Will Westport Innovations Inc. Finally Turn Around This Week?

This key metric in Westport Innovations’ upcoming earnings report could decide where its shares are headed.

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The Motley Fool

Fasten your seat belts, Westport Innovations (TSX: WPT)(NASDAQ: WPRT) investors. The company is set to release its much-awaited first-quarter numbers this Thursday. This earnings report should give you the first evidence of whether the company is finally on the road to profits.

But unlike in the fourth quarter, will Westport surprise investors this week and provide its languishing stock a much-needed breather?

Forget the losses, and watch this metric
Analysts see Westport’s Q1 revenue jumping 37% year over year. More notably, they expect the company’s loss to shrink nearly 28% to U.S. $0.41 a share. But you may want to shift focus from net loss to another metric this week.

Westport hopes to steer its three operating business units to positive adjusted EBITDA by the end of this year. To give you a clearer picture, the three units include Applied Technologies, On-Road Systems, and Off-Road Systems; and the units combined incurred negative adjusted EBITDA of about $9 million in each of the past four quarters. Furthermore, adjusted EBITDA means net income (loss) excluding expenses like interest, tax, depreciation, amortization, forex gains or losses, and other non-cash items.

So if Westport wants its units to generate positive adjusted EBITDA by the end of 2014, it must start showing signs of recovery from the first quarter itself. Remember that the company could still incur big net losses in Q1, since it continues to incur huge expenditures on capital investments that also go into its bottom line. So do not read much into Westport’s net losses for now. Instead, look out for how it is curbing costs and improving its adjusted EBITDA numbers in its upcoming earnings report.

Are Westport’s plans working?
While its top and bottom line numbers will grab headlines when Westport reports this week, investors should pay greater attention to the company’s ongoing growth plans and how things are shaping up in its key end markets.

For instance, Westport’s joint venture with Cummins (NYSE: CMI), which is also its most profitable venture, had a record fourth quarter with shipments nearly trebling year over year, driven largely by orders for the newly launched 12-liter ISX 12G engines. If the trend continues into the first quarter, it should signal good response to the engine. That should be great news, considering that Westport is betting heavily on the ISX 12G to gain traction in the critical heavy-duty truck market in the U.S.

Watch for details on the big opportunity
Westport also projects 2014 to be its “breakthrough year in China.” Shipments under its joint venture with China-based Weichai Power surged 73% last year, signaling strong demand for natural-gas engines from the nation. Westport has just launched its next generation high pressure direct injection technology on the Weichai Westport engine platform. HPDI 2.0 is touted as Westport’s biggest technology until now, and China one of its biggest growth markets. So watch for more details in Westport’s upcoming earnings call.

On that note, I’d also like to point out something important – Since HPDI 1.0 contributed nearly 15% to Westport’s total revenue in 2013, and the company discontinued the system during its fourth quarter, its revenue may remain under pressure for some time. Keep that in mind when the company reports numbers this week.

Foolish bottom line
Westport stock is trading at its 52-week low for several weeks, and a good set of numbers on Thursday could signal its much-awaited turnaround. Until then, don’t miss Cummins’ and Paccar’s (Nasdaq: PCAR) earnings reports scheduled for release tomorrow. Westport’s fortunes are closely tied to these two companies, so stay cautious.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Neha Chamaria does not own shares in any of the companies mentioned at this time. Tom Gardner owns shares of Paccar. The Motley Fool owns shares of Cummins, Paccar, and Westport Innovations.

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