Image source: First Solar.
First Solar recently reported first quarter earnings and it gave us our first look at where solar companies may be headed in 2016. The solar industry's fortunes are looking up at the start of the year, but the road ahead requires a little more explanation than looking at the revenue and earnings numbers. Here are five important statements from the first quarter 2016 earnings call to give you key insights into how the year may shape up.
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Jim Hughes' reason for leaving now
CEO transitions can be challenging for any company, but I think Hughes laid out why both now is the time and why Mark Widmar was the right man to secede him. The hard work of turning around First Solar's technology is done and now it's time to lay out plans to make the company competitive for the next decade. And Widmar will lead the charge of making those plans.
As for why Widmar, he has intimate knowledge with valuing solar projects, making him a perfect person to lead a company that's increasingly making big decisions about how much to bid for projects. I think this makes for a smooth transition into First Solar's future and the company will continue to incrementally improve its position in the marketplace.
The ITC extension is great, but not today
When the solar investment tax credit (ITC) was extended, many investors thought it would lead to a boom in solar demand. And over the next 5-10 years that will be true. But it affects projects that will be built in 2017 and beyond, so for First Solar 2016 isn't going to see much, if any, ITC benefit. Maybe that's shaping the market's disappointment with earnings, but it's important to know that the ITC isn't going to help 2016, it'll help solar companies in the years after that.
SunEdison is a huge unknown for the solar industry
When SunEdison filed for bankruptcy it created a potential opportunity for First Solar. Not only was a competitor out of the picture, contracts SunEdison signed could potentially be bought for pennies on the dollar in bankruptcy. But First Solar doesn't know what opportunities might arise or whether there will even be assets to buy.
Efficiency improvements continue
Between the end of 2015 and the end of the first quarter, First Solar's panel efficiency for its top line was flat after increasing from 15.6% to 16.4% in the previous three quarters. But the efficiency improvements should pick up again as the year goes on, ending at 17%. That would make it slightly more efficient than commodity silicon panels, which is a big win for the company from a competitive standpoint.
2016 will be more profitable than expected
Margins are really the key figure to watch with solar companies today. They show pricing power, or lack thereof, and over time one can see how a company's position in the industry changes. First Solar saw years of declining margins as commodity panels became more cost effective, but now it's beginning to generate higher margins and even a small improvement in 2016 margin guidance is positive news for the company.
The article 5 Things First Solar's Management Wants You to Know originally appeared on Fool.com.
Travis Hoium owns shares of First Solar. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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