3 Key Things to Watch for in Westport Innovations Inc.’s Earnings Report

Westport Innovations Inc. (TSX:WPT)(NASDAQ:WPRT) is set to report earnings next Monday. Will the numbers confirm your doubts?

| More on:
The Motley Fool

Westport Innovations Inc.’s (TSX:WPT)(NASDAQ:WPRT) stock has had some wild swings in recent weeks that have left investors bewildered. It’s no surprise that they’re banking on the company’s next quarterly earnings report to make sense of what’s going on and what lies ahead. Brace up, because Westport is set to report its fourth-quarter numbers next Monday. While expectations remain low, here are three key things you should watch for.

Top line: trending lower?

For a company that’s yet to turn a profit, generating higher sales is the key to sustainability. Westport shocked the market when it reported a staggering 46% slump in year-over-year revenue in its third quarter. The bad news is that analysts estimate the company’s Q4 revenue to drop 48% year over year.

While a big drop in Westport’s revenue shouldn’t surprise you, what’s important to understand is how long the pain can last. You can get an idea if you keep an eye on two factors in the earnings report: Europe and service revenue.

Challenging economic conditions in Europe—Westport’s key market—has hit the company’s sales hard in recent quarters. Meanwhile, service revenue, which is the payment Westport receives for providing product development services to original equipment manufacturers, is also under pressure. Since this portion accounts for more than 10% of the company’s total revenue, any lag can hurt its top-line growth.

Oil pinch

The recent plunge in oil prices is one of the major factors that pulled Westport shares down. The company’s business stands on one premise: Cost differential between diesel and natural gas makes the latter more viable and attractive as a fuel. But with oil prices plummeting and natural gas prices remaining firm, Westport’ prospects suddenly look dim.

Investors need to know how Westport management is handling the situation, and more importantly, if they can quantify the impact of lower oil prices on the company’s business. Watch for updates on demand for Westport’s WiNG power system products, which it designs for Ford. Demand for WiNG products showed signs of stress in the third quarter, largely because of lower gasoline prices. Since Ford is a key partner, any reduction in demand bodes ill for Westport.

Cash burn

The last thing Westport would want at this stage is cash crunch. So, keep an eye on Westport’s cash balances in its upcoming earnings report. While the company ended its third quarter with high year-over-year cash and short-term investments balance, it burned US$38.6 million sequentially.

What’s more, over the nine months through September 2014, Westport’s cash balance depleted to US$130.2 million versus US$210.6 million it held as at December 31, 2013.  Meanwhile, the company’s debt increased 10% over the period.

Needless to say, Westport cannot afford to burn cash and needs to control its expenditures. Look for how it plans to do so in its earnings call.

Silver lining

Investors must remember that despite a huge decline in revenue, Westport managed to cut its losses in the third quarter. That indicates that management’s focus is on cost control, even as sales growth is hard to come by. If Westport can continue to reduce losses in Q4, investors’ faith in management may be restored.

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 has no position in any stocks mentioned. David Gardner owns shares of Ford. The Motley Fool owns shares of Ford and Westport Innovations.

More on Investing

Arrowings ascending on a chalkboard
Tech Stocks

Why I Think Nuvei Stock Has Market-Beating Potential

Given its growth initiatives, expanding addressable market, and attractive valuation, I believe Nuvei has the potential to outperform the broader…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

A worker drinks out of a mug in an office.
Metals and Mining Stocks

5 Things to Know About Nutrien Stock in December 2022

Trading at heavily depressed multiples, Nutrien stock is a great opportunity, as it delivers solid financial results and an optimistic…

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Shopify Stock Rose 15% in November: Is it a Buy Today?

Shopify (TSX:SHOP) stock rallied 15% this month but is still down 69% year to date, so should investors worry that…

Read more »

Man holding magnifying glass over a document
Investing

The 3 Most Oversold TSX Stocks to Watch Before 2023

Many oversold stocks are merely victims of market circumstances and potentially profitable bargains when they seem downtrodden.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

A TFSA Contribution Room of $88,000 and 1 Dividend Aristocrat Can Make You $172,330 Richer

A high-yield Dividend Aristocrat in the energy sector is a suitable holding for Canadians with $88,000 available contribution rooms in…

Read more »

Upwards momentum
Investing

Year-End Sales Tracker: 3 Growth Stocks Going for Value Prices

Growth stocks like Aritzia (TSX:ATZ) are on discount.

Read more »

Dollar symbol and Canadian flag on keyboard
Investing

2 Canadian Stocks I’ll Be Buying Hand Over Fist in 2023

Alimentation Couche-Tard (TSX:ATD) and another top growth stock could increase dividends in 2023.

Read more »