UPDATE 3-Fuel Systems raises FY09 revenue view, shares jump

* Q3 adj EPS $0.77 vs est $0.43

* Revenue up 10 pct

* Raises FY09 revenue forecast

* Shares jump 26 pct (Adds analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, Nov 5 (Reuters) - Fuel Systems Solutions Inc's (FSYS.O) quarterly results topped market expectations on strong demand for alternative-fueled vehicles, especially in Italy, and the company raised its full-year revenue outlook, sending its shares to a 13-month high.

Shares of the alternative fuel components rose as much as 26 percent to $42.70, but later pared some gains to trade up $8.56 at $42.36 Thursday afternoon on Nasdaq.

Analysts expect Italian subsidies for bi-fuel systems to be the key driver of the company's growth going forward.

Adoption of bi-fuel CNG and LPG vehicles continues to be strong in Italy and now represent over 25 percent of all new cars sold in the country, compared with 7 percent in 2008, analyst Dilip Warrier of Thomas Weisel Partners said in a note.

Analyst Theodor Kundtz of Needham & Co said, "If the subsidy program stands constant to where it is now, their (Fuel Systems') run rates will probably continue to increase."

Incentives designed to help Italy catch up with European Union efforts to fight climate change have attracted funds from investors ranging from families to private equity funds and sports car maker Ferrari.

The company's components and systems control the pressure and flow of gaseous alternative fuels, such as propane and natural gas, used in internal combustion engines.

Kundtz, who has a "buy" rating on the stock, said emission regulations being enacted by the European Community or the United States will help the company.

Analyst David Woodburn of ThinkEquity said, "the more volumes the company can put through the existing facilities in Europe, that is almost pure upside going straight to the bottomline."

Fuel Systems, which acquired Teleflex Inc's (TFX.N) power systems business, said demand from Europe will continue.

SEES STRONG MARGINS

For 2009, the company sees revenue of $415 million to $425 million, up from its prior view of $370 million to $380 million, driven by margin improvements and acquisitions.

In 2009, the company expects a gross margin of 30 percent to 32 percent, and operating margin of 14 percent to 16 percent.

In August the company said it was targeting 2009 gross margin of 28 percent to 30 percent, and operating margin of 11 percent to 13 percent.

"While the soft global economy continues to impact the transportation aftermarket and industrial businesses, OEM/DOEM (delayed original equipment manufacturer) transportation demand has gained momentum during the second half of 2009," Chief Financial Officer Matthew Beale said in a statement.

The company operates in two market segments -- the transportation segment and the industrial segment, including mobile and power generation equipment.

The industrial markets may not pick up till the second half of 2010, analyst Kundtz said.

For the third quarter, net income attributable to the company was $15.5 million, or 88 cents a share, compared with $11.9 million, or 75 cents a share, a year ago.

During the quarter, the company recorded a gain of 11 cents a share related to an acquisition.

Revenue rose 10 percent to $116.2 million.

Analysts on average were expecting earnings of 43 cents a share, on revenue of $104.3 million, according to Thomson Reuters I/B/E/S. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Vinu Pilakkott, Ratul Ray Chaudhuri)