What happened

In response to reporting fiscal second-quarter results, shares of Lannett Company, Inc. (NYSE:LCI), 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.

Brian Feroldi 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.