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For investors that only read the earnings headlines, a ton of additional information can usually be gleaned from the related conference calls. For those interested in the development of the natural gas transportation fuel market, Clean Energy Fuels (NASDAQ: CLNE ) happens to be one of the better providers of useful numbers.
The leader in providing both CNG and LNG transportation fueling solutions in North America typically loads up the earnings call with numerous useful numbers. The numbers range from the development of the Cummins (NYSE: CMI ) – Westport (NASDAQ: WPRT ) engines to margins per gallon to trucking fleets transitioning to natural gas for fuel.
Long-haul truck engine
The most important engine to the industry in the last few years has been the Cummins Westport 12 liter 400HP engine, which provides the heavy-duty long haul trucking industry the ability to use LNG fuel. While CNG has been readily available for trucking and transportation uses such as transit buses, refuse trucks, and airport vehicles, the fuel is only cost effective for return to base usage. LNG works best for the trucks driven more than 200 miles per day due to the quicker fueling time, lower weight, and extended driving range.
While the new engine is produced by Cummins Westport, Clean Energy tends to provide the most details. According to the call, the production level has now reached 600 engines per month that will use 20,000 gallons of LNG per year. The engine only started production in August and is now expected to reach 2,400 produced this year. The goal is to surpass 10,000 next year and 20,000 in 2015.
For those doing the math at home, the gallons used by the 10,000 engines produced next year would equal 200 million gallons. The number equals roughly the total expected to be sold by Clean Energy this year alone.
Margin per gallon
For the sake of Clean Energy's long-term profitability, the most useful number might just be the fuel margin per gallon. In a typical quarter, the number sits around $0.30. In the case of the third quarter the margin jumped to $0.35 due to credits from selling Redeem, renewable bio-methane fuel, in California. Clean Energy forecasts the number dropping back to $0.32 to $0.33 during Q4.
The number compares favorably to the margins generated by Murphy USA (NYSE: MUSA ) , which sells petroleum fuels for vehicle use. The company only generated margins of $0.148 per gallon during the last quarter. The margin, though, is enough for Murphy to generate a sizable quarterly profit considering the volumes of 971 million gallons sold. In the last quarter alone, Murphy USA generated net income of $42 million. Remember that Clean Energy only sold around 56 million gallons last quarter.
While the margin for Clean Energy is very favorable compared to Murphy USA, most investors are caught off guard that Clean Energy only makes that limited margin off each gallon. The revolutionary nature of the product and the cost savings over diesel all accrue to the trucking firms.
Gallons of fuel sold
Outside of the margins per gallon of fuel, the real key to Clean Energy Fuels is the amount of gallons of natural gas fuel sold. The company has a construction arm that generates revenue, but that number is volatile and not a long-term strategic goal. It also obtains fuel tax credits called VETC. These credits depend on government approvals and are set to expire at the end of 2013 unless Congress extends the credits again. The 2012 credits were delayed and not approved until 2013 so current year revenue includes credits that didn't exist when 2012 was reported.
Gallons sold increased 17% to 56.4 million during Q3. In total, the company delivered 158.9 million gallons during the first nine months of 2013. The company expects both the CNG and LNG markets to be multi-billion gallon markets, especially with the production of the new Cummins Westport engine.
Investors interested in Clean Energy Fuels should continue focusing on the gallons sold each quarter and the margin generated per gallon. These numbers will determine the ultimate success of the company, especially now as the new Cummins Westport engine enters full scale production. The new engine should contribute to fast growth in gallons sold over the next couple of years.
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