Please ensure Javascript is enabled for purposes of website accessibility

First Solar Keeps Beating Expectations

By Travis Hoium – Updated Oct 30, 2017 at 3:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Project sales drove third-quarter results, but it's the big increase in backlog that should excite solar investors.

First Solar Inc. (FSLR -2.30%) was already the biggest beneficiary from the threat of U.S. tariffs on imported solar panels, and the windfalls continued in its third quarter, according to its earnings report Thursday. Revenue of $1.09 billion and net income of $209.7 million, or $1.95 per share, was enough to crush analysts' estimates and cause another outlook increase. 

Utilities and project developers are concerned they'll have to buy solar panels subject to import tariffs in 2018 and 2019, so they're turning to First Solar, whose thin-film panels (likely) won't be subject to them. That's led to tremendous demand and has given the company an incentive to increase production in both 2017 and 2018. Here are the key takeaways from the quarter. 

Utility scale solar installation from First Solar.

Image source: First Solar.

Q3 was driven by project sales

First Solar's results can be volatile quarter to quarter depending on project sales, and in the third quarter, sales timing worked in its favor. You can see below that year-over-year results look incredibly strong, despite the fact that solar panel production was down 32.3% to 527.3 MW. 

Metric Q3 2017 Actuals Q3 2016 Actuals Change
Revenue $1.09 billion $681.3 million 59.6%
Net income $205.7 million $150.5 million 36.7%
Diluted EPS $1.95 $1.45 34.5%

Data source: First Solar's Q3 earnings release. 

Sales of the California Flats and Cuyama projects were the big driver of growth and likely accounted for around half of revenue in the quarter. 

Guidance goes up again

Management said that 2017 revenue would still be $3.0 billion to $3.1 billion, but increased earnings-per-share guidance from $1.55-$2.20 to a new range of $2.05-$2.30. On a non-GAAP basis, management increased earnings guidance from $2.00-$2.50 up to $2.40-$2.60 per share. 

What's notable is that the strong results of the last two quarters won't extend to the fourth quarter. Guidance implies less than $500 million in sales and a loss of about $0.35 per share given the fact that there are no major project sales taking place. 

2018 could be better than expected

First Solar's ability to offer stable pricing has also led to a lot of bookings in 2017. In the third quarter alone, the company booked 4.5 GW of panel and other component sales, bringing yearly bookings to 6.7 GW. This compares to expected panel production of 2.6 GW to 2.7 GW in 2017 and a max of about 4.0 GW of production capacity in late 2019 when Series 6 production is fully operational. 

Solar installation in the desert.

Image source: First Solar.

Management did say there was the potential to delay upgrading an additional 1 GW of Series 4 production in 2018, which would partially delay Series 6 upgrade. But if First Solar can generate high panel prices because it's the only manufacturer able to offer tariff-free solar panels, it may be worth the trade-off for near-term revenue. 

Based on management's comments, it's unlikely they would make the decision to increase Series 4 output in 2018 unless solar tariffs give the company higher-margin sales than it would have under normal competition. Expect a final decision from President Donald Trump early in 2018, which is when I would expect First Solar to decide if it's going to expand Series 4 output in 2018 or move forward with its Series 6 upgrade. 

A lot riding on the tariff case

The rapid bookings pace is directly related to the pending solar tariff case before the International Trade Commission. If high tariffs are put in place, as proposed, First Solar could see extremely strong demand for at least the next four years, the length tariffs can be put in place. But if tariffs aren't imposed, or are very low, First Solar will be facing stiff competition again. 

The upside is that tariffs could give First Solar incentive to expand manufacturing beyond the 4 GW currently in the works. On the conference call, management said that could mean a new factory or an expansion at an existing facility. 

On the downside, no, or low, tariffs could mean cheap Chinese solar panels will continue flooding into the U.S. It's no coincidence that management is booking future sales as quickly as possible right now. It lowers risk long-term in the case of a low tariff scenario and is a golden opportunity to lock up years' worth of sales. 

Looking forward

2017 has been far better than expected, but it's likely that 2018 will look very different. First Solar doesn't have as many projects to sell in 2018 and 2019 as it transitions to primarily a component sales model. And solar panel production will be disrupted as equipment is upgraded from Series 4 to Series 6. 

The good news is that First Solar still has the best balance sheet in the solar industry. Management expects to have between $2.1 billion and $2.3 billion of net cash on the balance sheet at the end of 2017, or nearly half its market cap. Combined with the growing backlog of panel sales, First Solar is taking full advantage of its current position as the only major thin-film solar manufacturer in the world. 

Travis Hoium owns shares of First Solar. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

First Solar Stock Quote
First Solar
FSLR
$161.81 (-2.30%) $-3.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.