Natural gas fuel provider Clean Energy Fuels (CLNE -0.66%) announced earnings results for its first quarter on May 8 -- and quite frankly, there's a lot to like. But the company is still losing money, reporting a loss of $28 million in the quarter. Let's take a dive in, and see what kind of progress Clean Energy Fuels is making. It is a buy, sell or hold?
LNG vs. CNG? Whatever, dude
Much of the conversation in the investor community over the past six months has been dominated by a false idea that CNG and LNG were competing fuels. While the claims were made with some with dubious intent, a large number of investors grabbed into the idea, and the fear and uncertainty that this created caused Clean Energy Fuels share price to collapse:
But it's hard to argue with the data. From the 10Q:
- LNG fuel deliveries increased 22% in the quarter, to 16.7 million gasoline gallon equivalents
- CNG fuel deliveries increased 16%; backing out last year's 2.2 million in CNG sales in Peru (the company sold its stake in March 2013) and CNG sales increased 24%
- Sales of Redeem, Clean Energy Fuel's renewable biomethane, increased 45%
CEO Andrew Littlefair has been clear in pointing at fuel sales growth being the No. 1 measure that investors should watch. Simply put, we saw that this quarter and across the board.
Littlefair talks about profitability
Fleets like C.R. England are adopting natural-gas trucks. Source: author
The company's loss of 30 cents per share came in exactly where analysts were predicting. And while it's a positive that the company met the market's expectation, detractors have pointed to the company's consistent and mounting losses to support the bear case for Clean Energy Fuels. Littlefair has added fuel to the fire, so to speak, by refusing to address profitability in the past. His reticence has been largely a product of waiting for the heavy truck market to begin adopting natural gas trucks, but it's often left investors with the impression that maybe the company isn't really focused on profits. It's even led to analyst downgrades of the stock recently.
But it looks like things have begun to turn internally, because Littlefair chose to address profitability very early in the earnings conference call (emphasis mine):
From an adjusted EBITDA perspective, we were negative by $7 million this quarter. If you were to take out -- take our rough average of about $0.30 margin per gallon that we've seen recently, we need to add about 23 million gallons to close this gap. So to think about it another way, this is a roughly a 10% volume increase from where we are today on an annual basis. And if you look at our historical volume growth rates of closer to 20%, we believe this is well within reach. We are extremely focused on getting this company to profitability and we are close.
While this isn't a specific guidance to when Clean Energy Fuels will be profitable, it's a very specific indicator as to how. Reach your own conclusions.
Reducing CapEx projections for 2014; still has largest refueling network
CWI ISX12 G sales are leading to strong fuel-sales growth for Clean Energy. Source: author
Not only did management tell us that it's essentially closer to profitability than we maybe thought, Littlefair also announced that the previously projected $135 million in capital expenditures was on the high side, reducing the figure by a whopping $50 million to between $75 and $85 million for the year. The reasoning behind this move is twofold: Currently, Clean Energy Fuels has 96 stations opened that are "truck-friendly" to heavy trucks, which is significantly more than any of its competitors. And with at least another 70 stations that have been built but not yet opened, the company is in the driver's seat to open these stations with little more than the cost of putting fuel in.
These two things combine to make possible for Clean Energy to align further investments in growth of the network with the pace of market adoption.
Final thoughts: Buy, sell, or hold?
This is where taking a long-term view really pays off. Over the past several months, there has been tremendous controversy about CNG and LNG and heavy trucking, but it's only been several months, and it's really only been in the investor community. While we've been arguing, Clean Energy Fuels has been opening stations, because trucks have been deploying natural-gas trucks. And since Clean Energy Fuels is the leader in both CNG and LNG for trucks, it has shown strong growth across the board, and reached a point where management feels comfortable talking specifics about profitability.
Will the company reach profitability in 2014? Maybe, maybe not. But when the current growth rate is about double what the company needs to get to profitability within a year, and the stock is as beaten down as Clean Energy's has been of late, it's worth a hard look. We're at the very beginning of a major shift to natural gas for trucking -- a shift that could take a decade before the growth slows -- and Clean Energy Fuels is the leader in the market. Sounds like a stock worth buying to me.
