First Solar Misses on Both Counts

Zacks

First Solar Inc. (FSLR) fell below the Zacks Consensus earnings per share (EPS) estimate of 48 cents by 56 cents to digest an adjusted loss of 8 cents in the first quarter of fiscal 2012. It also came in below the year-ago quarterly EPS of $1.33.

On a reported basis, loss came in at $5.20 per share in the reported quarter versus earnings of $1.33 per share in the year-ago quarter. The sharp variance in the reported quarter was due to charge related to restructuring activities announced in April and charges related to costs in excess of normal warranty expense.

Earlier, in April, First Solar forced by lower demand closed its manufacturing plant in Germany and idled four lines at its plant in Malaysia. The restructuring would reduce the solar panel maker's workforce head count by about 2,000, or about 30%.

Operational Performance

First Solar’s quarterly revenues were $497.1 million, down $70.2 million from $567.3 million in the year-ago quarter. Quarterly revenue also fell behind the Zacks Consensus Estimate of $676 million. Also compared to the fourth quarter of 2011, revenue decreased $163 million, primarily due to lower module volume sales and lower average selling prices. This was partially offset by higher systems revenue.

Gross margin in the reported quarter was 15.4%, down 5.5 percentage points from the prior quarter. Excluding non-recurring charges in the fourth quarter of 2011 and those in the first quarter of 2012, on a comparable basis, gross margin was 40.9% and 20.9%, respectively. The gross margin decline was reflective of lower sales volume, lower average selling prices (ASPs), inventory write-downs and the Systems business project sales mix.

Operating expenses were down $90.4 million quarter-over-quarter to $533 million. Operating expenses in the fourth quarter of 2011 were impacted by a series of non-recurring charges, including goodwill impairment, manufacturing excursion-related charges and restructuring charges. Similarly, operating expenses in the first quarter of 2012 were impacted by restructuring and manufacturing excursion-related charges. Excluding these charges in the fourth quarter 2011 and those in the first quarter of 2012, on a comparable basis, operating expenses were $138 million and $116 million, respectively, or 16% lower in the first quarter of 2012.

Overall, First Solar reported a net loss was $449.4 million, compared with a net income of $116.0 million in the same quarter last year.

Financial Performance

First Solar reported $610.5 million of cash and cash equivalents at the end of the reported period versus $605.6 million at year-end 2011. Long-term debt increased to $806.1 million from $619.1 million at year-end 2011.

Outlook

Based in Phoenix, Arizona, First Solar designs, manufactures and sells 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.

First Solar is the only stand-alone solar player in the S&P 500 Index. Along with its solar peers, the company is witnessing an oversupply of photovoltaic products leading to a steep drop in ASPs. However, based on reductions in the company's ongoing cost structure related to its restructuring initiatives, First Solar raised its 2012 adjusted earnings guidance range to $4.00–$4.50 per share from its prior guidance range of $3.75–$4.25 per share.

We are currently neutral on the Zacks #3 Rank (short-term Hold rating) stock. In the near term we would advise investors to focus on the Zacks #2 Rank (short-term Buy rating) peer Ascent Solar Technologies Inc. (ASTI).

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