First Solar Has Solid Quarter On Projects And Cost Improvements

First Solar (NASDAQ:FSLR), one of the world’s largest solar panel manufacturers and solar project developers, released a solid set of third quarter earnings on October 31, aided by strong revenue recognition on its solar projects as well as a reduction in panel manufacturing costs. Quarterly revenues stood at around $1.26 billion, up by around 50% year-over-year, while operating income nearly doubled to around $207 million. The company also revised its guidance for the year, expecting its earnings per share to increase to between $4.25 to $4.50 versus its prior estimate of between $3.75 to $4.25, although it cut its revenue guidance marginally. ^[1] Through the quarter, the company made some noteworthy improvements to its order book, including a deal to a sell a 250 megawatt (MW) solar project in Nevada to NextEra Energy. Here is a quick look at some of the factors that influenced the company’s results.

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Strong Project Revenue Recognition

First Solar’s projects business continued to be the driving force behind its earnings and accounted for around 95% of the company’s quarterly revenues. Much of the sales came from the initial revenue recognition for the 550 MW Desert Sunlight project which the company is building in California, and also from the sale of a solar project in Canada. The systems business has helped First Solar largely insulate itself from the turmoil in the global solar markets over the last few quarters, since building solar farms requires the company to supply panels as well as provide value added services such as engineering, procurement and construction.

We had been mildly concerned about the company’s order book over the last few quarters since shipments had been exceeding new bookings. However, the company made some solid progress during the third quarter, adding close to 860 MWdc of new orders through the quarter, bringing the company’s total outstanding bookings to around 2.7 gigawatts (GW). The company also said that it will be selling a 250 MW project located in Nevada to NextEra Energy Inc. Looking ahead, First solar says that it has new potential booking opportunities to the tune of around 7.7 GW, of which around 1.4 GW of projects are mid to late stage deals. ^[2]

Some Much Needed Cost And Efficiency Improvements Take Place

First Solar’s panels, which are manufactured using a cadmium telluride (Cd-Te) based thin-film technology, have been trailing polycrystalline silicon panels both in terms of conversion efficiency as well as cost (related: A Comparison Of Solar Technologies And What They Mean For Companies). However, the company made significant strides in bridging this gap during the third quarter. as it was able to reduce its panel manufacturing costs by around 12% sequentially to around $0.59 per watt. This happens to be the largest quarterly cost reduction that the company has achieved in the last six years.

Chinese manufactured polycrystalline panels currently sell for an average of around $0.65 per watt, and we believe that these cost reductions would make First Solar’s panels relatively competitive. Average panel conversion efficiencies also rose by around 0.3% sequentially to 13.3%. ^[3] As of October, the efficiency for the company’s lead production line touched 13.9% and the company expects to be able to replicate this conversion efficiency across its other production lines over the next few quarters. ((Seeking Alpha))

Trefis is currently updating its model and price estimate for First Solar to account for the earnings release.

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1. First Solar Press Release [↩]
2. Seeking Alpha [↩]
3. First Solar Q3 2013 Presentation [↩]