Please ensure Javascript is enabled for purposes of website accessibility

Why Lannett Company, Inc. Is Falling Today

By Brian Feroldi - Feb 8, 2018 at 4:31PM

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

Shares tumbled after the generic-drug maker shared quarterly results that came up short of expectations.

What happened

In response to reporting fiscal second-quarter results, shares of Lannett Company, Inc. (LCI -3.35%), a producer of generic drugs, fell 11% as of 3:53 p.m. EST on Thursday.

So what 

Here's a look at the headline numbers from the quarter:

  • Revenue was $184.3 million for the quarter. That came up short of the $190.8 million that analysts were projecting.
  • Non-GAAP EPS was $1.06 per share. That result beat Wall Street's estimate of $0.86 per share. 

The lower-than-hoped for revenue growth caused Lannett to dial back its guidance for the full year. The company now projects full-year revenue in the range of $680 million to $700 million, which is down from its prior outlook of $710 million to $720 million. Gross margins are also expected to decline.

To compensate for those changes, the company is pulling back on its spending plans for the year. Management also expects to reap substantial savings from the recently announced Tax Cuts and Jobs plan. When added together, the company expects full-year profit to "slightly improve" from its prior outlook.

However, Wall Street remained laser-focused on the company's top-line troubles, which is why shares are tanking today.

Money being sucked out of the pocket of a person wearing a suit.

Image source: Getty Images.

Now what

Lannett's stock has been under pressure for several years in a row. While the company has dealt with a number of industry related setbacks, the biggest question mark surrounds management's decision to buy out Kremers Urban Pharmaceuticals in 2015. The deal added a huge amount of debt to Lannett's balance sheet and the company has struggled to realize the promised benefits of the merger.

Wall Street expects Lannett's profits to shrink by an average of 5% annually over the next five years as it works through the challenges facing the business. When combined with the company's huge debt load -- long-term debt at quarter end was $819 million while cash balance was only $140 million -- investors should take a pass on this stock even though it's only trading for six times forward earnings.

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

Lannett Company, Inc. Stock Quote
Lannett Company, Inc.
$0.58 (-3.35%) $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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

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.