3 Things Chart Industries Investors Need to Watch

Chart Industries' Q1 results were heavily impacted by weather. That's not a likely excuse for Q2. Has the company's deal with Royal Dutch Shell to build LNG refueling stations started hitting the bottom line? What about China and its biomedical business?

Jul 17, 2014 at 10:50AM

Chart Industries (NASDAQ:GTLS) has been a real up-and-down investment over the past couple of years, largely on the promise of natural gas for industrial and transportation applications in the U.S. and abroad. The company's legacy and expertise in cryogenic gas processing and industrial applications make it a compelling company to consider for your portfolio. Recent quarters haven't shown the kind of performance investors want to see, and the stock is down 16% so far in 2014. 

Could Chart Industries be a great investment? Maybe. Here are the three things investors need to pay the most attention to going forward.

No. 1: Chart's involvement in LNG in the U.S.
In May, we got confirmation that Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B) was the "major oil company" that tapped Chart Industries to build 20 LNG fueling stations, when Shell opened the first one in California, at an existing Petro truck stop. This station is also the first of the "up to 100" that Shell will build in a partnership with TravelCenters of America (NYSE:TA) in an agreement announced in 2012.


Source: TravelCenters of American presentation.

Chart Industries is also one of two key suppliers of LNG fuel tank systems for heavy trucks in North America and the supplier of choice for UPS, which has committed to only buy LNG trucks for its heavy truck fleet for the next several years. UPS will take delivery of as many as 900 LNG-powered heavy trucks in 2014, which bodes well for this part of Chart's business. However, there are a lot of indications that CNG -- at least so far -- seems to be getting the majority of attention from early adopters in the trucking business, and CNG isn't really an area where Chart participates. LNG doesn't have to be the dominant choice for trucking in order for it to be a major contributor for Chart, but we do need to see consistent growth. 

Lng Small Scale Plant

Small-scale standard liquefaction plant. Source: Chart Industries.

Liquefaction for export and industrial use is also a bright spot, with significant opportunity for growth. The important thing to remember, though, is that these facilities can be very large and complex, and it can take many months -- even years for the largest facilities -- to be built. This means many of Chart's projects can take significant time from announcement to completion. However, Chart's vertical integration give it some advantages here as well. The June announcement of a liquefaction plant by LNG Holdings (Florida) LLC demonstrates this, as the 100,000 gallon per day plant will be designed and manufactured at Chart facilities, and then assembled at the final site.

No. 2: Chinese opportunity 
China has been one of the bright spots for Chart Industries over the past year. The country is making a major push to shift large parts of its transportation away from diesel in an effort to reduce pollution, which has become a growing problem for the country -- and one that will only get worse as it continues to become more industrialized. 

CNG has a number of advantages in North America versus LNG for transportation -- the largest of which is 80 years' worth of pipelines that put high-volume natural gas in nearly every major metro area. This means a vehicle with a predictable route that runs close to high-volume pipelines, or returns to a home base regularly, has easy access to low-cost CNG. For the majority of trucking applications, this will probably be the case. 

Brazed Aluminum Heat Exchanger

Brazed aluminum heat exchanger. Source: Chart Industries.

The thing is, China doesn't have the pipeline infrastructure that the U.S. does. This means LNG's portability and energy density will make it the fuel of choice for the majority of trucking applications in China. Chart reported 11% sequential order growth in China last quarter and gave further insight on its $80 million capacity expansion in the country. Chart began construction on this new facility, which it said would nearly double its capacity in the country, when combined with the acquisition of a brazed aluminum heat exchanger maker in China, completed in May as well.

The fruits of Chart's labor in China are producing more business regularly, such as another deal -- also announced in May -- to supply a Chinese energy company up to $35 million in LNG production, distribution, and storage equipment.

No. 3: Stability in biomedical business 
While this is the smallest part of Chart's business, making up only 19% of sales last quarter, it's important that this segment of the business starts to stabilize. Last quarter's 21% decline in revenue in the biomedical segment led to a 3% decline in sales for the consolidated business, while the E&C and D&S groups actually increased sales by about 3%, even with the lost business due to weather-related closures. 


Medicare reimbursement has affected Chart's oxygen therapy business. Source: Chart industries.

CEO Sam Thomas told analysts on the earnings call that the reality is, the "shakeout" in the biomedical sector is taking longer than anticipated, and that a lot of the impact is tied to Medicare reimbursement cuts. Management still see this as a growing -- at least by patient count -- area, but the economic reality is what it is, so the company is focusing on operational efficiency. Eventually, this market should strengthen, but in the interim, Chart's focus on operations should help it at least improve its biomedical margins, which declined last quarter to 32.6%, from over 34% in the prior period.

Final thoughts: Earnings approaching, but keep the long view
We will get an update on Chart's progress at the end of July, when it reports earnings, but it's important to remember a couple of key things:

  • The softness in biomedical will take more time to improve. 
  • The U.S. LNG trucking story is heavily weighted to the back half of 2014 and beyond. 
  • China is growing quickly, but it's still a relatively small part of the pie. 

Chart Industries's stock has been way up -- and way down -- over the past several years, largely on the promise of LNG in transportation both in the U.S. and beyond. However, it's not the only thing to watch. Keep an eye on the things above, with patience. These are industrial applications that take a lot of time and planning to pan out. 

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Jason Hall has no position in any stocks mentioned. The Motley Fool recommends Chart Industries. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers