There appears to be no end in sight for Westport Innovations Inc.’s (TSX:WPT)(NASDAQ:WPRT) woes. The natural gas-engine technology expert announced first-quarter earnings on May 12 after market close, and results were as abysmal as the stock’s performance over the past year.
Here’s a lowdown of the areas where Westport disappointed and what you should make of it.
Low oil prices continue to hurt
Westport’s revenue slumped 14% year over year to US$24 million during the first quarter as low oil prices hurt demand for natural gas-powered vehicles. For a loss-making company, a declining top line is perhaps the biggest concern. But equally worrisome is the deteriorating conditions at Westport’s key joint ventures with Cummins (NYSE:CMI) and China-based Weichai.
Westport earned only US$1.8 million–a staggering 70% drop year over year–from its venture with Cummins as shipments fell 28% year over year. Meanwhile, Westport’s income from Weichai-Westport slipped 33% on a 47% drop on revenue because of a slowdown in China. Add it up, and Westport earned a meager US$2 million from its ventures in Q1 compared to US$6.2 million in the year-ago quarter.
Westport’s net losses climbed to US$23.3 million in Q1 with loss per share surging 33% to US$0.36.
No guidance for 2016 yet
As though lower sales and wider losses weren’t bad enough, Westport did not provide any guidance for 2016 as it awaits the closure of its impending merger with Fuel Systems Solutions Inc. (NASDAQ:FSYS).
In other words, investors may have to wait at least another month to know where Westport is headed. That only adds to the uncertainty that investors have had to deal with ever since the company announced its merger plans, given that Fuel Systems isn’t making any money either; it reported a loss of US$6.5 million during its first quarter.
Two numbers that should raise eyebrows
It’s encouraging to note that Westport used US$11 million during the first quarter, down 25% sequentially, as it reduced its operating expenses by 3% year over year in Q1.
However, there are two things worth noting here:
- A 3% reduction looks pretty insignificant when you consider that Westport lowered its expenses by nearly 25% each in its fourth quarter and financial year 2015. So is the company hitting a wall and finding it difficult to cut costs further?
- Westport’s cash balance continues to dwindle. It ended Q1 with cash, cash equivalents, and short-term investments worth only US$24.6 million, down 66% year over year and 12% sequentially. Note that Westport sold one of its assets to Cartesian Capital for an “upfront payment” of US$6.3 million in Q1, which should have added to its cash balance.
Westport is clearly struggling, and its breakeven point appears to moving farther away. Worst yet, there are no clear indications of how its merger with Fuel Systems will help Westport turn around as both companies have piled up losses in their books. Sadly, Westport’s dismal Q1 numbers have only made the picture murkier for investors, and it may be time for them to park their money elsewhere for better returns.