Revolution Lighting Technologies Dangles a Carrot... Again

Another delay has investors losing patience.

Apr 21, 2014 at 5:31PM

Most of Revolution Lighting Technologies' (NASDAQ:RVLT) press releases are masterfully worded and rarely contain anything but great news. They sound great, until you compare what they say with the actual previous forecasts. With the LED maker's April 7 announcement came more promises of "significant growth" tagged with another target date, but the real message is that an ever-moving target has been moved yet again.

Source:  Revolution Lighting Technologies

New distribution agreement
Revolution Lighting Technologies signed a "master distribution agreement" that will hopefully allow it to expand into Europe and South America. The company has partnered with two individuals who each have decades of successful experience with international distribution.

Revolution Lighting Technologies sees "significant opportunity" due to the expectation of various governments in these regions "banning inefficient light bulbs" as well as businesses and governments wishing to make the investment in LED lighting in order to save long-term costs.

Revolution Lighting Technologies notes that McKinsey & Company predicts LED market share in Europe to rise to 45% by 2016 and 70% by 2020 due to favorable regulation. In South America, similar favorable regulations have been popping up such as guidelines involving the selling and importing incandescent light bulbs in Argentina and "stringent efficiency targets" for light bulbs in Brazil.

Charlie Schafer, President and CFO, said, "We expect significant growth for Revolution Lighting in the second half of 2014 and beyond." It all sounds great, right?

Second half of 2014 now?
Whoa! What has happened now that the "significant growth" has been pushed to what looks to be the second half of 2014? In the latest earnings report that contained its forward-looking outlook, Revolution Lighting Technologies called for 40% organic growth in revenues, along with between 12% and 15% in earnings before interest, taxes, depreciation, and amortization. While this forecast didn't specify in which part of the year growth would take place, investors had every reason to expect it to start sooner rather than later.

Rewind back to the second quarter of 2013. With its report in August, CEO Robert V. LaPenta told investors to "expect a continued acceleration in revenue and profitability as the year progresses." Based on that, the last thing investors would expect is for sales over the next two quarters to get worse and worse, or to see operating losses escalate.

In the beginning of October, Revolution Lighting Technologies had bad news. Sales in the third quarter would not accelerate as guided, but would actually drop. Schafer reassured investors, saying it was due to "certain international orders coming in later than expected." The company expected to make up for it in the fourth quarter -- sales were expected to almost double compared to the third quarter, to over $10 million. Delays and junk happen; investors could forgive the company, right?

On Nov. 8, Revolution Lighting Technologies reiterated that the fourth quarter would have approximately $10 million in revenue. With the quarter halfway over and the company sticking to its estimate, there was no way Revolution could blow it again, could it? The company also guided for 50% growth in organic revenue for 2014 on the heels of a fantastic 2013.

Now you see it, now you don't
On Feb. 10, Revolution Lighting Technologies was back with more disappointment and the same excuse. "The Company had expected revenues in the range of $10 million for the fourth quarter, but a large international order has been delayed," the press release stated. Revenue came in 30% below expectations. There seemed to be a pattern developing.

Worse, with the final earnings press release on March 13, no word of the delayed international order was even mentioned. The 50% organic revenue growth forecast got lowered to 40%, and even that lower forecast is based on much less revenue than originally expected. Bummer.

Foolish final thoughts
How do you value a company that is losing money and habitually misses its short-term targets? The last reported book value is $0.19 per share, so there isn't much value using that metric. Its guidance has proven to be unreliable, so Fools should consider waiting on the sidelines and only investing if and when it makes sense based on historically reported profitable results.

Perhaps the new international partnerships will bear better fruit that is more predictably grown. When reading each press release and SEC filing, compare them with past ones to get a full context and proper perspective. Just be sure to take Revolution Lighting Technologies' guidance with a grain of salt.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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