First Solar Beats, Ups Guidance

First Solar Inc. (FSLR - Analyst Report) posted second-quarter 2012 results with pro forma earnings per share of $1.65, outshining the Zacks Consensus Estimate of 89 cents per share and year-ago figure of 70 cents per share.

On a reported basis, earnings per share came in at $1.27 compared with a loss of $5.20 per share in the prior quarter and earnings of 70 cents per share in the year-ago quarter. The difference between pro forma and reported earnings is mainly due to restructuring charges and charges related to costs in excess of normal warranty expense.

Operational Performance

First Solar’s quarterly revenues were $957 million, up $460 million from the prior quarter and $425 million from the year-ago quarter. Quarterly revenue also surpassed the Zacks Consensus Estimate of $805 million.

The significant top-line growth was driven by an increase in the number and size of projects under construction that were meeting revenue recognition criteria during the quarter. The projects include Antelope Valley Solar Ranch 1 in California and Silver State North in Nevada.

Gross margin in the reported quarter was 25.5%, down 11.1% year over year from 36.6%, but up 10.1% sequentially from 15.4%. Overall, First Solar reported a pro forma net income of $144.9 million compared with a net income of $61.1 million in the comparable quarter last year.

Financial Performance

First Solar reported $630.2 million of cash and cash equivalents at the end of the reported period versus $357.5 million as of June 30, 2011. Long-term debt increased to $471.1 million from $332.5 million as of June 30, 2011.

Guidance

First Solar increased its sales and earnings guidance for full-year 2012 based on the ongoing cost structure, primarily related to the restructuring initiatives taken by it. The company expects pro forma earnings per share to be in the range of $4.20 to $4.70 versus its previous expectation of $4.00 to $4.50.

First Solar expects sales to be in the range of $3.6 to $3.9 billion versus its prior expectation of $3.5 billion to $3.8 billion. Post completion of the restructuring program, the company expects to achieve 2.6 to 3.0 GW of sales in sustainable markets and return on invested capital in the range of 13% to 17% by 2016.

The company expects module costs to be in the range of 70 to 72 cents per watt and production to be in the range of 1.8GW to 1.9GW DC in full-year 2012.

Outlook

First Solar fairly surpassed the Zacks Consensus Estimate this quarter. The company not only outperformed sequentially but also on a year-over-year basis due to its accurate long-term strategy and its policy to boost long-term growth. First Solar had initiated a major restructuring of its operations in April. We expect the benefits to fully accrue some time later.

Currently, the company, along with its peers, Suntech Power Holdings Co. Ltd. (STP - Analyst Report) and SunPower Corporation (SPWR - Analyst Report), is witnessing an oversupply of photovoltaic products leading to a steep drop in Average Selling Prices. Also, a volatile euro, apprehension over a reduction in European solar subsidies and falling crystalline silicon prices remain a matter of concern for the company. The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Underperform recommendation on the stock.

Based in Phoenix, Arizona, First Solar is engaged in designing, manufacturing and selling 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. The company sells its products to project developers, system integrators, and operators of renewable energy projects, primarily in Europe with a distinct focus on Germany.