Shoals (SHLS) Q1 Earnings Preview: Navigating Headwinds for a Solar Recovery

As investors gear up for Shoals Technologies Group (NASDAQ: SHLS)’s Q1 2025 earnings report, due out on May 6, the solar component supplier faces a dual challenge: navigating near-term headwinds in the utility-scale solar market while positioning for a potential recovery in the latter half of the year. With a backdrop of delayed projects, margin pressures, and macroeconomic uncertainties, here’s what to watch for.

What to Expect in Q1 Earnings

The consensus calls for an EPS of $0.21 and revenue of $73.85 million, a steep 18.7% year-over-year decline. This reflects the lingering impact of delayed solar projects, supply chain bottlenecks, and competitive pricing pressures. Shoals’ Q4 2024 results already hinted at these challenges: revenue fell 18% to $107 million, while adjusted EBITDA dropped to $26.4 million.

However, there are reasons for cautious optimism. Analysts note Shoals’ Zacks Earnings ESP of +3.23%, suggesting a higher likelihood of beating EPS estimates. The company also has a $634.7 million backlog as of December 2024, with $440 million slated for delivery in 2025—up 6.5% from September. This visibility could underpin a rebound in the second half of the year.

Key Drivers to Monitor

1. Backlog Execution: The $440 million portion of the backlog earmarked for 2025 delivery is critical. Management has emphasized a “softer first half” but expects stronger performance in H2. Q1 results will signal whether delays are easing or persisting.
2. Gross Margin Trends: Shoals’ gross margin dipped to 37.6% in Q4 2024 from 42.5% in Q4 2023 due to higher material costs and competition. Investors will watch for improvements here, as productivity measures and cost controls begin to offset these pressures.
3. New Market Growth: Progress in Commercial & Industrial (CC&I) solar and Battery Energy Storage Systems (BESS) could offset softness in the utility-scale segment. Management highlighted early wins in international markets, which may start contributing meaningfully in 2025.

Risks and Challenges

• Regulatory and Policy Uncertainty: Shoals operates in a sector highly sensitive to federal subsidies, trade tariffs, and interest rates. A delay in resolving these issues could prolong project delays.
• Supply Chain Volatility: Persistent bottlenecks in raw materials like copper and wire insulation remain a risk, especially if inflation reignites.
• Stock Performance Pressure: The stock trades at a Zacks Rank #3 (Hold), reflecting neutral near-term prospects. A miss on EPS or revenue could amplify investor skepticism.

The Bigger Picture

Shoals’ 2025 outlook includes revenue of $410 million–$450 million and adjusted EBITDA of $100 million–$115 million, implying a gradual recovery. CEO Brandon Moss has stressed that the company’s backlog positions it to capitalize on a potential rebound in H2—if macroeconomic and regulatory clarity emerges.

Conclusion

Shoals’ Q1 results will serve as a litmus test for its ability to navigate a challenging start to 2025. While the near-term outlook remains cautious due to delayed projects and margin pressures, the $440 million backlog and progress in new markets offer a path to growth later in the year. Investors should focus on whether management can:
- Exceed Q1 estimates, leveraging the Zacks Earnings ESP signal.
- Demonstrate margin stabilization, as cost controls start to offset input inflation.
- Provide clarity on H2 visibility, particularly regarding project timelines and regulatory risks.

A beat on EPS or revenue could rekindle optimism, especially if management signals stronger demand in the second half. Conversely, a miss may prolong the stock’s consolidation phase. With a consensus price target of $8.87 and a current price near $7.50, the stakes are high for Shoals to deliver a narrative of resilience and recovery.

Final Takeaway: Shoals’ Q1 results are pivotal for gauging its ability to weather the storm in solar’s cyclical downturn. The company’s long-term prospects hinge on executing its backlog and capitalizing on emerging markets, but Q1’s performance will determine investor sentiment in the short term.