Yet again, Westport Innovations Inc. (TSX:WPT)(NASDAQ: WPRT) has missed quarterly expectations. The company reported US$22.3 million in revenue for the third quarter, a decline of 11.8% year over year and roughly US$6 million short of estimates. The bottom line was even worse, with Westport reporting a US$0.58 per share loss, missing estimates by US$0.32.
So, what exactly happened, and could this be an opportunity for investors to pounce?
Currency and other headwinds
Because Westportâs numbers are reported in U.S. dollars, the strengthening greenback has been a headwind for the company. According to the 2014 annual report, roughly 40% of product revenue came from the United States last year, while nearly half came from âother,â which presumably means Europe.
But the real problem has been declining oil prices, which hurts the competitiveness of Westportâs natural gas engine technology. According to The Wall Street Journal, natural gas engines in trucks simply are not competitive with their diesel counterparts, and that article was written back when oil was trading for $100 per barrel. So, now that oil prices have declined by over 50%, Westportâs technology has fared even worse.
To compensate, Westport has been furiously cutting costs. In the most recent quarter, R&D costs decreased by nearly 30% year over year. Such a move is prudent given Westportâs situation, but it will make innovation that much harder. Clearly, the company has few options at this point.
And the situation wonât get any easier. Westportâs cash balance has declined to US$42 million, down roughly 75% from this point last year. If the company isnât able to adjust fast enough, then more capital may be needed.
Some bright spots
Thanks to Westportâs cost-cutting efforts, margins are starting to improve. To illustrate, adjusted EBITDA for the third quarter was a negative US$9.7 million, a big improvement from the negative US$22 million posted last year.
Another piece of good news came from the Cummins Westport Inc. joint venture, which reported improving revenue and better margins. Westportâs share of income grew to $3.5 million, well above the $900,000 posted a year ago.
Not a worthwhile investment
Westportâs shares fell by double digits in after-hours trading, but that doesnât make the stock a bargain. This is a company that has always struggled to turn a profit, and its products don’t seem to be competitive with diesel engines. A looming cash crunch makes the situation even more dire.
Put simply, your best bet is to look elsewhere.
