Business isn’t half bad for Santa Ana-based Fuel Systems Solutions Inc., whose kits that convert autos to run on natural gas and propane have been taking off in Europe.
Earlier this month, the company posted first-quarter earnings of $6 million, up from $1 million a year earlier. The results sent shares of Fuel Systems to levels not seen since 2001.
Fuel Systems’ stock is up more than 80% for the year with a market value of $420 million last week.
Chief Financial Officer Bill Larkin chalked it up to “a big push for alternative fuels.”
Along with a surge in first-quarter profits, Fuel Sys-tems raised its yearly revenue forecast to $320 million from an earlier projection of $290 million.
Wall Street has even higher expectations: Analysts on average are looking for almost $350 million in 2008 sales.
Two Businesses
Fuel Systems is the holding company for Impco Technologies Inc., a maker of engine parts for propane and natural gas vehicles, and Italy’s BRC Gas Equipment SRL, which makes gear for converting vehicles from gasoline to alternative fuels.
Chief Executive Mariano Costamag-na and brother Pier Costamagna own a quarter of Fuel Systems’ stock and live in Italy.
Impco is based in Santa Ana with 200 workers who help convert forklifts, generators and other equipment to run on alternative fuels.
BRC is run from Italy, where it has 600 workers who make and sell conversion kits for consumers who want to switch their vehicles to alternative fuels.
European sales of the conversion kits are driving earnings, while Fuel Systems’ U.S. business is flat, Larkin said.
Plans this year to double the size of the company’s Italian plant in Livorno, near Tuscany, should allow Fuel Systems to make twice as many kits.
Sales have been strongest in Europe, the Middle East and Australia where governments have promoted natural gas and propane as alternative fuels, according to Larkin.
In Australia, the government pays drivers $2,000 to convert their vehicles. By 2020 the European Union has said it wants 20% of autos to run on alternative fuels, according to Larkin.
Worldwide, Larkin estimates there are about 10 million autos running on propane and 7.5 million running on natural gas.
Competitors include Italy’s Landi Renzo SPA, which has 40% of the market versus Fuel System’s 35%, according to Larkin. There are a number of smaller players, he said.
The cost to convert a vehicle is $5,000 to $10,000 for natural gas and about $2,000 for propane. The kits make economic sense in Europe, where already high gas prices are made worse by the run-up in oil.
Natural gas costs two-thirds less to run, while propane costs a little less than half as much, according to Larkin.
No U.S. Kit Sales
Fuel Systems doesn’t market the kits in the U.S., where the alternative fuels focus for
consumers is on ethanol and hydrogen, not propane and natural gas.
And Americans might balk at the price of converting vehicles. They’re more likely to look at more fuel-efficient gas cars or hybrids to combat high oil prices.
In Europe, Fuel Systems sells about 85% of its kits through distributors who provide them to mechanics who install them for consumers.
A small part of its business there goes to selling the kits to automakers such as Fuji Heavy Industries Ltd.’s Subaru and General Motors Corp.’s Chevrolet.
Converting vehicles involves switching out the gas tank and installing mechanical and electrical gear.
A downside of the conversion is the need for bigger tanks. For every gallon of gas, 1.25 gallons of propane or 2 gallons of natural gas are needed.
For more growth, Larkin said the company needs continued high oil prices, government incentives for alternative fuels and investments in alternative fuel service stations.
The forecast for parts maker Impco isn’t as bright, according to Larkin.
Some of its major customers,including Toyota Motor Corp., which buys parts for its forklifts,has predicted slower sales for the year.
“Revenue for the industrial side of the business has been historically flat,” Larkin said.
In April, Fuel Systems restated results for 2005 and 2006 following a company probe of stock options.
“At the end of the day it had no affect on our earnings,” Larkin said.
The company’s stock was in a downfall for most of last year as shares fell more than 30%.
Fuel Systems also has seen management changes. Last month, vice president of business development Matthew Beale was named president, replacing Costamagna, who remains chief executive.
Larkin moved up to financial chief to replace Thomas M. Costales, who retired. Larkin previously was corporate controller and chief accounting officer.
Fuel Systems moved its headquarters to Santa Ana from Cerritos in 2006.
The company used to be known as Impco until it formed a holding company after buying BRC two years ago.
