Please ensure Javascript is enabled for purposes of website accessibility

Why Kratos Stock Crashed 10% Today

By Rich Smith - Jul 28, 2017 at 4:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings are out, but profits will have to wait.

What happened

Shares of Kratos Defense & Security Solutions (KTOS 0.13%) stock crashed by as much as 10.4% in early trading Friday, before clawing their way back up to close at a 9% loss.

So what

Expectations were high for Kratos heading into earnings day. In its last earnings report, Kratos had promised investors that it would earn a profit in the second quarter, grow steadily more profitable as the year progressed, then begin generating positive free cash flow in 2018 -- but that's not how things turned out.

Not in Q2, at least. Instead of a GAAP (generally accepted accounting principles) profit, Kratos investors had to settle for a $0.07-per-share GAAP loss for the fiscal second quarter, and a "pro forma" loss of only $0.01. On the plus side, analysts had not bought fully into Kratos's story, and had told investors to expect the penny-a-share loss. Thus, the good news is that Kratos at least met expectations for earnings.

The other good news is that Kratos succeeded in topping expectations for Q2 sales, which came in at a more-than-expected $185.7 million.

Kratos UTAP-22 Mako drone

Kratos makes combat drones, but will its stock survive earnings? Image source: Kratos Defense.

Now what

Undeterred by the failure to reach profitability last quarter, management is raising expectations again for the third quarter. Revising guidance for the quarter already underway, Kratos told investors to expect sales of between $180 million and $190 million this quarter, culminating in sales of $720 million to $740 million for the full year.

Management made no promises of GAAP profitability, however, limiting itself to promising "adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization -- a very non-GAAP term) of about $12 million for the quarter, and about $53 million for the year. Real profits, it appears, will have to wait.

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kratos Defense & Security Solutions Stock Quote
Kratos Defense & Security Solutions
KTOS
$15.12 (0.13%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.