(Adds details and updates shares)
By Sagarika Jaisinghani
Aug 18 Weak demand for alternative fuel vehicles
and increasing competition in Europe are hurting Fuel Systems
Solutions Inc at a time when its peers are riding a
recovery in the U.S. auto industry.
New York-based Fuel Systems, whose products allow vehicles
to run on propane and natural gas, said it has lost customers in
Europe, which contributes about 40 percent to the company's
revenue and is its largest market.
The company's shares fell as much as 9 percent on Monday
after it cut its revenue forecast for the year.
Where the Dow Jones U.S. Auto Parts index has
risen more than 20 percent in the past year, Fuel Systems shares
have nearly halved.
"Their (Fuel Systems) issue is that where they've been
historically strong has gotten weaker," Lake Street Capital
Markets LLC analyst Robert Brown told Reuters, referring to the
European auto market.
"The adoption of alternative fuels in the U.S. is actually
expanding quite nicely but the dynamics in Europe have been a
headwind," he said.
U.S. automakers are increasingly using alternative
technology to boost fuel economy and meet stricter mileage and
Europe is still playing catch-up after a euro-zone crisis
that weakened automotive demand.
But Fuel Systems expects new European emissions standards
due to kick in from 2016 to boost demand for its conversion
In the second quarter ended June 30, the company posted a 21
percent fall in revenue.
In contrast, smaller rival Quantum Fuel Systems Technologies
Worldwide Inc, which sells most of its products in the
United States, reported a 7 percent rise in revenue.
BorgWarner Inc, one of the largest suppliers of
turbocharging technology used by automakers to boost fuel
efficiency, last month raised the low-end of its sales growth
forecast for the year.
BANKING ON EUROPE
Lake Street's Brown said Fuel Systems' recent performance
has been pressured by the loss of a contract with Peugeot SA
to Italian rival Landi Renzo SpA.
The company has also lost Volkswagen and Honda
Motor Co in China and Thailand, respectively, as the
automakers brought the services outsourced to Fuel Systems
in-house, Brown said.
Fuel Systems, which gets most of its revenue from Ford Motor
Co's European unit, said it expects volumes to rise in the
fourth quarter ending December 2015.
Activist investment firm Becker Drapkin Management LP
reported a 6.4 percent stake in Fuel Systems on Friday, calling
the shares undervalued.
Fuel Systems' shares trade at 137.9 times their forward
12-months earnings estimate, compared with a median 12.6 time
for the automotive industry, according to Thomson Reuters
They were down 4.7 percent at $10.08 in afternoon trading on
(Editing by Don Sebastian and Maju Samuel)