Westport Innovations Inc. (USA) (WPRT), Cummins Inc. (CMI): When a Bad Quarter Doesn’t Really Matter

As we emerge from earnings season, I’ve taken some time to review a few of my favorite companies and come to terms with where things stand.  That’s led me to take a hard look at the part of my portfolio that’s dedicated to the expansion of natural gas as a transportation fuel. There are a handful of companies that are early in the game.

Last quarter really was terrible

But for Westport Innovations Inc. (USA) (NASDAQ:WPRT), that came as no big surprise to anyone paying attention to the truck market for the past year. Total revenue for the quarter was down more than 20%, from $36 million a year ago to $30 million this quarter. For a company that’s promising upwards of 30% growth this year, that’s a pretty terrible way to start off. Additionally, the net loss for the period grew from $22.6 million a year ago to more than $31 million this year.

Yes, you read that last statement correctly. Westport’s net loss in the first quarter was larger than its total A little scary, right? Except that it would be ignoring an important point: Westport Innovations Inc. (USA) (NASDAQ:WPRT) was (and is) investing in technology that could be transformational for the trucking industry; much of those losses are the cost of laying the groundwork for the launch of the most important engine in the company’s history; maybe the most important engine in the past 50 years in the trucking industry: The Cummins Inc. (NYSE:CMI) Westport ISX12 G. Simply put, this is the engine that will allow over-the-road trucking fleets to adopt natural gas, and its tens of thousands of dollars in annual fuel savings per-truck, en masse for the first time ever.

Cummins Inc. (NYSE:CMI) is in a strong position with its partnership with Westport Innovations Inc. (USA) (NASDAQ:WPRT). Where more recent partnership deals have shifted more of the risk and cost to the partners, the Cummins Inc. (NYSE:CMI) JV has been funded more heavily by Westport Innovations Inc. (USA) (NASDAQ:WPRT), requiring stock offerings (and the dilution that comes along with it) several times to fund the build-out costs.

Simply put, Cummins Inc. (NYSE:CMI) has positioned itself to grow its already strong position in the heavy-duty engine market with this partnership. And while the upside opportunity isn’t nearly as strong, investing in Cummins Inc. (NYSE:CMI) and its dividend-paying existing business offers a certain predictability that income investors may prefer, versus the risk of a Westport Innovations Inc. (USA) (NASDAQ:WPRT), which is completely reliant on large-scale adoption of natural gas engines by the trucking industry.