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Why First Solar's Shares Plunged 14.9% Today

By Travis Hoium - Feb 21, 2020 at 12:11PM

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Earnings and guidance came in below investor expectations.

What happened 

Shares of thin-film solar cell manufacturer First Solar (FSLR -0.59%) fell as much as 14.9% on Friday after the company reported fourth-quarter 2019 financial results. The stock continues to trade near its low for the day and at 10:35 a.m. EST was down 13.3%. 

So what

Net revenue for the quarter was up 102% to $1.4 billion, and gross margin improved 960 basis points to 23.8%. But the net loss was $59.4 million, or $0.56 per share, due to a $363 million litigation charge. Analysts were expecting revenue of $1.75 billion and earnings of $2.72 per share. 

First Solar installation in the desert.

Image source: First Solar.

A big driver of the earnings miss was the sale delay of three projects in Japan that were affected by Typhoon Hagibis. The sale may still close in 2020, but exact details of the deal are now up in the air. 

The other disappointment was 2020 guidance, which calls for $2.7 billion to $2.9 billion in net sales, gross margin of 26% to 27% gross, earnings of $3.25 to $3.75 per share, and an ending net cash balance of $1.3 billion to $1.5 billion. Sales are expected to fall from $3.1 billion in 2019 as the company upgrades some of its manufacturing capacity and moves out of system sales. Over the long term, the shift will make the renewable energy company smaller, but hopefully more profitable. 

Now what

First Solar hit some roadblocks in the fourth quarter with the timing of asset sales, but I think the big transition is management's bet on technology and solar module manufacturing as its future. Executives are evaluating options to partner with developers or even sell the systems development business, and that will significantly reduce revenue. But it will make operations more consistent and allow the entire company to focus on manufacturing. Long-term, that may be the right move, but investors are skeptical given the negative impact on earnings and guidance today. 

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

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