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First Solar Inc. (FSLR - Analyst Report) posted stellar third quarter 2013 results with adjusted earnings of $2.28 per share, beating the Zacks Consensus Estimate of 92 cents approximately by 148%. Earnings were up 79.5% year over year.

The significant year-over-year increase in earnings was driven by higher systems business project revenues, increased manufacturing utilization and higher module sales to third-party customers.

Including an asset impairment charge of 34 cents related to the recently announced agreement to sell the facility in Mesa, Ariz., GAAP earnings came in at $1.94, up from $1.00 in the prior-year quarter. In Oct 2013, the company had entered into an agreement to sell its Mesa facility.

Revenue

First Solar’s revenues for the quarter jumped 50.8% year over year to $1,265.6 million. The significant year-over-year increase is attributable to the Desert Sunlight and ABW projects and higher sales volume to third-party module-only customers. These positives were partially offset by the absence of initial revenue recognition for the Topaz project that was accounted for in the third quarter of 2012. The top-line figure surpassed the Zacks Consensus Estimate of $961 million by 31.7%. Revenues grew 143.5% sequentially.

Gross profit in the reported quarter was $364 million, up 52.5% year over year.

Total operating expenses increased 18.6% year over year to $156.1 million. The increase was more than offset by improved revenues, thereby resulting in an operating income of $207.9 million, up 94.2% year over year.

Financial Performance

First Solar had $1,192.6 million of cash and cash equivalents at the end of the third quarter, up from $901.3 million at year-end 2012. Long-term debt decreased to $168.9 million from $500.2 million at year-end 2012.

Guidance

For 2013, First Solar cut its revenue outlook to the range of $3.4 billion to $3.6 billion from the prior $3.6 billion to $3.8 billion. However, the company increased its earnings per share forecast to the range of $4.25 to $4.50 from $3.75 to $4.25.

The company has decreased its capital expenditure forecast to a range of $300 million to $350 million versus its prior expectation of $350.0 million to $400.0 million. It maintained its operating expenses forecast in the band of $390.0–$410.0 million.

Deal with NextEra Energy Resources

First Solar announced that it has struck a deal with NextEra Energy Resources, a subsidiary of NextEra Energy, Inc. (NEE - Analyst Report) simultaneously with its earnings release. Per the deal, First Solar will sell its Silver State South Solar Project to NextEra Energy. Spread across approximately 3,000 acres of public land in Clark County, Nev., the project has an electric generation capacity of 250 megawatt (MW).

At the Peer

SunPower Corp. (SPWR - Analyst Report) posted third quarter 2013 adjusted earnings per share of 33 cents compared to a loss per share of 5 cents in the year-ago quarter. Earnings also comfortably surpassed the Zacks Consensus Estimate of 24 cents.

Our Take

First Solar’s top and bottom lines succeeded in beating the Zacks Consensus Estimate. Also, both the parameters experienced year over year increase thanks to higher module sales to third-party customers.

During the quarter, the company made additional bookings of 860 MWdc and made significant reductions to module manufacturing cost. Going forward, these initiatives would continue to strengthen the company’s position while helping it to maintain the current surprise and year-over-year trend.

Moreover, the sale of Mesa facility would provide additional liquidity in the form of cash sale proceeds of approximately $115 million and is expected to curtail annual operating expenses of approximately $10 million. The company expects to receive the net cash proceeds from the sale in the fourth quarter of 2013.

The solar industry continues to face a challenging business environment as a result of intense pricing competition. The structural imbalance between higher production capacity and global demand currently as well as in the near term is expected to continue. This would, therefore, put pressure on pricing and affect results through the remainder of 2013 and into 2014.

First Solar presently has a short-term Zacks Rank #3 (Hold). In the near term, we would advise investors to accumulate its short-term Zacks Rank #2 (Buy) peer ReneSola Ltd. (SOL - Analyst Report).

 

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