First Solar (NASDAQ:FSLR) saw its stock climb 3.4% in regular trading on Thursday, closing at $206.01, and extended gains to around $212.30 in after-hours action. The move followed the company's second-quarter earnings report, which surpassed analyst expectations, though the profit beat was significantly aided by a one-time tariff refund.
Earnings Beat Driven by Tariff Benefit
The solar panel manufacturer reported diluted earnings per share of $3.92 for the three months ended June 30, well above the consensus estimate of $2.99. Revenue came in at $1.056 billion, essentially in line with the projected $1.06 billion and down 3.7% from $1.097 billion a year earlier. Net income rose 23.6% to $422.6 million, while adjusted EBITDA increased 15% to $644 million.
However, the headline profit figure masks a key distortion: an estimated $88.6 million net tariff-refund gain accounted for approximately 84% of the $105.2 million year-over-year increase in gross profit. Excluding that benefit, preliminary gross margin stood at 48.9%—still an improvement from 45.6% a year ago, but significantly below the reported 57.3%.
Margin and Volume Details
Module volume sold rose 5.3% to 3.7 gigawatts, but the increase was offset by lower average selling prices and reduced contract-termination revenue. The company's gross profit as reported reached $605 million, compared with $499.9 million in the prior-year quarter. The tariff refund, which is provisional and subject to revision, was the primary driver of the margin expansion.
First Solar maintained its full-year 2026 guidance, including module sales of 17.0 to 18.2 GW, net revenue of $4.9 to $5.2 billion, and gross earnings of $2.4 to $2.6 billion. The company expects $2.10 billion to $2.19 billion in Section 45X manufacturing tax credits, which at the halfway point represent about 86% of the gross-profit outlook.
Cash Flow and Backlog Trends
Despite strong accounting earnings, cash flow from operations was negative $359.8 million in the first half, driven by $649.3 million in government-credit receivables, $306 million in inventory buildup, and $141 million in receivables. Finished goods inventory jumped 66% from December.
The contracted backlog declined to 45.1 GW from 47.9 GW in the prior quarter, with total contract value falling to $13.6 billion. However, First Solar announced 1.9 GW of new U.S. bookings at approximately $0.36 per watt, about 19% above the basic backlog value. CEO Mark Widmar emphasized the company's focus on "long-term value over short-term booking volume," while CFO Alex Bradley noted the U.S. fleet is "substantially committed through 2028."
Market Context and Risks
Thursday's advance offset some of the prior week's losses, but the stock remains 35.8% below its June 3 peak of $320.95. Key risks include the provisional nature of the tariff refund, potential policy shifts affecting tariff recovery or manufacturing credits, and ongoing costs of about $30 million per quarter related to underused Southeast Asian capacity. The projected cost for the Series 7 warranty remains $47 million.
Investors will watch Friday's full-session response and any updates on national-security trade policies that could influence tariff refunds. July bookings data will also be closely monitored to see if backlog levels stabilize.
