’17.”

(Image courtesy First Solar)

About the Author

Christopher Martin | Senior Researcher - Blue Heron Research Partners

Christopher Martin is an experienced Senior Researcher with a demonstrated history of working in the energy and environment fields. He is a strong research professional and manager with a BS from Lehigh University. He is also a former cleantech & renewable energy reporter for Bloomberg.