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Okay, so the flashy headline includes a little bit of snark. However, every word is true. As much as I hate to say "but when this or that is included or excluded," an accurate analysis of Clean Energy Fuels' (NASDAQ: CLNE ) latest earnings report really does require this, as did Westport Innovations' (NASDAQ: WPRT ) just last week. However, looking at the report from Royal Dutch Shell (NYSE: RDS-B ) , one of the world's largest natural gas producers, it doesn't take a lot of digging to see a tough environment going forward.
Let's dig into Clean Energy's latest update first.
The numbers behind the numbers
Clean Energy Fuels has made a number of transactions this year, which makes it less than a straight line from last year's quarter to this year's quarter. CEO Andrew Littlefair, from the earnings call:
If you back out the one-time non-recurring construction project we completed in the third quarter of last year, and you take out our BAF revenues, which were in the 2012 number as we sold BAF in 2013 – June of 2013, our revenues actually increased 23% between periods. We delivered 56.4 million gallons during the quarter, which is up 11% from 50.9 million gallons a year ago. And again, if you back out the gallons of our Peruvian joint venture that we sold in March of this year, our volumes are up 17% between periods.
This is where GAAP and "adjusted" or non-GAAP numbers come into play. A year ago, Clean Energy was involved in two areas that management decided took focus away from the core business and growth opportunities: specifically a joint-venture in Peru, and its BAF subsidiary which competed directly with very important partner Westport Innovations (which acquired BAF.) By removing the results of these two parts of the business, what on the surface looks like a nearly 6% decline in revenue (from $91.5 to $86.3 million) hides actual growth in the company's core refueling business, both in total gallons delivered and, more importantly, in total sales.
But it's not all roses
The significant investments to build out "America's Natural Gas Highway" are still weighing on results, as the company reported losses of 20 cents per share, versus 19 cents a year ago. However, the non-GAAP loss versus a year ago was narrowed from 19 cents to 16 cents. But before you zone out in all the "GAAP versus non-GAAP" talk, let's get to the point: Losses (both GAAP and non-GAAP) are significantly less in the first nine months of 2013 versus last year, and this bodes well for 2014.
2013 is the starting line, 2014 is the first lap
Littlefair reiterated what Cummins management said on their company earnings call a couple of weeks ago, in regards to demand for the 12 liter CWI engine "exceeding their internal forecasts" so far this year, and offered some nice color on how the adoption is playing out. From the earnings call (emphasis mine):
Today, 46 of our trucking fleet customers have ordered 549 trucks representing up to approximately 10 million gallons annually. 60% are for CNG and 40% of those are orders for LNG. Additionally, we are in the final stages of negotiation and validation with 107 other fleets, who have plans to deploy over 1,250 additional LNG and CNG trucks representing up to approximately 20 million gallons ... Leading the way is UPS ... We have just entered a multiyear LNG fuel supply agreement to provide a minimum of 5 million gallons per year to support UPS LNG trucks.
Simply put, this is just the beginning of what looks to be massive adoption. The Cummins-Westport JV is expecting to sell 2,400 of its 12 liter engines this year. In 2014 that number is expected to be closer to 10,000.
Not to be left out of the mix, Shell and partner TravelCenters of America (NASDAQ: TA ) announced earlier this year plans to open up to 100 LNG refueling stations at existing TA locations. And with earnings down 32% this quarter on "headwinds from weak industry refining margins, and the security situation in Nigeria," it makes sense that Shell is investing more in natural gas. It's one area in its latest earnings report where earnings are actually growing, up 5% versus the year-ago quarter, and 4% so far in 2013.
Smack-down on Piper Jaffray
Clean Energy CEO Andrew Littlefair made no bones about his opinion of the research report released by Piper Jaffray, using words like "erroneous," "misleading," and "just plain wrong." Here's my favorite quote from the earnings call. CEO Littlefair (emphasis mine):
Let me give you an example of how misleading this report was. The research report stated that a recent visit by the analyst to a truck industry's manufacturing facility revealed no LNG tanks in process for on-highway applications in North America. Well, here is why: He was at the wrong plant.
This may look like another jab at Piper Jaffray; that's not my intent. It's a reminder for investors to never make an investing decision based on any one source's findings.
While the losses continue, it looks like the ramp up to adoption by the trucking industry is indeed getting started. If you haven't opened a position in Clean Energy yet, it might be time to take a small bite -- but it's still early, so don't back up the truck just yet.
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