What happened
The stock of Westport Fuel Systems (WPRT 1.00%) crashed Tuesday morning, sinking nearly 22% as of 11:40 a.m. EST after its third-quarter numbers missed Wall Street estimates by a pretty big margin. What's even more concerning is that Westport Fuel may have just confirmed the end of key joint venture (JV) with engine giant Cummins (CMI +6.06%).
So what
Here are some notable numbers from Westport Fuel's third-quarter report (all changes are year over year):
- Revenue: Up 14% to $74.3 million.
- Gross margin: Down 1 percentage point to 14%.
- Net loss: $5.8 million versus a profit of $800,000 in the year-ago quarter.
Consensus estimates were for revenue worth around $87 million and for Westport Fuel to turn a profit.
Image source: Getty Images.
That revenue growth of 14% might still seem encouraging at first blush, but not once you dissect the numbers. First, $7.1 million worth of revenue came from its recently acquired fuel storage business. Second, although Westport Fuel saw stronger volumes in its light-duty original equipment market, revenue from both its independent aftermarket and Cummins-Westport JV dropped when compared to the third quarter of 2020.
With Westport Fuel also incurring substantially higher operating expenses, its bottom line slumped.
The biggest update that investors were waiting for, though, was about its Cummins-Westport JV, which is ending this year. Investors hoped to see Westport Fuel announce (or at least hint at) a potential renewal of the JV. Instead, the company said: "Currently, we are working with Cummins to wrap up the final terms for the conclusion of the joint venture."
In other words, the JV is ending, and that could be a huge blow to Westport Fuel given that the JV is a key contributor to its revenue and operating income: It brought in $41.7 million in revenue and $10.3 million in operating income and earned a solid gross margin of 20% during the third quarter.
Now what
At a time when clean energy companies are expected to grow exponentially, investors had better expectations from Westport, which designs low-emission natural-gas fuel systems and components for the trucking industry. The company spurred investor interest on Nov. 2 when it won a tender from Algeria to supply 60,000 liquefied petroleum gas systems over the next 18 months.
Unfortunately, Westport Fuel Systems left much to be desired today. Its losses are mounting, it is burning cash, and it has been selling shares to raise cash to invest in growth. With its JV with Cummins also about to end, the road ahead could be even tougher.
