First Solar Earnings Shine Brightly in Q3

by James Brumley | November 1, 2013 1:19 pm

first solar First Solar Earnings Shine Brightly in Q3

First Solar (FSLR[1]) posted last quarter’s earnings numbers on Thursday afternoon, and even lowered full-year guidance couldn’t weigh on FSLR stock.

FSLR — a thin-film solar panel maker — earned far more than expected, banking an adjusted profit of $2.28 per share in the third quarter, better than the year-ago figure and estimate of $1.

The First Solar earnings report also indicated sales growth of more than 50%, with a top line of $1.27 billion vs. just $839 million for the same period last year. That FSLR revenue number was also better than the expected $989 million in revenue.

What’s Next for FLSR?

Whether or not the forward-looking aspect of the First Solar earnings announcement was weak or strong, however, is a matter of perspective. FSLR full-year revenue expectations fell, though its profit outlook actually improved, indicating stronger margins on the solar panel it sells.

Specifically, FSLR now anticipates 2013’s top line to roll in somewhere between $3.4 billion and $3.6 billion, down from prior outlooks in the $3.6 billion to $3.8 billion. The First Solar earnings total, however, is now expected to come in somewhere between $4.25 and $4.50 per share, up from the previous expectation of a full-year profit between $3.75 and $4.25 per share.

That being said, what didn’t appear in the First Solar earnings report is just as important, and perhaps more important, than what did. Buried deeper in the news release, fine print of the SEC filings and the conference call is a valid explanation of how FSLR can (quite literally) be generating more profits with lower revenue.

See, the cost for every watt of power-production capacity FSLR manufactures is falling rather significantly, and at least some of that cost-savings is being passed along to its customers. In Q3, FSLR saw its cost per watt fall from an average of 67 cents to 59 cents, which is the biggest-ever tumble in production costs for the company.

The production-cost progress is reaching “game changing” proportions. In a slightly ironic way, the First Solar earnings margins rate actually widens the cheaper its solar power films get. Gross margins came in at 28.8% in Q3, up from 27% in Q2, and higher than the gross margin rate of 28.4% a year ago.

So FSLR can retain some of that cost-saving for itself. And better still, with solar power costs now getting close to — if not already at — cost-parity with more traditional forms of power generation, utility companies and other electricity are creating an exponential increase in demand. Last quarter, for example, First Solar booked 860 megawatts worth of solar panel sales, vs. shipments of 406 megawatts. Yet FSLR was operating near full production capacity.

The critical mass that First Solar has met on the technological front couldn’t have come at a more opportune time, as solar power is becoming en vogue again. A Deutsche Bank poll indicated that global photovoltaic panel installations should roll in somewhere between 45 gigawatts and 50 gigawatts in 2014, up from an estimate of 36.7 gigawatts for 2013.

With that sort of undertow in place, the next few First Solar earnings announcements could be as compelling as last quarter’s.

And that’s great news for FSLR stock.

As of this writing, James Brumley did not have a position in any of the aforementioned securities. 

  1. FSLR:

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