Clean Energy Fuels Fails to Impress

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

If you were looking for solid evidence that the natural gas revolution is moving full steam ahead, the news from Clean Energy Fuels (Nasdaq: CLNE  ) may at least make you pause for a moment. If we're really going to begin fueling medium- and heavy-duty trucks with natural gas and eventually making the fuel a viable alternative to gasoline, wasn't the stage set for a blowout in the fourth quarter? Natural gas is cheap, oil is expensive, and the political will is in Clean Energy Fuels' corner. But the company experienced some growing pains at the end of 2011.

During the fourth quarter, the company only saw revenue rise 3.6% to $86.2 million, although growth was a bit stronger than that due to an oversize volumetric excise tax credit, or VETC, received in 2010. Worse yet, the company's loss ballooned to $20.9 million, or $0.29 per share, from a net income of $13.8 million last year.

What bothered me most was the product gross margin falling from 19.7% a year ago to 14.2% in the fourth quarter of 2011, after adjusting for the VETC. Management said that there were some operational issues that led to this lower margin, but I'll be watching this in the future.

On the plus side, volumes were up to 40 million gasoline gallon equivalents from 31.7 million gallons a year ago. This momentum should accelerate as fleet operators switch to natural gas.

Westport (Nasdaq: WPRT  ) , Cummins (NYSE: CMI  ) , Volvo, and Ford (NYSE: F  ) were all highlighted as manufacturers making natural gas engines that are becoming more competitive with standard truck engines. According to management, the momentum is building for these manufacturers and truck operators as incremental costs fall and sales improve. Westport is the most leveraged of these manufacturers to the natural gas market, but I expect natural gas to become a major growth opportunity and marketing pitch for Cummins, Volvo, and Ford in the future.

It's only one quarter
To be fair, Clean Energy Fuels' growth strategy is just getting off the ground and the company has yet to truly roll out its Natural Gas Highway. It also has $238 million in cash to fund expansion and a partnership with Chesapeake Energy (NYSE: CHK  ) to expand its fueling infrastructure. So the long-term prospects look good. My questions are more short-term in nature.

How long will it take to grow revenue to a critical mass so that these fueling stations actually pay off? How fast will the medium- and heavy-duty trucking market make the transition to natural gas fuel? Will the government keep subsidizing natural gas fuel? When will margins begin to increase?

Based on the numbers I saw today, I am going to end my profitable outperform CAPScall on Clean Energy Fuels for the time being. I don't like the declining margins and would like to see the company prove it can build out a natural gas fueling infrastructure before I jump back on the bandwagon.

The natural gas revolution may not have arrived just yet, but that doesn't mean it's the only game in town. Download the Motley Fool's must-read special free report on The Next Trillion-Dollar Revolution and what stocks are poised to capitalize on its explosive growth.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Westport Innovations, Cummins, Chesapeake Energy, and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. 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.

Read/Post Comments (2) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 13, 2012, at 8:12 PM, bbbboyd wrote:

    I don't think any of that had much to do with the stock price dropping off a cliff the last couple hours before closing bell. Can anybody say "short" or "profit taking"?

    If I am right, lets see what happens over the weekend and Monday. I say, "Up, Up and away in my natural gas powered balloon. And yes I an in on the stock.

    I hope everyone has a "Short and Narural" weekend,


  • Report this Comment On March 16, 2012, at 12:11 PM, ajmuxii wrote:

    Will the government keep subsidizing natural gas fuel???? WHAT SUBSIDIE ?? READ THE NEWS CORN WAS THE WINNER NOT NG THANKS TO THE DEM'S

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1814808, ~/Articles/ArticleHandler.aspx, 10/28/2016 6:10:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,161.19 -8.49 -0.05%
S&P 500 2,126.41 -6.63 -0.31%
NASD 5,190.10 -25.87 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 4:00 PM
CLNE $4.10 Down -0.10 -2.38%
Clean Energy Fuels CAPS Rating: ****
CHK $5.79 Down -0.29 -4.77%
Chesapeake Energy CAPS Rating: ***
CMI $126.62 Up +0.36 +0.29%
Cummins CAPS Rating: *****
F $11.72 Down -0.02 -0.17%
Ford CAPS Rating: ****
WPRT $1.56 Down -0.02 -1.27%
Westport Fuel Syst… CAPS Rating: ****