First Solar Inc. (FSLR) posted third-quarter 2012 results with pro forma earnings per share of $1.27, outshining the Zacks Consensus Estimate of $1.10 per share. However, the quarter’s earnings fell below the year-ago figure of $2.25 per share.
On a reported basis, earnings per share came in at $1.00, down from $1.27 in the prior quarter and $2.25 in the year-ago quarter. The difference between pro forma and reported earnings of 27 cents per share is related to restructuring charges.
Operational Performance
First Solar’s quarterly revenues were $839 million, down $118 million from the prior quarter and $167 million from the year-ago quarter. Quarterly revenue also fell below the year-ago figure of $985 million.
The sequential decline reflects project-specific decreases, which include completion of Silver State North project and reduced construction activity at Agua Caliente. However, these decreases were partially offset by initial revenue recognition for the 550-megawattac Topaz Solar Farms project that started in late 2011.
Gross margin in the reported quarter was 28.4% versus 37.7% in the third quarter of 2011 and 25.5% in the second quarter of 2012. Operating expenses declined 15.8% year over year to $131.7 million. First Solar reported pro forma net income of $111.5 million compared with a net income of $196.5 million in the comparable quarter last year.
Financial Performance
First Solar reported $614.7 million of cash and cash equivalents at the end of the reported period versus $678.6 million as of September 30, 2011. Long-term debt increased to $468.3 million from $528.7 million as of June 30, 2011.
Guidance
First Solar increased the lower end of it pro forma earnings guidance, bringing the earnings guidance in the range of $4.40 to $4.70 per share versus its prior expectation of $4.20 to $4.70. Including restructuring and impairment charges and certain costs in excess of normal warranty expense related to the previously announced manufacturing excursion of $6.00 per share, the company expects GAAP loss per share to be in the range of ($1.60) to ($1.30).
The company lowered its top-line guidance and expects it to be in the range of $3.5 billion to $3.8 billion compared with its prior guidance of $3.6 billion to $3.9 billion.
Outlook
Though First Solar’s earnings surpassed our expectations, the bottom line missed the Zacks Consensus Estimate. Currently, the company is witnessing a steep drop in Average Selling Prices. Also, the current macro scenario does not bode well for the solar industry, which thrives mainly on subsidies and grants. However, the company’s ongoing cost structure improvement and stable liquidity position in comparison to its peers like Suntech Power Holdings Co. Ltd. (STP) and SunPower Corporation (SPWR) will help it to combat the weak trend. Moreover, the company is making considerable progress in achieving strategic long-term growth plans, which is evident from its win in sustainable markets.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Based in Phoenix, Arizona, First Solar is engaged in designing, manufacturing and selling solar electric power modules, using a proprietary thin film semiconductor technology. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. The company sells its products to project developers, system integrators, and operators of renewable energy projects, primarily in Europe with a distinct focus on Germany.
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