By Ian Gilson, PhD, CFA
Clean Diesel (Nasdaq-small:
) reported its 1Q13 results on May 10, 2013. Revenue was in
line with our expectations as were the cost of goods. S.G.&A.
were higher than estimated but below year ago levels. However
they were above 4Q12 levels. R&D declined versus a year ago
but it also increased versus the 4Q12. The other income was a far
larger negative than we had expected and there was no tax rebate
since the company has no past income to offset the losses. This
builds a NOL which will reduce taxes when the company becomes
profitable in the USA.
Catalyst sales to external customers increased from$4.4 million
to $6.1 Million, or 39%. This is mainly due to the success of the
Honda Accord, where CDTi is the catalyst supplier for both the 4
and 6 cylinder models. Since the Honda Acura line uses the same
basic engines as the Accord, CDTi has a good chance of supplying
catalyst systems for the Accord line. Honda and CDTi have reached
an agreement on the method of pricing the rare earth metals that
are used in making the catalysts. This may impart some volatility
in both revenue and profits as the metals do fluctuate in price.
In 1Q13 the catalyst division was profitable. CDTi works with
Honda America on its requirements for catalyst systems.
The HD Diesel division was affected by the London Low Emission
Zone program. However, as mentioned in prior reports, this
program was highly competitive and the low margins impacted
profits. In 1Q13 the operating loss was reduced even as revenue
dropped by $5.3 million.
The company added two new distributers in the first quarter. One
of them did buy some inventory, the other did not.
The Pirelli agreement should have an impact late this year. CDTi
will supply systems to the JV, which will be the selling
organization and it will receive a commission on the sales. The
JV substantially increases the geographical exposure in Europe
In 1Q13 CDTI sold $2.7 million into the California retrofit
market. CARB enforcement is increasing but is still at a
relatively low level. This should increase during the year and we
would expect HDD distributor sales to improve sequentially during
2013. One weak spot is the mining industry but an increase in
school bus funding could offset this.
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