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First Solar Profit Jumps 81% on Shift to Project Sales

First Solar Profit Rises as U.S. Plant Construction Accelerates
First Solar Inc.'s 290-megawatt Agua Caliente plant in Arizona was more than two-thirds complete by mid-July and the company said it installed its 10 millionth solar panel at the 550- megawatt Desert Sunlight project in Southern California on June 25. Photographer: Joshua Lott/Bloomberg

First Solar Inc., the world’s biggest maker of thin-film modules, said profit jumped 81 percent after it recognized revenue for selling power plants, validating the company’s strategic shift to building solar farms using its panels.

Net income was $111 million, or $1.27 a share, compared with $61.1 million, or 70 cents, a year earlier, the Tempe, Arizona-based company said today in a statement. Excluding restructuring charges, earnings were $1.65 a share, 71 cents more than the average of 27 analysts’ estimates compiled by Bloomberg.

Sales increased 80 percent to $957.3 million, largely from selling utility-scale power projects to companies such as Exelon Corp. and Enbridge Inc. While competitors are focused on selling panels to developers, most of First Solar’s growth will come from its development unit, a strategy that’s insulating it from falling panel prices, according to Chief Executive Officer Jim Hughes.

“We’re in discussions for a whole series of joint-venture relationships” with companies that will buy First Solar’s projects, Hughes said today during a conference call with analysts. “There should be a steady stream of announcements that reflect us continuing to get our feet under us.”

The sales gain was “primarily due” to recognizing revenue for selling power plants, according to the statement. That included the 230-megawatt Antelope Valley Solar Ranch 1 project in California that Exelon Corp. bought in September, and the 50-megawatt Silver State North project in Nevada that Enbridge Inc. acquired in March.

Only Profits

That shift to projects is expected to make First Solar the only company in the 17-member BI Global Large Solar Index to report a profit for the second quarter, according to data compiled by Bloomberg. The shares surged 20 percent to $17.77 at 6:10 p.m., after the close of regular trading in New York.

The company is developing 2.9 gigawatts of projects in the U.S., Canada and Australia that it has already sold, according to supplemental data released today. It also announced plans to build a new project in California, the 139-megawatt Campo Verde solar farm, which will sell power to Sempra Energy’s San Diego Gas & Electric under a 20-year contract.

“First Solar’s got good earnings visibility into next year and even 2014 because of their project pipeline,” said Ben Kallo, an analyst at Robert Baird & Co in San Francisco, before the earnings statement was released. “They’ve got to show some progress on building markets for their power plants outside the U.S.”

Pipeline Questions

The question for First Solar is whether it can keep its project pipeline full, said Jesse Pichel, an analyst with Jefferies Group Inc. in New York. “We want to see how well they’re winning new projects,” he said in an interview.

First Solar may not be able to sustain the same pace of sales growth, according to Gordon Johnson, an analyst at Axiom Capital Management Inc. in New York.

“This does not represent tangible demand,” he said in an e-mail. “The company is pulling forward future revenue to cushion its current income statement. We see rising risk to the company’s earnings trajectory in 2013.”

First Solar’s average efficiency rose to 12.6 percent in the second quarter from 12.4 percent in the prior quarter.

For the year, First Solar raised its earnings forecast to a range of $4.20 to $4.70 a share, excluding restructuring charges, from a May 3 estimate of $4 to $4.50 a share.

“Unlike many solar manufacturers, First Solar is generating positive cash flow,” Mehdi Hosseini, an analyst at Susquehanna Financial Group LLP in San Francisco, said in an interview. “It’s going to come down to, when the industry stabilizes, what is going to the be company’s earning power?”

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