Why Hercules Offshore, Arctic Cat, and Hill-Rom Holdings Tumbled Today

Falling manufacturing activity in China hit global stock markets, but several domestic stocks felt even sharper pain today. Find out why Hercules Offshore was down 15%, while Arctic Cat dropped 11% and Hill-Rom dropped 16%.

Jan 23, 2014 at 8:31PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks fell sharply today, with the Dow Jones Industrials hitting new lows for 2014 as news from China's manufacturing sector hinted at a possible reversal of the country's expansion. Yet, even the Dow's losses of more than 1% paled in comparison to the drops that Hercules Offshore (NASDAQ:HERO), Arctic Cat (NASDAQ:ACAT), and Hill-Rom Holdings (NYSE:HRC) suffered today, with all three stocks falling by double-digit percentages.

Hercules Offshore fell 15% after getting downgraded by analysts at Global Hunter Securities. Unlike the deepwater-drilling segment, which has commanded huge dayrates from exploration and production companies eager to tap potentially game-changing finds in promising areas of the world, Hercules focuses on shallow-water drilling. That market is much more mature and has more competition, and weakness in the rates that producers are willing to pay for Hercules rigs in the Gulf of Mexico could continue to pressure its financial results this year.

Arctic Cat declined 11% after reporting a 32% drop in net income for its fiscal third quarter on revenue growth of 3.6%. Even though CEO Claude Jordan noted rising sales in its all-terrain vehicle and side-by-side segment, as well as strength in its parts, garments, and accessories business, lower gross margins weighed on the company's profitability. But the real problem came from the company's lowering its revenue and earnings guidance for the 2014 fiscal year, with a $0.37 per share drop in earnings guidance coming on a $14 million to $18 million reduction in guidance for sales. The company also expects further gross-margin decreases, which weighed on shareholder sentiment.

Hill-Rom Holdings plunged 16% after it said it would cut 350 jobs in response to earnings that fell 45% in its just-released fiscal first quarter. The medical-equipment maker also cut its guidance for the full year, weighing the impact of an 8% drop in revenue for the quarter that sent net income down by 45% from the year-ago quarter. Going forward, Hill-Rom reduced its earnings expectations by $0.23 to $0.25 per share, falling as much as 11% short of what investors had expected to see. In a tough environment for medical device makers, Hill-Rom could continue to see pressure in the future.

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