Westport Innovations (WPRT, Financial) recently released its results for the second quarter; the company posted good improvements, having achieved a significant milestone by recording a positively adjusted EBITDA. Westport is slowly gaining market share as its transition efforts continue to bear fruit.
Westport executives believe their efforts in resetting the cost structure, rebalancing the product portfolio, and optimizing organizational efficiencies have delivered the change that was required for its operational performance. However, the company is still longing to impress investors with good earnings. Let's see how Westport aligns itself to improve its earnings.
Impressive financial performance
The company's revenue clocked in at $40 million, compared to $34.9 million last year. Westport is also pleased with the growth it is seeing with its joint venture efforts. Its joint venture posted revenue of $79.6 million, which is marginally better than $78 million as compared to the same quarter last year. On the earnings front, the company managed to narrow its loss, posting consolidated adjusted EBITDA loss of $17 million compared to $27.8 last year.
Westport Innovations has been through a transition phase in the past when it shifted its focus from market creation to product development, sales, and profit growth. These efforts were helpful, but they also scared some investors away from the stock as they couldn’t receive these efforts positively. But now Westport is focusing on various aspects to improve its profitability.
Focusing on the future
Westport is focusing mainly on achieving an overall consolidated positively adjusted EBITDA. It is carefully managing its investment programs to ensure that operational cash flow from Westport direct sales, as well as its joint venture dividends, will cover investment by the end of 2015. Natural gas is seeing a rapid adoption as a transportation fuel all across the globe, and OEMs around the world are shifting to include natural gas products in their offerings. To make a smooth transition, Westport is trying to create attractive new customer relationships. This will help the company to remove the barriers in the way of adoption of natural gas as a transportation fuel.
Westport is aiming to penetrate the market more with its new products. It believes that new products such as Weichai Westport WP12 HPI system, the Westport WP580 engine management system, new models of Ford and Volvo vehicles, and the iCE PACK LNG tank system and LNG tenders in the oil business will deliver platforms for future growth in its operating business.
Westport is also engaged in many corporate and strategic investments. Under this, Westport is co-investing with OEMs to develop a portfolio of new natural gas vehicle technologies and related systems and components. In fact, the company has also made significant investments in the past. It has invested more than $239 million into development programs such as global trucking, automotive products, and certain off-road apps such as rail and large mine trucks.
The company aims to gain the leading position in supporting virtually any OEM natural gas vehicle program in the near to middle term. For this, Westport is developing a broad portfolio of vehicle components including spark-ignited dual fuel and HPDI engine systems for applications such as forklifts and locomotives, as well as fully integrated and intelligent fuel supply systems for CNG and LNG applications.
Despite these moves, the company is seeing weakness on the international front. It is struggling with the on-going challenges with its applied technology business in Europe. Weak revenues in Russia is due to the currency deflation, while the slow growth in China is also a matter of worry for Westport.
Conclusion
Looking at the valuation, Westport doesn’t have a trailing P/E and a forward P/E as the company is still suffering losses, which are decreasing as Westport’s recent results indicate. The company can be a long-term prospect as the transition efforts are working well, and it seems to gain more through their joint ventures. Looking at its future five-year CAGR, the company’s earnings are moving with an impressive pace of 30% which is a good sign for the company as it can gain market share in future. Thus from the investment perspective, Westport Innovations can be a good long-term holding since its long term earnings growth and prospects look promising.
