Why Cubic Corporation Stock Is Being Driven Down Today

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

What: Shares of transportation and defense company Cubic Corporation (NYSE: CUB  ) are getting shot down today, falling as much as 5.1% following its disappointing earnings release for the first half of fiscal 2014.

So what: Cubic Corporation missed analyst estimates on both the top and bottom lines. Earnings came in at $661.6 million, and earnings per share hit $0.91, after a cumulative miss for the first half of fiscal 2014, which ended March 31, of $25 million and $0.25, respectively.

CEO William Boyle stated in the conference call that "lower U.S. government spending" and "additional start-up costs" related to a new contract were to blame for the shortfalls.

Now what: Interestingly, Cubic Corporation is holding its full-year guidance steady: between $1.42 billion and $1.45 billion in sales, and earnings per share between $2.60 and $2.75. If you do the math, that puts the range for earnings per share between $1.69 and $1.84, well above the consensus of $1.61, for the second half of the year.

Boyle said on the call, "After a further review of our business units, we feel that transportation will regain its momentum and the second half will be much better, particularly in the fourth quarter." Naturally, the street is concerned that Cubic Corporation will disappoint again; although, in the conference call it was explained that several projects are in "the advanced state of completion." This suggests that the company still has visibility based on reasonable and hard evidence, even though the timing was a bit off from Cubic Corporation executives.

Meanwhile, Cubic Corporation is seeing a "significant increase" in bid activity in addition to its $2.67 billion in backlog as of March 31. Since that backlog is almost as large as two full fiscal years of sales, it seems as though the company will be busy for quite some time.

It will be interesting to see how analysts respond to a large sales and earnings miss that also essentially came with forward-looking sales and earnings guidance upgrades. If analysts lower estimates instead of raise them, then they probably didn't pay attention to the conference call, and investors may have an edge if Cubic Corporation goes on to have a "surprise" earnings beat on the next report.

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