First Solar Inc. (FSLR:US), the largest U.S. solar panel maker, fell short of second-quarter earnings estimates because of project delays, as the company reiterated its full-year forecast.
First Solar builds large solar farms, mainly for utilities, and recognizes revenue at irregular periods. The fluctuating quarterly numbers highlight the challenge of a business model that’s based on receiving large payments at inconsistent intervals.
“When you’re dealing with these large projects, it’s not always easy to predict timing,” Chief Executive Officer Jim Hughes said on a conference call yesterday.
The delay in the second quarter may help it beat estimates for the third quarter, just as recognizing revenue in the first quarter helped First Solar post earnings that were more than double what analysts had expected. Hughes maintained his forecast for earnings of $2.40 to $2.80 a share for the year.
Analysts said First Solar’s long-term prospects remain solid despite the quarterly shortfall in profit.
“While second quarter results were weak due to lumpy timing of project revenue, we are not concerned and instead focused on the strong year to date bookings,” Edwin Mok, an analyst at Needham & Co., said today in a note to clients. Mok upgraded the shares to buy from hold.
“This quarter was a textbook example of how choppy and unpredictable First Solar’s revenue recognition is,” Pavel Molchanov, an analyst at Raymond James & Associates in Houston, said in an e-mail. “A classic instance of project-related revenue pushouts.”
First Solar’s net income for the quarter plunged 87 percent to $4.5 million, or 4 cents a share, from $33.6 million, or 37 cents, a year earlier, the Tempe, Arizona-based company said in a statement. That fell short of the 32-cent average of 12 analysts’ estimates compiled by Bloomberg.
Revenue increased 4.7 percent to $544.4 million, less than the $796 million analysts were expecting.
First Solar shares gained 3.1 percent to $65.60 at the close in New York. They have increased 20 percent this year.
First Solar said the delays included issues with inverters at its 550-megawatt Desert Sunlight power plant in Southern California.
“It manifested itself only when the plant came up to full power,” Chief Financial Officer Mark Widmar said on the call. “It’s not something we’re particularly alarmed by. It just requires some engineering time.”
First Solar builds large solar farms, mainly for utilities, and recognizes revenue at irregular periods. The company’s sales for the third quarter of last year almost doubled when it added about half the revenue from Desert Sunlight to its balance sheet.
Net income in the first quarter of this year was more than double estimates after the company recognized revenue from its 139-megawatt Campo Verde project in California. First Solar sold it in April 2013 to Southern Co. and Ted Turner’s clean-power company Turner Renewable Energy LLC.
The company added more than 800 megawatts of new power-plant orders in the second quarter, including its 250-megawatt Silver State South and 50-megawatt Macho Springs projects. Terms for those deals weren’t disclosed.
“This was one of the best periods for bookings,” Ben Kallo, an analyst at Robert W. Baird & Co., said on the conference call. He has the equivalent of a buy rating on the shares.
“The opportunities pipeline has grown,” Hughes said. “It’s beginning to translate to orders.”
That may be partly why Hughes agreed to make a decision on forming a new company to hold some of its power plant assets by the next time the company reports third-quarter earnings, said Sven Eenmaa, an analyst at Stifel Nicolaus & Co. in New York. Cost reductions and improving panel efficiency also may be encouraging a swifter decision on forming a so-called yield company.
“Change to a firmer tone on yieldco strategy looks promising to us,” Eenmaa said today in a note to clients. He has a buy rating on First Solar.
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