Ballard swings to 2008 profit

Vancouver, British Columbia's Ballard Power Systems (Nasdaq: BLDP) said today it turned a net profit of US$34.1 million for 2008 as it continues to see growth in shipments of its hydrogen fuel cell systems.

Ballard also reported a fourth-quarter loss of $18 million, or $0.22 a share—up from a loss of $15.9 million, or 14 cents a share, in the fourth quarter of 2007. Revenue dropped to $18.9 million for the quarter from $20 million in the same period of 2007.

"While '09 will obviously be a very tough year given the macroeconomic backdrop, we believe that our growth plan has strong underpinnings," CEO John Sheridan said today in a call about the report. "We anticipate a significant ramp over the course of the year, starting from a relatively weak (first quarter)."

Shares of Ballard closed at $1.01 on the Toronto Stock Exchange, down 5.61 percent.

But analysts said they saw positive news in Ballard's earnings report.

The company shipped 802 fuel cell systems in the fourth quarter, a 140 percent increase over the same period the previous year. Ballard shipped 1,855 units in 2008, an increase of 79 percent over 2007 and above its forecast of 1,700.

BMO Capital Markets listed its target price for Ballard at $4.25 with a "hold" rating.

"Guidance for 2009 looks strong with total product shipments for 2009 at 4,000 units, more than double 2008 product shipments," BMO analyst Brian Piccioni wrote. "Also, revenue is expected to grow by 15 percent to 30 percent and operating cash consumption to drop by 7 percent to 40 percent."

The fourth quarter numbers were brought down, in part, because of a $2.8 million loss on asset disposal and write down, and a $2.4 million investment loss.

Ballard also bounced back to profitability after a $57.3 million loss in 2007. The 2008 profit was in part attributed to the first quarter sale of Ballard's automotive division for $96.8 million to Daimler (NYSE: DAI) and Ford Motor (NYSE: F) (see Ballard selling auto fuel cell business to Daimler, Ford).

The company is now concentrated on two applications for fuel cells: powering heavy-duty vehicles such as forklifts, and providing backup power.

Sara Bradford, principal consultant with the Energy and Power Systems Group at research firm Frost & Sullivan, said those two sectors experienced solid growth during the past year, while the automotive market for fuel cells has stalled because many of the technologies are far from market-ready.

During the next year, the stationary power sector is likely to be the strongest segment for Ballard and other fuel cell developers because of demand for the technology in developing countries and by the telecom sector, she said. Fuel cells are gaining market share in that sector because they can withstand harsh environments and they require little maintenance, which is important in remote areas with no access to the grid. Ballard has already signed deals to supply fuel cells for cell towers in India (see India telecoms to get fuel cell power and Ballard, Acme in fuel cell supply deal). 

Ballard's other focus, the materials handling industry, isn't as resilient a market, Bradford said. It tends to follow macro-economic trends, with companies delaying the purchase of new equipment until the economic outlook improves, she said.

"Fuel cell technology for them is a nice-to-have, not a need-to-have. End users can extend the life of their equipment," she told the Cleantech Group. "The decline won't be as dramatic as in the automotive sector, but it will be negative."

The shift Ballard took away from the automotive sector is pretty common amongst its competitors, but what really makes the company stand out is that it's making money, she said.

"Simply put: they have revenue," she said. "When you look at the market, you'll see quite a few fuel cell developers that are not profitable."

Sheridan said Ballard has about $85 million in cash reserves. In October, analysts praised a reorganization that raised $34 million in non-dilutive financing to cover Ballard's $900 million in tax losses. The company transferred its assets and liabilities to a new wholly owned subsidiary, New Ballard (see Ballard shares jump with refinancing news).

Piccioni noted that Ballard still faces significant challenges because mainstream adoption  depends on "numerous significant scientific and technological problems [being] solved by the company and other industry participants. There can be no assurance that these problems will be resolved cost effectively."

Bradford said the fuel sector sector is making headway on improving the economics behind stationary fuel cell systems. In 2003, the average cost of a kilowatt-hour produced by a hydrogen fuel cell was $4,700. In 2007, it was $2,800 per kWh, dropping to $2,400 per kWh in 2008. Bradford said she expects at least a 10 percent drop in 2009.