First Solar Crushes Q3 Estimates on Record Revenue but Pulls Back Guidance; Stock Soars

Another vertically integrated American solar EPC beats estimates, shows market leadership—along with some mixed messages.

Eric Wesoff November 04, 2013

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

First Solar (FSLR) stock is at $61.50 per share -- up 20 percent over last week.

First Solar reported third-quarter financials and crushed revenue and earnings-per-share estimates while posting record quarterly net sales of $1.3 billion. The company's Q3 EPS of $2.28 beat estimates by $1.28, and revenue of $1.27 billion (up 51 percent year-over-year) beat estimates by $277 million.

Net sales were $1.3 billion in the third quarter, up $746 million from the prior quarter and up $427 million from the third quarter of 2012. Revenues for the first nine months of 2013 were $2.5 billion versus to $2.3 billion for the first nine months of 2012.

Despite that positive news, the cadmium-telluride thin-film solar leader lowered its 2013 revenue guidance range from $3.6 billion to $3.8 billion to $3.4 billion to $3.6 billion and raised its 2013 EPS guidance range to $4.25 to $4.50 from $3.75 to $4.25.

The solid sales and margin numbers are due to recognition of revenue from the 550-megawatt Desert Sunlight project, as well as module cost reductions. More good news included a record reduction in cost per watt, which fell to $0.57 per watt from $0.62 in Q2, First Solar's largest quarterly decline in more than five years. The company has a net cash position of ~$1.5 billion.

On the technical front, First Solar's average conversion efficiency in Q2 was 13.3 percent, while the efficiency of its lead line was 13.9 percent.

First Solar is now guiding 2013 systems shipments of 1.2 gigawatts, down from its earlier projection of 1.3 gigawatts. Gross margin is anticipated at 24 percent to 26 percent, up from 22 percent to 23 percent.

During last week's earnings call, First Solar CEO Jim Hughes noted that the company "booked 860 megawatts-DC of new business, compared to shipments of 406 megawatts in the quarter, a ratio of over 2 to 1, resulting in a year-to-date book-to-bill ratio of greater than one."

He also said, "We are now flash-testing modules at our Perrysburg facility with the conversion efficiency of 14.1%. [This has the] potential to open up new business segments to us and significantly increase our total addressable market...at a time when others are no longer reporting module cost per watt." He continued, "We have had the largest quarterly decline in our cost per watt since 2007, falling $0.08 to $0.59 on average in Q3 and in line with our competitor's reported cost per watt. Excluding freight, recycling and warranty charges, our core figure is now below $0.50, $0.49 to be exact, the lowest in the industry."

This quarter, First Solar:

Acquired the 250-megawatt-AC Moapa project in Nevada from K Road Power. The project is in "an advanced stage of development" and comes with a 25-year PPA from LADWP.
Entered into an agreement with NextEra to build the McCoy project, a 250-megawatt-AC solar power plant in Riverside County, California.
Started offering "third-party operations and maintenance business" for projects not using First Solar modules.

Despite the spate of good (and mixed) news, analysts covering the company, including Deutsche Bank and Needham, are maintaining their "hold" ratings and showing some concern over 2014 revenue and prospects for 2015. SunPower, another American solar company, also just posted a strong earnings call.