First Solar (FSLR -2.28%) continues to churn out solid results year after year, which is why it's one of the best-performing solar manufacturers in the world. The company's differentiated thin-film product continues to get better, and potential subsidy changes in the U.S. could give the company tailwinds for years to come.
While results in the second quarter of 2022 were solid, it's projected results as far out as 2026 that have to impress investors in the solar industry.
First Solar's performance
Understanding First Solar's second-quarter results isn't straightforward. On the surface, a slight decline in revenue to $621.0 million and a negative 4% gross margin seems bad. But the final net income figure was $56 million, or $0.52 per share, and there were some important caveats in the results.
An impairment on the Luz del Norte project in Chile had a negative nine-percentage-point impact, and sales freight reduced gross margin by a whopping 16 percentage points. So without the one-time Chile impairment or shipping costs, gross margin would be a fairly impressive 21%.
First Solar did record a $245 million gain on selling its Japan platform business in the second quarter, but management expects to record a $0.38 to $0.52 loss per share on selling the Luz del Norte project in 2022. This kind of volatility is one reason First Solar is getting out of the development business.
A bright future
Investors are often more worried about future projected results than reported results, and that's where First Solar really shined. Management said the company's 10.4 GW of bookings since the first-quarter earnings call had an average sale price of $0.301, which is strong pricing and an increase from commodity solar panels selling for around $0.20 per watt as early as 2020. Those bookings also stretch out to 2026, so any cost reductions the company can generate in the meantime will help margins.
Management has also begun including adjustments for shipping costs and pricing panels to be picked up at the factory. That will shift shipping risk, which I highlighted above, to the buyer.
There's no bill passed yet, but the potential climate change bill agreed to by Senate leaders last week could also have a big impact on First Solar's future. The company could get a tax credit for building manufacturing plants in the U.S., along with tax benefits customers could get for installing U.S.-made products.
Hitting on all cylinders
First Solar continues to operate efficiently, and it's going to see some very impactful changes in the next few years. Most importantly, the rapid reduction in solar panel prices seems to have subsided, which will make it easier to plan for growth and generate sustainable profits. The company is also benefiting from U.S. manufacturing and technology differentiation, which are leading to multiple years' worth of backlog. As two new production facilities are completed that could double production, First Solar has a lot of growth ahead in solar.