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Capstone Turbine (CPST) Cuts Q2 Earnings Outlook

October 1, 2015 8:31 AM EDT

Capstone Turbine (NASDAQ: CPST) announced that its preliminary second quarter earnings were notably below management's expectations and analysts' consensus estimates as continued headwinds in the oil and gas market and a strong U.S. dollar delayed orders and shipments in the quarter.

"We have approximately 75 microturbines totaling over 13MW for customers in finished goods as of September 30th that were slotted to ship in the quarter that will now ship next quarter," said Jim Crouse, Executive Vice President of Sales and Marketing at Capstone Turbine. "The Capstone sales team will be working diligently to get these units delivered as quickly as possible and drive for a strong rebound in the third quarter, which is historically our strongest quarter in the fiscal year," added Crouse.

After posting the second best first quarter in company history, which was an increase of 16% year-over-year, and a 200 basis point improvement in margin, Capstone experienced a significant slowdown in both product shipments and new order flow in the most recent quarter ended September 30, 2015. In addition, the Company received no significant payments from its Russian distributor, who until recently was one of their largest customers.

As a result of the lower than expected revenue and increased inventory levels, cash burn for the quarter was higher than anticipated prompting management to look at additional areas within the business where operating expenses can be immediately reduced. Management has therefore decided to indefinitely postpone an upcoming employee merit increase, cut hourly overtime, eliminate temporary employees and convert all variable cash compensation to stock grants. These actions are in addition to the recent flattening of the Capstone executive organizational structure which eliminated three executive positions back in April 2015. These most recent actions combined with the April restructuring will save approximately $3.3 million in cash annually.

"Companies across the energy space are seeing significant market headwinds with the precipitous drop in oil prices, commodity prices and the strong U.S. dollar," said Darren Jamison, Capstone's President and Chief Executive Officer. "In response to the ongoing market slowdown we are taking a three pronged strategy. First, we are looking for every way possible to lower our operating expenses without impacting our brand or total customer satisfaction. Second, we will continue to make improvements to our products in order to have them be more competitive and cost effective in the growing combined heat and power (CHP) space. These product changes will be unveiled at the upcoming PowerGen International Show on December 8th in Las Vegas, Nevada. Lastly, the Company is looking to grow its business in Latin America, Australia, Africa and the Middle East. These markets have tremendous potential and will give us an ability to offset the slowdown we are experiencing in the energy space and more specifically in Russia," added Jamison.



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