First Solar's Strong Earnings, Weak Outlook Roil Its Stock

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Investors loved the numbers they saw in First Solar’s (s fslr) highly anticipated earnings report Tuesday afternoon. They they tuned in to the conference call and hated what they heard about the company’s outlook for this year.

For the three months ended Dec. 27, 2008, First Solar reported revenue of $433.7 million, up 116 percent over the same quarter a year ago, and a net profit of $132.8 million, or $1.61 a share. A year earlier, First Solar reported revenue of 77 cents a share. That was much better than what analyst had been expecting: $410.4 million in revenue and $1.30 a share in profit.

After that report came out, First Solar shares were up as much as 4 percent at $143.03 in afterhours trading on the news. That followed a 10 percent jump in share prices during active trading Tuesday, when FSLR closed at $137.68.

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Then came the conference call. First Solar executives said that between 10 percent and 15 percent of their customers are at risk of defaulting on their contracts. That’s not a new development — First Solar made a similar warning three months ago — but in this climate it is unsettling. Then they said revenue would be “flat to slightly down” for this quarter and between $1.8 billion and $1.9 billion for the full year. That range is below the $1.98 billion that analysts had been expecting for 2009.

The decreased guidance is due to $200 million in revenue that will be deferred because of equity co-investments that First Solar is making in projects in Germany and possibly elsewhere. It seems the co-investments were necessary for the projects to draw other backers in the tough financing environment.

First Solar’s CFO Jens Meyerhoff suggested there may be other such investments, which could reduce its guidance further. “If market uncertainties continue to increase, particularly around financing, we could reach a point, in our opinion, where continued guidance would provide little useful info to our investors,” he said.

Those details caused investors in the aftermarket to sell First Solar. The stock fell 20 percent from $143.03 to $113.75 in a little more than an hour.

It’s not all bad news, though. First Solar said the falling prices of crystalline silicon solar panels are not forcing it to drive down prices on its thin-film products. Meanwhile, its manufacturing costs fell to 98 cents per watt from $1.08 per watt in the previous quarter, and should fall further to around 65 cents per watt in the long run.

First Solar is facing a tough year, but it could emerge stronger from it. CEO Michael Ahearn summed it up by contrasting the long view with the short run. “Looking out three to five years or beyond, the market outlook for solar power has never been better,” he said. “But the short term outlook has never looked more difficult.”

Image courtesy of Google Finance.

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