Why Resideo Technologies Stock Plummeted by Almost 24% on Thursday
Key Points
No investor likes a double guidance miss.
The control and sensor specialist beat on revenue and profitability in its third quarter, but this wasn't sufficient for the market.
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Specialty industrial company Resideo Technologies (NYSE: REZI) wasn't looking very special as a stock on Thursday. The company's equity fell by nearly 24% in price, on the back of a fresh earnings report that wasn't taken well at all by investors. The company's decline was far more pronounced than that of the benchmark S&P 500 (SNPINDEX: ^GSPC), which decreased by 1.1% on the day.
A pop in profitability
This happened despite the fact that Resideo actually performed better than expected with its third-quarter profitability.
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Net revenue came in at over $1.86 billion for the company, which specializes in control and sensor products for the home and commercial segments. This was a 2% improvement year over year. Net income not according to generally accepted accounting practices (GAAP) soared 56% higher to $137 million ($0.89 per share).
Resideo's revenue figure barely missed the average analyst estimate of $1.87 billion. The company trounced the consensus for non-GAAP (adjusted) net income, though, as those pundits were collectively modeling only $0.72 per share for the line item.
In its earnings release, Resideo said that it benefited from organic growth on the top line, and notably improved margins in its wholesale distribution business, ADI, and its products and solutions offerings. In June, it announced it was separating ADI into an independent company.
Dispiriting guidance
The issue with Resideo's third-quarter report wasn't the trailing results; it was guidance.
These days, management expects the company will take in $7.43 billion to $7.47 billion in net revenue, and post an adjusted net profit of $2.57 to $2.67 per share. Alas, the average analyst estimate for the former is nearly $7.51 billion, and that for adjusted earnings per share is $2.76.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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