Energy Recovery Earnings: Here’s Why the Stock is Rising Now

Energy Recovery, Inc. (NASDAQ:ERII) had a loss and beat Wall Street’s expectations, AND beat the revenue expectation. The revenue beat is a positive sign to shareholders seeking high growth out of the company. Shares are up 5%.

Energy Recovery, Inc. Earnings Cheat Sheet

Results: Adjusted Earnings Per Share decreased to $-0.03 in the quarter versus EPS of $0.01 in the year-earlier quarter.

Revenue: Decreased 30.33% to $8.57 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: Energy Recovery, Inc. reported adjusted EPS loss of $0.03 per share. By that measure, the company beat the mean analyst estimate of $-0.06. It beat the average revenue estimate of $7.97 million.

Quoting Management: Tom Rooney, President and Chief Executive Officer, commented, “The second quarter results exceeded expectations, with strong OEM and Aftermarket sales, compelling gross profit margins, and contained operating expenses combining to produce better operating results than anticipated. The tepid revenue levels were forecasted several quarters in advance as we develop evolving transparency and predictability in our mega-projects pipeline. With that increased visibility, we are able to discern uniquely strong revenue in the fourth quarter of 2013, followed by meaningful growth in 2014 reflective of a resurging market for global desalination and our fiercely competitive position in that market. As conveyed previously, 2014 should mark a seminal turning point for Energy Recovery as we transition to positive cash flow and income profitability. We also anticipate revenue growth in the range of 30% to 40%. Based on significant industry growth expectations, we are very excited about the potential opportunities this brings to us in the future. What is equally impactful is the gross profit margin that we can achieve on such revenue levels due to operating leverage and manufacturing efficiencies. Uniquely strong margin performance, which is the byproduct of two years of hard work, combined with an impending wave of revenue growth, gives me great confidence in the future earnings power of the company. In summary, we are very pleased with the results in the second quarter, and we remain bullish on the prospects for the Company regarding both desalination and other markets.”

Key Stats (on next page)…

EPS increased to $-0.03 in the quarter versus EPS of $-0.09 in the previous quarter.

Looking Forward: Analysts have a more negative outlook for the company’s next-quarter performance. Over the past three months, the average estimate for next quarter’s earnings has fallen from a loss of $0.03 to a loss $0.04. For the current year, the average estimate has moved down from a loss of $0.08 to a loss of $0.12 over the last ninety days.

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(Company fundamentals provided by Xignite Financials. Email any earnings discrepancies to earnings [at] wallstcheatsheet.com)