Fuel Systems Solutions: More Gas Left in the Tank

Fuel Systems Solutions (FSYS) really hit one "out of the park" when they reported second quarter results. Revenue rose 50% from $65.6 million to $98.3 million, generating a ten fold earnings increase to $.29 versus $.03. If it wasn't for a non-cash impairment charge of $3.9 million relating to its Australian operations, the company would have delivered a staggering $.54 EPS (almost twenty times higher than the same quarter last year.) FSYS's gross profit margin increased an astounding 700 basis points from 22% to 29% while its SG&A costs were slashed 17% from 14.1% to 11.8%. The company's liquidity improved significantly as its cash holdings increased 40% from $26 million to $43 million.

Earnings expectations obliterated: Analysts were expecting revenue of $93 million and earnings per share of 27 cents. Although the company managed to beat revenue estimates by a "respectable" $5 million, or 5%, the magnitude of the "blowout" was in the earnings, as FSYS delivered exactly two times analysts' expectations of $.27, delivering a staggering $.54 before one time charges. The impairment charge was simply a write-down of goodwill and had no impact on cash flow. These types of write-downs tend to initially confuse Wall Street, enabling savvy investors to temporarily exploit the market while Wall Street is trying to "figure things out".