First Solar Inc. (FSLR) fell below the Zacks Consensus earnings per share (EPS) estimate of $1.57 by 31 cents to clock adjusted earnings of only $1.26 in the fourth quarter of fiscal 2011. It also came below the year-ago quarterly EPS of $1.88.
On a reported basis loss came in at $4.78 per share in the fourth quarter of fiscal 2011 versus earnings of $1.80 per share in the year-ago quarter. The sharp variance in the reported quarter was due to charges associated with a non-cash goodwill impairment for components business; charge related to warranty and cost in excess of normal warranty expense; and charge related to restructuring activities
First Solar’s quarterly revenues were $660 million, up $50 million from $610 million in the fourth quarter of 2010. Quarterly revenue however fell behind the Zacks Consensus Estimate of $812 million. Also compared to the third quarter of 2011, revenue decreased $345 million, primarily due to lower third-party module volumes and lower volumes in systems business.
In the reported quarter, First Solar’s aggregate module average selling prices (ASPs) increased 2.9% quarter-over-quarter. Module ASPs in the systems business increased sequentially whereas third-party module ASPs declined 4%. On a year-to-year basis, fourth quarter module ASPs decreased 2% and third-party ASPs declined 24%.
In the reported quarter, gross margin was 20.9%, down 16.8 percentage points from the third quarter of 2011. The decrease was due to an increase in incremental warranty charges. Without these one-time charges, gross margins were 36.1%. Quarterly module gross margin was 19.5%, down from third quarter module gross margin of 41.4%. Excluding the impact of incremental warranty charges, module gross margin was 35.5%.
Operating expenses were up $467 million quarter over quarter to $623.4 million. The primary reason for the increase was due to a $393.4 million goodwill impairment charge; a $31.8 million charge related to the manufacturing excursion; and $60.4 million of restructuring charges.
Overall, First Solar reported that its fourth quarter of 2011 net loss was $413.11 million, compared with net income of $155.94 million in the same quarter last year.
First Solar reported $605.6 million of cash and cash equivalents at the end of 2011, down from $765.7 million at year-end 2010. Long-term debt increased to $619.1 million from $210.8 million at year-end 2010.
Based in Phoenix, Arizona, First Solar designs, manufactures and sells 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.
First Solar is the only stand-alone solar player in the S&P 500 Index. Along with its solar peers, the company is witnessing an oversupply of photovoltaic products leading to a steep drop in ASPs. The company expects the largest sequential decline in third-party module ASPs in the first quarter of 2012, as higher-priced legacy contracts expired at the end of 2011. Also, the current macro scenario does not bode well for the solar industry, which thrives mainly on subsidies and grants.
First Solar expects the weak trend to continue in 2012. The company slashed its fiscal 2012 net sales guidance to a range of $3.5 billion–$3.8 billion, from the prior outlook of $3.7 billion–$4.0 billion. In order to counter this, it is focusing more on utility-scale electricity power projects. Finally, a volatile euro, apprehension over a reduction in European solar subsidies and falling crystalline silicon prices continue to impact valuation. The company reiterated its fiscal 2012 earnings per share guidance in a range of $3.75 to $4.25, excluding any impairment and restructuring charges that the company may be taking in 2012. So we advise investors to exit from this Underperform rated stock for now.
We are currently bearish on the Zacks #4 Rank (short-term Sell rating) stock. In the near-term we would advise investors to focus on the Zacks #2 Rank (short-term Buy rating) peer SunPower Corporation (SPWR).
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