Hudson Technologies (HDSN) reported seemingly mixed third-quarter results last night. Specifically, due to lower sales prices for certain refrigerants, revenue for the period of $76.5 million fell $8.0 million from the $84.5 million projected by analysts. . But even though the gap between its inventory costs and selling prices continued to narrow as expected, the company reported adjusted earnings of 34 cents per share, well above the consensus estimate of 31 cents. This was due to its favorable mix shift towards higher margin carbon sales and sales related to its program with the Defense Logistics Agency, which helped HDSN maintain its gross margin at the solid 40% level it returned to in the second quarter (from just 32% in the fourth quarter of 2022 and 39% in the first quarter) and well above its long-term target of 35%.
More importantly, although the late arrival of warmer weather in many parts of the United States during this year’s cooling season has impacted demand for some refrigerants, this strong operational performance has also led to the production of an additional $21.9 million in cash flow from operations, allowing it to fully repay its term loan during the quarter. With the additional repayment of the last $5 million of revolving debt it had at the end of the fourth quarter, HDSN is currently debt free and is expected to experience a significant increase in profitability going forward as it does not no longer has to pay interest on this debt. And considering that refrigerant prices and demand for HDSN’s high-margin reclaimed refrigerants are only expected to increase as we approach the next decline in HFC production and consumption levels under the law AIM at 60% of baseline levels forecast for 2024 (compared to 90% currently). , I believe the potential for further significant outperformance in future periods remains. As this begins to happen, I expect the stock to regain its recent momentum in the near term.
Julius Juenemann, CFA is an equity analyst and associate editor of Forbes Special Situations Survey And Forbes Investor investment newsletters. Hudson Technologies (HDSN) is a current recommendation in the Forbes Investor. To access this stock and other recommended stocks via the Forbes InvestorClick here to subscribe.