Source: Westport Innovations.
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Westport Innovations (WPRT -3.93%), a designer of low-emission engine technologies and solutions, plunged 27% when they opened for trading Wednesday after issuing an update on its near-term revenue outlook for the 2014 year. The stock fell sharply in after-hours trading last night and remained down more than 25% at 10 a.m. EDT on Wednesday.
So what: According to the company's press release, three factors motivated Westport Innovations to change its revenue outlook. First, uncertainty in Europe, Russia, and China have affected its revenue from its Applied Technologies segment. Second, with key partners moving to the new Westport high pressure direct injection second generation development program, also known as HPDI 2.0, the deferral of milestone payments will move some previously anticipated revenue beyond the 2014 year.
Finally, Westport reported that it has chosen not to make shipments on a substantial order for its iCE PACK LNG Tank Systems until the customer in question can demonstrate its ability to meet the requirements of its contracts. The net result is a cut in forecast 2014 revenue to a range of $130 million to $140 million, down from its initial guidance of $175 million to $185 million, and Westport warned that its three operating business units won't be able to produce positive operating earnings. In response to the guidance cut, analysts at Jefferies and JPMorgan both downgraded Westport.
Now what: Westport's drop only highlights the struggles that the natural gas engine-tech specialist has endured lately, as even before today's drop, its stock had already lost more than 40% of its value just since late July following a discouraging earnings report. Even though Westport has done well in growing revenue over time, it has struggled to become profitable, and the company's announcement requires investors to be even more patient with its progress on that front.
Westport partnerships with companies like China's Weichai still have plenty of long-term potential, and efforts to tap new markets like India and Latin America could foster growth for years to come. Yet even its proponents have warned that the stock would give investors a bumpy ride, and shareholders will want to hold Westport accountable as it aims to show that these short-term disruptions will turn out to be purely temporary.
