First Solar Inc. (FSLR) reported adjusted second quarter 2013 earnings of 39 cents per share, well below the Zacks Consensus Estimate of 50 cents by 22% and 43.5% from the preceding quarter. The company’s reported number also saw a 74.3% decline from the year-ago period. The shares declined 1.11% to $46.75 in New York, after the close of regular U.S. trading.
On a reported basis, adjusting for one-time items, earnings came in at 37 cents in the reported quarter as compared to $1.27 per share in the second quarter of 2012 and earnings of 66 cents in the first quarter of 2013.
The considerable plunge in earnings reflects lower revenue recognition from the AVSR project and lower sales volumes to third-party module-only customers. Again, lower systems business revenue recognition also led to the decrease that was partially offset by higher manufacturing utilization and higher module sales to third-party customers in the second quarter of 2013 compared to the second quarter of 2012.
Revenue
First Solar’s revenue for the quarter ending Jun 30 fell 45.7% to $519.8 million from $957.3 million in the second quarter 2012, missing the Zacks Consensus Estimate of $684.0 million. The number also decreased 31.2% sequentially. This was primarily due to tepid business project revenue and a tough year-ago comparison.
Gross profit in the reported quarter dropped significantly to $140.1 million from $243.7 million in the year-ago period.
On the cost front, total operating expenses declined to $101.0 million from $104.1 million in the second quarter 2012.
Financial Performance
First Solar reported $928.7 million of cash and cash equivalents at the end of the second quarter, up from $901.3 million at year-end 2012. Long-term debt was $255.8 million (including current portion) versus $562.6 million at year-end 2012. The debt-to-capitalization ratio was 5.8% in the reported quarter.
Guidance
For 2013, the company cut its revenue outlook to the range of $3.6 billion to $3.8 billion from the prior $3.8 billion to $4 billion. First Solar also slashed its earnings per share forecast to the range of $3.75 to $4.25 from the prior range of $4 to $4.50. The reduced expectation was mainly due to a plan to hold onto projects longer than expected, and also due to higher operating expenses.
For 2013, the company has maintained its capex at $350 million to $400 million. It expects its operating expenses to fall in the band of $390-$410 million, operating income between $405-$435 million and the effective tax rate at 15% to 17%. Operating cash flow will likely be between $0.8 billion and $1.0 billion.
Deal with General Electric (GE)
First Solar has struck a partnership deal with GE to develop solar cells based on First Solar’s thin film technology. Per the agreement, First Solar will buy GE’s own cadmium telluride solar technology that will likely lift operating costs this year. Cadmium telluride is a material found in solar cells. The company will issue 1.75 million shares to GE as part of the deal, making GE one of First Solar's biggest shareholders. General Electric will hold the shares for at least three years.
This transaction enables First Solar to step up its cadmium telluride manufacturing capabilities that will perk up its overall solar production technology.
Separately, First Solar said it would acquire a 1.5 gigawatt pipeline of projects in the United States and Mexico from developer Element Power. The terms of the deal were however not disclosed.
Zacks Rank
First Solar presently retains a short-term Zacks Rank #3 (Hold). In the near term, we would advise investors to accumulate its peers SunPower Corporation (SPWR) and ReneSola Ltd. (SOL). SunPower sports a Zacks Rank #1 (Strong Buy), while ReneSola carries a Zacks Rank #2 (Buy).
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