First Solar indicated that Europe's solar market is uncertain as countries end incentives and retool policies. As a result, the solar power system company is increasingly reliant on North America and developing markets for future growth.
The worries overshadowed what were better-than-expected first quarter results. First Solar reported first quarter earnings of $115.96 million, or $1.33 a share, on revenue of $567.3 million, down slightly from a year ago due to lower average selling prices. Wall Street was looking for earnings of $1.16 a share on revenue of $544.4 million.
However, First Solar did see its inventory build.
The company also reiterated its 2011 outlook that calls for sales between $3.7 billion and $3.8 billion with earnings per share of $9.25 to $9.75. That outlook disappointed a few analysts, who were looking for First Solar to raise its projections for 2011.
On a conference call, First Solar CEO Rob Gillette's commentary on Europe was described as morose by analysts. European countries have been cutting incentives for solar panel installations and it's hurting demand. Here are a few snippets from Gillette:
- "In Europe we are managing through market uncertainty due to FiT (feed in tariff) and policy changes. Ambiguity about the magnitude of Germany's midyear FiT conversion, lack of clarity with respect to Frankfurt's tender process, and Italy's delayed implementation of the new decree all created uncertainties about project economics and financing. Industry channels are adversely impacted by the lack of transparency around pending policy revisions or contemplated FiT changes".
- "In Europe, Germany, France and Italy are implementing changes to their feed-in tariff structures, market caps and tender processes. The industry will require a period of adjustment and understanding of the changes since some of the implementation details have not been finalized. In addition, the Italian government decision-making process resulted in a market pause and excess channel inventories. Rising European interest rates are also applying pressure to project economics."
- "In France the government revised the FiT program and implemented a 500 megawatt cab on the annual market size and introduced a tender system for large projects. We are disappointed that the new decree does not provide sufficient multiyear visibility and certainty for our sizable French PV market. The government has failed to take into account the needs of investors in existing projects. We are now waiting for details about the tender system before making a decision about the long-term viability of the market, and our French factory remains on indefinite hold. Because of grandfather projects, the French market should exceed the cap in 2011 and range from 500 to 800 megawatts this year."
- "Italy remains unclear with regards to both an extension of their current program, CE3, and the timing and terms of the new program, CE4. But it is clear, however, that the existing delay in FiT clarity will require a quarter or more to restart project financing and development. Further delay in FiT details will continue to impact project realization, as well as future project planning and development. We are actively engaging in the FiT policy discussions and monitoring the situation."
So what's the plan? Gillette said it is focusing on North America solar buildouts, China, Australia and the Middle East.
Stifel Nicolaus analyst Jeff Osborne said that First Solar's financial results will be heavily weighted on the second half of 2011. Osborne said in a research note:
First Solar’s increasingly morose commentary on the near-term European market demand and pricing outlook adds to the increasing list of cautious data points highlight the issues that the entire solar industry faces. We believe First Solar's management team has laid out a path of channel diversity both geographically and through effective use of self-developed projects to navigate the choppy markets.
Other solar players won't be able to manage Europe's changing dynamics.