Chart Industries, Inc. Weak Guidance Highlights Q4 Results

Chart Industries’ (NASDAQ:GTLS) overall fourth quarter 2013 EPS and awards were mostly in line with expectations; however, we believe this will be overshadowed by lower-than-expected 2014 EPS guidance ($3.10-$3.50 versus consensus $3.67) and more subdued market commentary regarding near-term growth prospects. There was already a somewhat downward bias to 2014 consensus EPS, the more cautious market commentary about near-term growth prospects may come as a surprise and bring to light the uncertainties facing the LNG fuel market.

Gross margin of 30.9% was ahead of our 30.0% forecast, driven by 290-basis-point sequential pickups in both energy and chemical (helped by several emergency short lead-time projects) and biomedical (which benefited from lower acquisition-related costs, favorable mix, and a stronger euro). As a result, operating margin reached its highest level since second quarter 2012 at 13.1%.

New awards were in line with the expectation at $287 million (0.95 book-to-bill). Energy and chemical awards were comparable with the previous quarter (at $85 million) and were modestly better than we had expected, offsetting slightly lowerthan- expected awards in distribution and storage ($146 million, down from about $220 million in the previous two quarters). Consolidated backlog ended the quarter down 2% sequentially, at $729 million.

Chart provided an initial 2014 outlook that calls for EPS of $3.10 to $3.50 (based on 30.7 million shares outstanding), well below current consensus of $3.65, on sales of $1.3 billion to $1.35 billion (10% to 15% growth). Chart’s expectation is that both North America and Asia LNG opportunities will continue to increase in 2014, but noted that North America LNG opportunities are progressing at a slower than originally anticipated pace and that Asia LNG opportunities may not pick up until the second half of 2014.