First Solar To Restructure EPC Business After Heavy First Quarter Hit

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US-based solar manufacturer First Solar announced its first quarter earnings earlier this month revealing a heavy net-loss and missing earnings expectations due primarily to its US and Japanese Engineering, Procurement, and Construction (EPC) business, leading the company to announce a planned restructuring.

Image Credit: First Solar

First Solar reported net sales of $532 million for the first quarter of 2019, a decrease of $159 million from the previous quarter and down $35 million on the same quarter a year earlier. The company pointed to “lower systems project revenue in the United States and Japan” and, in its earnings call explained that it would be restructuring its EPC business, including introducing new leadership of the unit.

As a result, the company reported a net loss of $67.6 million for the quarter, equating to $0.64 per share, compared to earnings per share of $0.49 in the fourth quarter of 2018 and $0.78 per share in the first quarter of 2018.

“During the first quarter of 2019 we continued to realize advancements in Series 6 throughput and efficiency and we are particularly pleased with the start-up and ongoing ramp of our second facility in Vietnam,” said Mark Widmar, CEO of First Solar. “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.”

The company nevertheless sees enough signs of growth in 2019 to have increased its 2019 guidance “as a result of greater expected module and system sales, increased ramp related and EPC costs, and lower projected operating costs.” Specifically, First Solar now expects net sales for 2019 to be in the range of $3.5 billion to $3.7 billion, up from being in the range of $3.25 billion to $3.45 billion.

“While ramp-up expenses were expected for First Solar in the 1H, unexpected Engineering, Procurement and Construction (EPC) costs widened a net loss in 1Q, which may persist and contribute to lower full-year gross-margin guidance,” explained James Evans from Bloomberg Intelligence, who provided his analysis upon request. “The production ramp up and EPC cost inflation is partly offset by lower operating expenses, resulting in unchanged 2019 EPS targets, yet higher sales goals add stress to a back-end loaded year. We see product demand as resilient, with 1.2 gigawatts of new 1Q bookings, which may accelerate over 2019.

“First Solar will change its EPC unit management team to stabilize costs, as while some 1Q issues including weather-related construction delays were tough to manage, other concerns such as subcontractor problems and labor supply should be more tightly controlled.”

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