First Solar Earnings Preview: Watching For Progress On International Projects, Panel Roadmap
First Solar (NASDAQ:FSLR) is expected to publish its Q2 2014 results on Tuesday, August 5. We expect the company to report a sequential decline in earnings, owing to lower revenue recognition on its large-scale solar power projects, although this could be partially offset by some improvement in balance of system and panel manufacturing costs. During Q1, quarterly revenues rose by around 25% year-over-year to around $950 million, while net income grew to $112 million from about $59 million a year ago. [1] For this quarter, we will be watching the company’s progress in executing on its long term cost and efficiency roadmap for its panels as well as its progress in expanding its power plant (systems) business overseas.
Trefis has a $66 price estimate for First Solar, which is about in line with the current market price.
See our complete analysis of First Solar here
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Solar Projects Business
First Solar’s projects business accounts for about two-thirds of the company’s total revenue. The results of this business are quite volatile, since project development time frames can run into a few years, with revenue recognition being subject to meeting certain criteria. During the previous quarter, the company recognized all of the revenue for its 139 megawatt (MW) Campo Verde project in southern California and this bolstered earnings significantly. [2] It seems unlikely that the company will see a similar bump in project revenues for this quarter.
While near-term earnings could be driven by the construction of legacy U.S. based projects such as the 550 MW Topaz and the 550 MW Desert Sunlight, we will be watching the company’s progress in building the projects business overseas. First Solar recently noted that it had about 12.2 gigawatts (GW) of potential booking opportunities, of which over half came from abroad. For instance, the company has been making notable progress in Chile, where it looks set to commence work on its 141 MW Luz del Norte power plant, after having secured a financing package for the project. The project, which will be built in the Atacama Desert, would be one of Latin America’s largest photovoltaic power plants. First Solar has also applied to build a 370 MW solar power plant in the Antofagasta region of Chile. [3]
Watching for Module Cost Reduction and Efficiency Improvements
First Solar has been making good progress on the panel efficiency front of late. During Q1, the average fleet efficiency improved by about 60 basis points year-over-year to around 13.5%, while the best line efficiencies rose to around 14.2%. [4] Although the company’s Cd-Te panels still trail silicon-based panels in terms of efficiencies, they have been improving at a faster rate. Additionally, since Cd-Te thin film panels have a higher theoretical upper limit for efficiency compared to silicon based panels, First Solar’s efficiencies could eventually be among the highest in the industry.
Higher conversion efficiencies are beneficial for solar companies for multiple reasons. Firstly, they lower the cost of manufacturing a panel, due to the smaller amount of consumables and raw materials required to produce each watt of capacity. Additionally, higher efficiencies could result in better pricing power and potentially open up new markets such as rooftops, where higher energy densities are preferred. The company expects panel efficiencies to improve to above 19% by the year 2017, according to data from its analyst day presentation. First Solar also expects its systems cost per watt to fall by over 37% between 2014 and 2017, owing to lower balance of systems and module costs. [5] We will be watching the company’s progress in executing on this roadmap.
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Notes:- First Solar Q1 2014 Earnings Press Release [↩]
- First Solar Q1 2014 Earnings Conference Call Transcript, Seeking Alpha, May 2014 [↩]
- First Solar applies for giant PV project in Chile, PV Tech, July 2014 [↩]
- First Solar Q1 2014 Earnings Supplementary Presentation [↩]
- 2014 Analyst Meeting – Manufacturing Update, First Solar, March 2014 [↩]