First Solar’s Q1 Earnings Could Fall On Weaker Systems Revenue

First Solar (NASDAQ:FSLR), the largest U.S. solar company, is expected to publish its Q1 2015 numbers after markets close on April 30. We expect the company’s results for the quarter to be impacted by weaker solar project-related revenues as its large legacy projects wind down and also as the company holds on to completed projects on balance sheet (as opposed to selling them) in anticipation of the creation of its joint Yieldco with rival SunPower (NASDAQ:SPWR). The company has guided net sales in the range of $550 million to $650 million, with a net loss of $0.25 to $0.35 per fully diluted share. Financials aside, we will looking for updates on the company’s manufacturing ramp-up for its new silicon-based TetraSun modules and also for improvements to its fleet-wide panel conversion efficiency. Here’s a quick look at what to expect and what we will be watching when the company publishes earnings.

Trefis has a $65 price estimate for First Solar. We will be updating our valuation model and price estimate for the company post the earnings release.

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Project Revenues To Fall

First Solar typically sees lumpy revenues and earnings since its business is heavily geared towards project development. We expect this quarter to be relatively lackluster on the project front as the company has already achieved substantial completion on its two legacy projects – the 550 MW Desert Sunlight and 550 MW Topaz – and also sold off a partial interest in its 150 MW Solar Gen 2 power plant to the Southern Company during Q4. While the company is expected to have completed close to 200 MW of projects during Q1, it is not expected to sell them yet. The company has been increasingly self-developing projects, meaning that it holds the projects on its balance sheet through substantial completion (or commercial operations) rather than selling them while they are under development, which allows it capture greater value. These projects could be transferred into the joint venture Yeildco – called 8point3 Energy Partners – that the company is forming with SunPower. Going forward, other projects that could drive earnings include the 250 MW McCoy (under construction in California), the Silver State South (Nevada) and the 155 MW AGL (Australia). We will also be watching the company’s progress in the business development front. Through 2014, the company added a total of 2.5 GW of bookings with its expected module shipments (for both projects and third-party module supply) standing at about 4 GW when it reported Q4 2014 earnings.  This translated to a book to bill ratio of about 1.7 for 2014, which meant that the company added projects quicker than it was executing them.

Cd-Te Panel Efficiency Gains And TetraSun Manufacturing Ramp

Although First Solar’s Cadmium Telluride (Cd-Te) panels trail silicon-based panels in terms of conversion efficiency, the company’s efficiency gains have been outpacing the broader industry. During Q4 2014, fleet-wide panel efficiency averaged 14.4%, representing a 0.2% sequential improvement and a 1% year-over-year improvement. Per the company’s efficiency roadmap, its Cd-Te panel efficiency is expected to equal that of polycrystalline modules by the end of this year, with efficiencies set to improve to above 19% by 2017. We will be watching the company’s progress in executing on this target. First Solar also commenced production of its silicon-based TetraSun modules in its manufacturing facility in Malaysia during the previous quarter. ^[1] The company says that it has been able to achieve initial cell efficiencies of 20.5% for TetraSun and intends to beef up module capacity to about 50 MW this year (related: First Solar’s Acquisition Of TetraSun Highlights A More Diversified Strategy). We believe that the combination of better Cd-Te panel efficiencies and the new polycrystalline based technology should open the doors for the company into the rapidly growing rooftop solar market, which it has long neglected owing to its historical energy-density handicap.

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1. First Solar (FSLR) James Alton Hughes On Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, February 2015 [↩]