2019 isn't expected to be a great year for First Solar (NASDAQ:FSLR), but it'll set up the next decade for the company. First Solar is putting the finishing touches on equipment upgrades that are now churning out Series 6 solar panels, which are bigger and less costly than previous models. 

As the company ramps up production, investors will start to see the fruit of years of investment. But early in 2019, First Solar is still in investment mode and is improving manufacturing processes. Here's a look at the first quarter and what investors should take from the numbers. 

Solar farm in the desert.

Image source: First Solar.

First Solar results: The raw numbers

Metric Q1 2019 Q1 2018 Year-Over-Year Change
Sales $532.0 million $567.3 million  (6.2%) 
Net income ($67.6 million)  $83.0 million  n/a 
Diluted EPS ($0.64)  $0.49  n/a 

Data source: First Solar Q4 2018 earnings release. 

What happened with First Solar this quarter? 

There are a lot of moving parts for First Solar, and some of them work against short-term profitability. Series 6 production continues to ramp, which hurts margins, and some systems projects are not doing as well as hoped. Here are some details from the earnings report. 

  • Some of the bottom-line weakness was a result of higher-than-expected construction costs on solar systems due to bad weather and a tight labor market in construction. Systems segment gross margin was 8% in the quarter. 
  • Series 6 operations continue to improve, with megawatts produced per day up 34% from February 2019 to April 2019. Watts per module are also up 6 watts, showing continuous process improvement. Between Q1 and Q4 of 2019, management expects cost per watt to fall 30% for Series 6 solar panels. This will help improve the negative 13% gross margin in the module segment. 
  • Bookings in the first quarter were 1.2 gigawatts, outpacing 0.9 GW of shipments, but below the nearly 2 GW quarterly pace needed to keep backlog growing. 
  • Late-stage booking opportunities were 6.6 GW, with nearly half from APAC and Europe, an improvement from being almost entirely North America-focused in 2018. 
  • Sales guidance for 2019 was increased from a range of $3.25 billion to $3.45 billion up to $3.5 billion to $3.7 billion. However, gross margin guidance was reduced by 150 basis points to 18% to 19%. Net cash is also expected to be $100 million higher than previous guidance to $1.7 billion to $1.9 billion. 

Gross margin was effectively zero for First Solar in the first quarter because of the unexpected costs highlighted above and relatively high production costs. But with management expecting gross margin of 18% to 19% for the year, there should be rapid improvement in coming quarters. 

What management had to say

CEO Mark Widmar was pleased with the progress of the company's new solar panel, saying, "Series 6 demand remains robust, and we are encouraged by the strong year-to-date bookings which are on track to exceed our targeted annual bookings-to-shipments ratio." 

At the end of the day, improving Series 6 production and technology are what will drive First Solar's results. The company is making progress to that end, but it won't be until late 2019 that investors see how the product is really performing in the market. 

Looking forward

The first quarter is a bump in the road for First Solar considering the loss, but it was an expected loss given the investment the company is making in improving its products long term. What'll be more important is execution in improving costs in factories and in solar systems as the year goes on. If management can do that, it'll set up First Solar for a great future.