First Solar Plunges After Cutting Forecast for Sales, Shipments

(Bloomberg) -- First Solar Inc.'s third quarter was better than expected, with profit coming in at more than double what analysts were looking for. The rest of the year won't be so great.

The biggest U.S. solar manufacturer reduced its 2016 forecast for sales and shipments, according to a statement Wednesday. With prices and demand both slipping, the company also lowered its capital spending budget, and the shares slumped the most in more than three years.

Chief Executive Officer Mark Widmar shifted focus to selling panels over developing giant solar farms after taking the helm July 1. Tempe, Arizona-based First Solar is focusing on reducing costs and seeking growth by building smaller plants and selling panels to other developers, as demand for big solar farms tapers off and module prices slump.

“Industry oversupply and sharp declines in module prices has led to customers delaying contracts in hopes of further declines,” Patrick Jobin, an analyst at Credit Suisse Group AG, said in a research note Wednesday. “The company will have to further reduce costs or even potentially revisit expansion strategy.”

First Solar decreased 15 percent to $34.42 at 9:54 a.m. in New York, the most intraday since February 2013. The shares have declined 48 percent this year.

Desert Stateline

Net income fell in the third quarter to $1.49 a share from $3.41 a year earlier, the Tempe, Arizona based company said in a statement Wednesday. That beat the 74-cent average of 13 analysts' estimates compiled by Bloomberg. Sales fell to $688 million from $1.27 billion. The company's profit quadrupled in the third quarter of 2015, mostly on the sale of its majority stake in the 300-megawatt Desert Stateline project in Southern California to Southern Co.

Global prices for solar panels have slumped more than 28 percent this year, and with demand slowing, especially in China, there are signs of a looming industry oversupply. Widmar said some customers are delaying orders in anticipation of even lower prices, and he reduced the company's shipment and revenue forecasts for the year.

The company expects to ship 2.8 gigawatts to 2.9 gigawatts of panels this year, down from an earlier forecast of 2.9 gigawatts to 3 gigawatts. That will curb revenue to $2.8 billion to $2.9 billion, down from the prior estimate of $3.8 billion to $4 billion. Capital spending will be $225 million to $275 million this year, down from $275 million to $325 million.

Higher Margins

Delaying the completion of some power plants, as well as lower spending, will help the company boost gross margins for the year to as high as 26 percent, compared with an earlier forecast of 18.5 percent to 19 percent. It raised the low end of its earnings forecast, to $3.75 a share to $3.90, from $3.65 to $3.90 a share.

Next year will be more difficult for First Solar if module prices continue to decline

The company is considering two paths to accelerating its cost reduction plan, including shifting to earlier adoption of its largest panel, the series 6. “In this oversupply situation we're looking closely at manufacturing capacity.”

One of Widmar's first moves was to shut down production of the company's TetraSun panels, a high-performance polysilicon technology First Solar acquired in 2013. While the vast majority of the photovoltaic manufacturers use polysilicon, First Solar's main product uses a thin film of cadmium-telluride sandwiched in glass.

“Current market conditions are extremely challenging and require us to carefully assess our short and long-term strategic response,” Widmar said in the statement.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net. To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Will Wade, Steven Frank