First Solar Tanking Pre-Market on Guidance Adjustments, Announces Exec Changes

The best part of waking up is NOT First Solar in your cup. But what a way to start the trading day. First Solar FSLR announced earlier this morning that it is reducing its forecast for 2011, dropping its initial net sales expectations from $3.0 to $3.3 billion to $2.8 to $2.9 billion. First Solar further stated that it expects its diluted earnings per share to be in the range of $5.75 to $6.00. Consolidated operating income should fall in the range of $575 to $600 million. First Solar blames the revised guidance on “continued delays of certain projects in First Solar's systems business due to weather and other factors.” Weather and “other factors,” eh? That excuse must not have sat well with investors, who saw red this morning on the news that First Solar expected to earn less green. The stock quickly tanked more than 20% in pre-market trading. “Our diverse business model and robust project pipeline will help First Solar generate a significant amount of cash in 2012 while improving operational efficiencies, but we are recalibrating our business to focus on building and serving sustainable markets rather than pursuing subsidized markets,” Mike Ahearn, Chairman and Interim CEO of First Solar, said in a company release this morning. “By channeling our core strength in utility-scale PV systems to markets with immediate need for mass-scale renewable energy our goal is to earn substantially all of our new revenues from sustainable markets by the end of 2014." That certainly sounds like a positive statement. And if the stock market traded on a two-year basis, First Solar may very well be okay. At the moment, the company is only down 12%. Benzinga Pro members are well aware of these fluctuations, and while a minus twelve is hardly positive news, it's a fair improvement over the market's initial reaction. In its official statement on the matter, First Solar said that the revised guidance “are expected charges related to a series of initiatives to accelerate operating cost reductions and improve overall operating efficiency, the majority of which the Company expects to incur in the current quarter.” But wait, just a few paragraphs ago First Solar blamed the revised guidance on product delays caused by the weather and other factors. “These charges include up to $0.75 per fully diluted share of impairment and associated charges primarily related to certain equipment, and a severance charge of up to $0.10 per fully diluted share related to a workforce reduction of approximately 100 associates, less than 1.5 percent of First Solar's workforce,” First Solar continued. While 100 associates might not sound like many compared to the thousands that Wall Street banks have been laying off this season, that number is still significant enough to show a sign of weakness within First Solar, if only for the coming year. Companies always use the excuse that they are looking to become more efficient by reducing their workforce. But unless they have a clear plan for pulling off that efficiency – the details of which were not provided in either of the company's press releases this morning – why should investors believe that First Solar isn't behaving like every other gluttonous corporation? Why shouldn't we expect First Solar to outsource at least a portion of the eliminated positions and/or attempt to force its remaining workforce to work longer hours without additional pay? I see very few noteworthy details in today's announcements – just a lot of face-saving hyperbole that looks good on paper. In 2012, First Solar is forecasting net sales in the range of $3.7 to $4.0 billion, “including approximately $1.7 billion from the systems business.” Additionally, First Solar announced that it will consolidate its worldwide sales and project development activities under Jim Brown, who will now serve as the President of Global Business Development. “The move combines First Solar's Utility Systems Business Group and Components Business Group under a unified global structure encompassing sales, project development, product management and the customer service and technical services groups,” First Solar stated in its release. “As a result of the reorganization, TK Kallenbach, President of the Components Business Group, will leave First Solar effective Jan. 1, 2012.” Further changes include James Zhu, who will step down as Chief Accounting Officer to pursue other opportunities. Zhu will stay with the company until May 1, 2012, to help Mark Widmar, the company's CFO, with his new role as Chief Accounting Officer. (Widmar will remain the CFO as well.) "We thank TK and James for their dedication and for their commitment to helping us build sustainable global markets for solar electricity,” Ahearn said of the departures. “These changes support our broader effort to reposition First Solar to lead the industry through the current market turbulence, and to better serve our customers around the world with comprehensive solar energy solutions.” “First Solar is uniquely positioned in the PV (photovoltaic) industry to have a deep and meaningful impact on the future of electricity generation, and it has been rewarding to be a part of that success,” Kallenbach added. ACTION ITEMS: Bullish: The future of energy may be in coal and oil alternatives, but with solar companies hurting:

• Natural gas is on the rise, recently giving a boost to the likes of El Pas EP and Cheniere Energy LNG. ConocoPhillips COP is currently a few percentage points lower than its year high, but it is still in a much better position than the struggling solar companies.
• Like it or not, oil is an important part of the world's energy, making companies like Exxon Mobil XOM and Chevron CVX a bit more stable.

Bearish: Those who still wish to take advantage of the solar industry do have options:

• In addition to First Solar, Suntech Power STP is down this morning in pre-market trading, indicating that the solar industry might not provide the safest investment at this time.
• This could, however, provide a short opportunity for the aforementioned solar companies, as well as a short opportunity for SunPower SPWR and LDK Solar LDK.

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