The case of Fuel Tech Inc. (FTEK) is a textbook example of the perils and the fortunes that can swing on a moment’s notice when a company is engaged in a business fueled by government regulations.
Fuel Tech uses proprietary technology to provide boiler optimalization to improve efficiency and reduce air pollutants emitted by utilities and industrial companies. The company’s primary focus is on the reduction of nitrogen oxide through its FUEL Chem process.
Fuel Tech in 2008 was riding high as a company whose products were in great demand as a result of the passage by the US Congress of the Clean Air Act. Among the rules which were promulgated following the adoption of the Act was the Clean Air Interstate Rule (CAIR), which mandated that companies whose operations resulted in the transmission of air pollutants across state line reduce toxic emissions to levels determined to be safe. The rule was to be effective on January 1, 2009.
Unfortunately for Fuel Tech, which has developed a process for the reduction of nitrogen oxide and other pollutants, a court challenge to the rule was vacated in a decision rendered by the US District of Columbia Court of Appeals. As a result of the ruling and the tight credit markets affecting Fuel Tech’s customers’ orders in the last half of the year declined.
Changes in the language of the rule requested by the Court have been enacted and the rule was re-instated in late December. Unfortunately for the company, earnings for the year were negatively impacted and Fuel Tech reported a loss of $586,000, or $.02 per share for the fourth quarter. The comparable period in 2007 resulted in a profit of $5.2 million. Analysts had forecast a loss of $.01 per share off of revenues of $16.5 million.
While the loss for the quarter was disappointing, the fundamentals affecting the company are improving. Orders following the reinstatement of CAIR have increased substantially for Air Pollution Control (APC) devices. Fuel Tech has a strong balance sheet, with no long term debt and current liabilities of only $13.7 million and current assets of $58 million.
The company is also positioned to benefit from the emphasis by the Obama administration on the environment. From both regulatory and legislative standpoints, resources are likely to be allocated to cleaning the air through reduction of toxic emissions. Fuel Tech is an industry leader in its field, and the order flow should benefit from the change.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
