Citi: Why did First Solar’s profit beat expectations despite a cut to its shipment guidance?

Why did profit beat expectations despite lower-than-expected shipments?

Third-quarter revenue in 2026 was 1.23 billion dollars, 6% below market consensus. Module shipments of 4.1 GW also missed the consensus of 4.5 GW, mainly because of lower Series 6 module sales in India and international markets.
Earnings per share were 5.30 dollars, 14% above market consensus; gross margin, including benefits related to the US Inflation Reduction Act, reached 57.9%, about 7 percentage points above consensus. The share of US modules in shipments rose from about two-thirds in the second quarter to about 90% in the third quarter, and increased US module production eligible for the 45X tax credit boosted margins.
Adjusted EBITDA was 744 million dollars, 3% above market consensus. The company also announced a 500 million-dollar share repurchase authorization ahead of schedule.

The company cut the midpoint of its 2026 shipment guidance from 17.6 GW to 16.5 GW and its revenue guidance midpoint from 5.05 billion dollars to 4.75 billion dollars, mainly reflecting weak domestic Indian and international demand for Series 6 modules; expected domestic US shipments were unchanged.
Gross profit guidance remained at 2.5 billion dollars, while adjusted EBITDA guidance edged down from 2.7 billion dollars to 2.65 billion dollars. The reduced sales in India and Southeast Asia carried relatively low margins after accounting for the 45X credit, while pricing and manufacturing execution provided support.
The company cut full-year capital expenditure guidance from 900 million dollars to 700 million dollars, offsetting weaker cash inflows, and kept net cash guidance unchanged. Full-year guidance also implies that fourth-quarter gross margin will fall sequentially from 57.9% in the third quarter to about 49%.

Management is quoting higher prices, but macroeconomic uncertainty has prolonged negotiations; no major new orders were announced this time. Citi believes most of the benefit from higher pricing remains further in the future.
The company is moving from framework agreements to project-level contracts. Citi believes this helps reduce risk and warehousing costs: warehousing costs exceeded 200 million dollars in 2026, partly because of inventory accumulated under customer framework agreements and the Malaysia plant; the bank expects a significant decline in 2027.
The CuRe technology conversion at the India plant is expected to contribute about 100 million dollars in technology-related incremental revenue; about 20% of the 2027 backlog is subject to CuRe price adjustment clauses. New orders incorporate CuRe directly into pricing, and the value of this optionality will decline as products subject to the adjustment clauses are sold.

Citi lowered its 2027 gross margin forecast by about 1.3 percentage points to 52% and raised its operating expense forecast by 26% to 630 million dollars, taking into account this year’s expense level and potential production start-up costs. Cell and wafer capacity will also experience downtime during the CuRe conversion; the South Carolina plant and some projects deferred to 2027 will also generate expenses.
The bank cut its 2027 earnings-per-share forecast from 25.12 dollars to 22.07 dollars and its price target from 297 dollars to 283 dollars, while maintaining its buy and high-risk ratings. Its assessment depends on US trade barriers and manufacturing incentives, as well as the company securing additional orders at higher prices; whether more Indian products can be sold to the US also depends on the tariff environment.