The promise of a national natural gas highway continues to be a larger than expected money-losing ordeal for Clean Energy Fuels Corp. (CLNE). As predicted prior to the earnings report, the losses will continue to flow and investors should be concerned (see Coming Soon: More Losses At Clean Energy Fuels). The company reported Q412 earnings that slightly missed analyst expectations and provided general commentary that doesn't change the profit picture much for the next few years.
Per the company, it is the largest provider of natural gas fuel for transportation in North America and a global leader in the expanding natural gas vehicle fueling market.
The good news is that the Cummins (CMI) - Westport Innovations (WPRT) engine needed for highway use by the long haul trucking industry appears on track for Q4 production. The bad news is that Clean Energy built 70 stations in 2012 on expectations of production by this summer.
As many comments on the last article continue to miss, the concept being deployed by the company is vastly needed in order to reach critical mass to develop the industry. Most readers can agree upon that concept. The difference is that investors aren't in the boat for public approval, environmental reasons, or energy independence. Investors are in this to make profits and that typically doesn't happen supporting a money losing operation that might need a capital raise no matter how great the idea.
National Highway Update
Right after submitting the last article for publication, Clean Energy ironically came out with the 3rd edition to "The Road to Natural Gas." Outside of the national highway, the company is making great progress in the core business of switching refuse, transit, and airport locations to natural gas as a fuel source for transportation. The company completed 127 new stations in 2012, an 87% increase in overall station construction over 2011.
While the fuel offers a $1.50 per gallon savings on average from diesel, the problem faced by the company continues to be that growth comes from largely adding new stations and secondarily from adding new trucks to existing stations. In some cases, one has to wonder if the discount is warranted if the volume doesn't exist.
Back in early December, the company announced the completion of the first stage of the America's Natural Gas Highway, a network of liquefied natural gas (LNG) truck fueling stations to support long-haul, heavy duty goods movement along major interstate corridors throughout the United States.
With 70 completed LNG stations along highways that link major U.S. metropolitan areas, the company plans to add at least 50-60 more stations in 2013. The plans allow for up to 80 stations if demand exists though the new engines not being in production until August would make that unlikely.
The main issue continues to be that the new engines aren't ready yet. The important Cummins - Westport engine has now been delivered to the main truck manufacturers. While mostly on schedule now, the fact that full production of the trucks with the engine line won't hit until August could become painful to Clean Energy shareholders.
While the report is full of new stations completed on the highway network between November and January (22 for those counting) plus all the new airport, transit, and refuse locations or fueling deals, one never gets the impression of deals where Clean Energy investors win. As the CEO discusses on the earnings call, even the most successful highway stations are in the 65-80% capacity range. Not to mention, the company hopes to double capacity in order to reach maximum profits at annual fueling capacity of 5M gallons.
One gets the impression that Clean Energy is passing on all the fuel savings to the customers of all the new stations, instead of becoming equal partners to where the complete savings aren't realized until the station is at capacity. The company faces the odd scenario where demand isn't equal. Until it starts building new stations due to capacity constrains at existing stations versus building a station that is only utilized at 20%, investors aren't going to profit.
Q4 2012 Highlights
The company provided the following highlights for Q4 2012:
- Gallons delivered for the fourth quarter of 2012 totaled 51.7 million gallons, up 29% from 40.0 million gallons delivered in the same period a year ago.
- Revenue for the fourth quarter ended December 31, 2012 was $99.1 million, which is up from $86.2 million in the fourth quarter of 2011.
- Adjusted EBITDA for the fourth quarter of 2012 was $(5.7) million. This compares with adjusted EBITDA of $(3.5) million in the fourth quarter of 2011.
- Non-GAAP loss per share for the fourth quarter of 2012 was $0.23, compared with a non-GAAP loss per share for the fourth quarter of 2011 of $0.21.
While gallons delivered continue the correct trajectory, it never leads to an improving bottom line. The company reported a larger net loss and adjusted EBITDA in Q4 over last year.
Earnings Estimates Staying Negative
A year after losing more money than the previous year, analysts expect the company to report net losses for at least the next two years. In fact, analysts expect the loss in 2014 to start creeping higher recently. Eventually investors will lose faith that the concept will ever pay off.
As with Q4, analysts originally expected Clean Energy to only lose $0.15 at the time of the Q3 report. By the time of the Q4 2012 report, the actual loss came in at $0.23. The company only lost $0.21 in Q4 2011. At least for now analysts see the losses shrinking over the next couple of years. The 2013 estimate is for a loss of $0.56, which is an improvement over the $0.75 loss of 2012. The loss in 2014 has now increased to $0.31. Investors need to be careful that the trend doesn't continue.
At the best, the company might breakeven by 2015, which is a considerable amount of time from now for a company that will need more capital.
The stock still remains in a tight pattern in the $12 to $14 range. For the better part of 6 months, it has traded virtually between $12 and $14. If the stock was to break above the 200ema at $13.57, investors might want to jump aboard for a possible break higher. While a debate exists on whether the stock will ever benefit from the building of America's Natural Gas Highway, if traders are convinced the stock could eventually soar back to $24 like it did at the beginning of 2012. See the 16 month chart below:
Nothing has changed from the last quarter for Clean Energy. As highlighted in the Q3 earnings summary, the company continues to build out the natural gas highway while bleeding too much cash. Investors need to be concerned that it is on the bleeding edge and may not realize the benefits of building out the network.
The highlights from the Q4 report show concern from the company that the stations are being built too quick for the engine production plan. While the highway was needed in order to create demand in order to build natural gas engines, it doesn't mean that investors in the developer of the highway will benefit.
Technical traders will want to keep the stock on the radar as it could soar if a break out of the current trend occurs. Until then, no fundamental reason exists to own this stock long term. Until the company can figure out how to be profitable, investors need to stay away.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.