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First Solar Accelerates Growth Plans

By Travis Hoium - Apr 27, 2018 at 2:32PM

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First Solar is so confident in the future that it's expanding U.S. production again.

Everything has gone First Solar, Inc.'s (FSLR -2.04%) way over the past year, and Thursday's first-quarter earnings report was no different. Not only did earnings come in as expected, but bookings for future solar panel sales were so strong the company decided to expand manufacturing in the U.S. 

Let's look at the key financial figures for the quarter and what they mean for First Solar's business. 

Workers install solar panels.

Image source: First Solar.

First Solar, Inc.: The raw numbers

Metric Q1 2018 Q1 2017 Year-Over-Year Change
Sales $567.3 million $891.8 million  (36.4%) 
Net income $83.0 million  $9.1 million  809% 
Diluted EPS $0.78  $0.09  767% 

Data Source: First Solar, Inc. Q1 2018 earnings release. 

What happened with First Solar, Inc. this quarter? 

First Solar's results can swing wildly from quarter to quarter depending on when large solar farms are sold, so the comparisons to a year ago should be taken with a grain of salt. These highlights give a better picture of how the business is performing. 

  • Series 6 solar panels began shipping from the Perrysburg, Ohio facility in April, a key step in the company's expansion of this critical product. This is the company's newest solar panel, and is being built on newly upgraded manufacturing equipment. By the end of 2019, 5,400 megawatts (MW) of Series 6 manufacturing capacity are expected around the world. 
  • First Solar booked 2,000 MW of future panel sales in the quarter, bringing the total future bookings to 10,600 MW. 
  • The company sold solar farms in India, Japan, and the U.S. in the quarter, which accounted for the increase in revenue and strong margins. Seventy-two percent of revenue came from these solar farm sales, generating a 40% gross margin. 
  • Solar panel sales accounted for the other 28% of sales and had a gross margin of just 6%. 
  • Solar panel conversion efficiency was flat at 17%. 
  • Cash balance and operating cash flow guidance for 2018 were both reduced by $100 million because of a new manufacturing plant announced Thursday. Cash on hand at year-end is now expected to be $2 billion to $2.2 billion and operating cash flow is expected to be flat to $100 million for the year. 

Just as important as earnings was First Solar's announcement of a new manufacturing plant in Ohio. Here are the details of that plant:  

  • The company will invest $400 million in the plant, which will have capacity of 1,200 MW. 
  • The plant is expected to be completed late in 2019. 
  • Located in Lake Township, Ohio, the facility will be First Solar's second major manufacturing plant in the U.S. Management said that increased automation for Series 6 solar panels reduces the impact of higher labor costs in the U.S., making a domestic plant competitive with manufacturing abroad. 
  • When completed, First Solar's manufacturing capacity will be 6.6 GW. 

One interesting disclosure in the earnings conference call was that of the 8.3 GW in late-stage booking opportunities, of which about three-quarters is in the U.S. That shows how strong the company is domestically, but it'll be important for investors to watch if Series 6 solar panels are competitive in international markets where First Solar isn't protected by import tariffs on competitors' panels

What management had to say

When discussing First Solar's decision to expand production, CEO Mark Widmar pointed to the 2,000 MW of bookings in the past two months and 10,600 MW backlog and said: "With this level of visibility into shipments between now and 2020 combined with our mid- to late-stage pipeline, which I will discuss shortly, we feel confident in making the decision to add additional capacity. "

When demand is growing as much as it is, there's nothing left to do but expand. 

Looking forward

Operationally, there weren't a lot of surprises from First Solar in the first quarter. What was encouraging was to see management so confident in the future of solar and the Series 6 product that it added capacity. 

In the next few quarters, keep an eye on the pace of international bookings, as well as margins in solar panel sales, which need to be much higher than the 6% achieved in the first quarter for First Solar to remain profitable. But it's hard to argue that First Solar's quarter was anything but impressive given the pace at which the company is locking up future sales.

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

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