Q3 Earnings: First Solar Report Mixed Results

The largest US solar manufacturer, First Solar, reported its third quarter earnings to investors on Thursday, with mixed results for the quarter. Sales were up on the previous quarter, but significantly down on a year ago, while the company’s stock dropped precipitously based on the company’s decision not to move ahead with a YieldCo.

First Solar beat market expectations for the quarter, but is still down on 2013 figures. Net sales rose 63% ($345 million) to $889 million in the quarter, thanks primarily to increased revenue recognition on the 550 MW Desert Sunlight project in California. Forbes noted that the Desert Sunlight project had faced delays during Q2. It is still under construction and expected to begin full operation in 2015.

Jim Hughes, CEO of First Solar, was tentative in his comments regarding the company’s quarter results.

“Following the project delays experienced in the prior quarter, our third quarter earnings have improved, and we continue to make progress towards our financial targets for the year. Our year to date book-to-bill ratio is well above our objective of a one-to-one ratio, and we are on track to meet or exceed our bookings goal for the year.”

Potential Capacity Increases

The company is also planning to expand its manufacturing capacity by restoring idled production lines in Malaysia, and two lines in Ohio.

Stocks Plummet

Comments made by Hughes during the investor call are blamed for the sharp drop in First Solar stock. Business Insider reported on Friday that First Solar shares had dropped nearly 9% by afternoon trade, and blamed the drop on a lack of investor confidence after Hughes said that the company would not be pursuing the registration of a YieldCo (a separate business entity formed to manage operating assets such as First Solar-installed solar projects).

Courtesy of Seeking Alpha’s transcript of the conference call:

Finally turning to the often asked question of the YieldCo, the company has determined that we are not prepared to file a registration statement and pursue a listed yield vehicle at this time. However we have also determined that the ownership and operation of whole or partial interest in select solar generating assets does have a role as a component part of our overall business model. We will continue to develop generation assets in the US and select other markets and at times we will retain either a whole or partial interest in such assets. As with any asset class we will continue to evaluate our options for the capitalization and governance of such assets.

Dropping 2014 Guidance

Following the somewhat lacklustre performance this year, First Solar also readjusted its yearly guidance. It has dropped its net sales guidance from $3.7 billion to $4.0 billion down to $3.6 billion to $3.9 billion, and increased the gross margin and operating expenses as well.

However, earnings per share and the company’s operating cash flow remain unchanged, at $2.40 to $2.80 per share and $300 million to $500 million.

First Solar has been showing fluctuating income over the past year, and construction delays as those at Desert Sunlight have further added to the company’s troubles. The trend this quarter has been to see how the fourth quarter will play out before we can see just how successful companies have been, but in First Solar’s case, things aren’t looking bright.