First Solar (FSLR, Financial), the nation’s largest solar-panel manufacturer, provides solar energy solutions worldwide through two segments – Components and Systems. The Components segment designs, manufactures and sells solar modules that convert sunlight into electricity. The Systems segment provides turn-key PV solar solutions, such as project development; engineering, procurement, and construction, or EPC; operating and maintenance; and project finance services to investor owned utilities.
Looking back
First Solar reported its first quarterly loss in years, as it planned to form a YieldCo with peer SunPower (SPWR, Financial), which I covered earlier this month. The solar-panel manufacturer’s revenue declined 50.6% year-over-year to clock $469.2 million, missing consensus estimate of $636 million by a huge margin.
The top-line took a hit because of the delay in selling a share of its Los Hills-Blackwell project to Southern Co. (SO, Financial), which was expected to close in the reported quarter. In addition, delays on various projects along with a port strike on the West Coast and sale of SolarGen 2 project in the prior quarter added to the top-line woes. The company exited the quarter with 593 megawatt (“MW”) DC of bookings, taking the year-to-date total to 905 MW.
First Solar reported first quarter adjusted loss of $0.62 per share, far more than consensus estimates of $0.29 per share. In the first quarter a year-ago, the company had generated a profit of $1.89 per share. The main reason for a massive plunge in earnings was the sharp decline is top-line performance.
As of March 31, 2015 the company had $779.9 million of cash and cash equivalents versus $1,482.1 million at year-end 2014. Long-term debt at the end of first quarter climbed up to $200.4 million versus $165 million as of Dec. 31, 2014.
Looking ahead
Despite a depressing first quarter, First Solar has much to look forward to on the back of recent efficiency improvements and rapid capacity expansion. The module conversion efficiency continued to improve during the first quarter, with full fleet averaging around 14.7%, representing a sequential improvement of 30 basis points. The lead line efficiency averaged 15.6% for the quarter signifying a 140 basis point improvement versus the year-ago quarter.
Recent performance of lead line has touched module efficiency of 16.3% and by the end of third-quarter the company expects to roll out these improvements across all its fleet. This surely will be a growth driver going forward.
First Solar is adding two additional lines at its Ohio plant. The company is virtually sold out for fiscal 2015 and is increasing contracted volumes for 2016. In the month of April, the company booked an additional 483 megawatts taking the outstanding bookings to 3.9 GW DC.
YieldCo vehicle in partnership with SunPower is also a long-term growth vehicle at the expense of short-term revenues. So, first quarter was more of a transition phase and the First Solar CEO Jim Hughes stated:
As anticipated, the first quarter was a transitional period, “and that "We continue to enhance the overall strength of our business with our lead line now running at 16.3% efficiency
With the transition woes largely over, the company expects revenues for the second-quarter to be in the range of $750-$850 million.
Following years of oversupply, Canadian Solar (CSIQ, Financial) expects a panel shortage in the second half of this year as a result of burgeoning demand across the globe. This is indeed good news as robust demand in solar energy requirements bodes well for First Solar also.
Wrapping up
First Solar is expanding its global footprint at a brisk pace. Like other major solar PV players, the company is vying to expand its operations in the Middle East, India, Japan, Australia and South America. In addition, in a fiercely competitive industry, company’s efforts to stay ahead of technology are also encouraging. It is also focused on distributed generation strategy to bolster its position in the residential solar market.
All in all, with its transition phase largely over, I expect the company to do well going forward. Hence, I see no reason why the stock would not appreciate in the long run.
