First Solar's stock suffers biggest postearnings selloff in 2 years after big profit, revenue misses

By Claudia Assis and Tomi Kilgore

Earnings miss expectations as solar company awaits federal IRA guidance regarding domestic solar manufacturing

Shares of First Solar Inc. sank Friday after the solar company reported first-quarter earnings that missed expectations by a wide margin, with sales falling to nearly half what they were just three months ago.

The stock (FSLR) dropped 12.3% in morning trading to an eight-week low, enough to pace the S&P 500 index's decliners. It was also headed for its worst one-day postearnings performance since it tumbled 12.3% after first-quarter 2021 results.

The company swung to net income of $45.6 million, or 40 cents a share, in the quarter, from a loss of $43.3 million, or 41 cents a share, in the year-ago period. That was less than half the FactSet analyst consensus for earnings per share of 99 cents.

Sales for the quarter were $548.3 million, which was up 49.4% from a year ago but down 45.3% from $1 billion in the fourth quarter, mostly driven by a drop in the volume of solar modules sold to third parties, the company said.

Chief Financial Officer Alexander Bradley explained on the conference call with analysts after the earnings report that the sequential decrease in revenue was expected, as shipments to distribution centers were increased to lower logistics costs and to align future shipments to customers with contractual delivery schedules.

Still, the revenue fell well short of the FactSet consensus of $713.8 million.

Even though results fell short of expectations, the company kept its 2023 guidance intact at revenue between $3.4 billion and $3.6 billion, and EPS between $7 and $8.

Chief Executive Officer Mark Widmar said on the call that the company is waiting for guidance from the U.S. Treasury Department regarding the Inflation Reduction Act's domestic-content bonus provision. He said it was critical that to qualify for the bonus, the manufacturing of solar cells must take place in the U.S.

"While the intent of the IRA and the regulations governing it are clear, it is unfortunate that sections of the industry are advocating that Treasury grant some form of waiver that would allow bonus credits for solar panels assembled using foreign subcomponents such as solar cells," Widmar said, according to an AlphaSense transcript. "We believe that any such waiver runs contrary to the letter of the law and congressional intent."

After conversations with his industry contacts, JPMorgan analyst Mark Strouse said he believes IRA guidelines could be released within the next month or two, which should provide a catalyst for First Solar's stock.

"We believe more restrictive guidelines on the definition of a U.S.-made solar module would be a positive for [First Solar] and likely result in the company announcing further manufacturing expansion soon thereafter, with a longer runway before competitors potentially enter," Strouse wrote in a note to clients. "We believe less restrictive guidelines would be a negative for [First Solar], likely encouraging more competition sooner, and likely leading to a material slowdown in [First Solar] bookings volume and [average selling prices]."

Strouse reiterated his neutral rating on First Solar's stock and his $185 price target.

First Solar's stock has charged up 17.7% year to date, while the iShares Global Clean Energy exchange-traded fund (ICLN) has lost 6.8% and the S&P 500 gained 8.1%.

-Claudia Assis

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04-28-23 1014ET

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