Clean Diesel : RECENT NEWS
Ian Gilson, CFA
Given the positive results of the third quarter we have increased our estimates for the fourth quarter 2011 and for 2012.
Third quarter results:
On November 10, 2011 Clean Diesel (CDTI) reported its third quarter 2011 results. Revenue was slightly ahead of our estimates but excellent control of operating expenses resulted in a smaller loss than we had forecast.
| (dollars in millions) | 3Q10 | 2Q11 | 3Q11 |
| Heavy Duty Diesel Systems: | $7.0 | $9.6 | $11.1 |
| Gross margins: | 29.2% | 29.7% | 33.4% |
| Catalyst | $3.4 | $3.4 | $5.9 |
| Gross margins | 12.4% | 19.8% | 10.8% |
HD Diesel System benefited from the activity in California and New Jersey and in the ramp-up in emission control systems for vehicles in the London Low Emission Zone as well as a recovery in OEM system sales for mining and material handling systems in the UK. We expect a significant sequential gain in revenue due to the London LEZ deadlines. The growth in California is spread over three years.
All of the diesel emission control systems sold in California and the UK will be using catalyst systems designed and manufactured in house. This will drive margins higher, although some catalyst business expected in the third quarter was deferred into the fourth quarter. These systems have been qualified by the appropriate regulatory agencies. There have been some verification issues, which will impact fourth quarter operating expenses, and the rapid increase in orders have caused some scale-up issues.
The company’s largest catalyst customer, accounting for 26% of revenue in the third quarter, had significant production problems due to the earthquake and tsunami in Japan. Now this customer is being impacted by the floods in Thailand. However, this customer is discussing adding a second shift at its US plants. Clean Diesel supplies the US plants so an increase in production would be of benefit.
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