What happened
Window and door manufacturer Jeld-Wen (JELD +1.74%) got blown off its hinges Wednesday morning after the company reported earnings far short of analysts' estimates. Jeld-Wen shares plunged as much as 15.5% in early trading before clawing their way back to only about a 7.6% loss as of 12:24 p.m. EST.
Sales in the fourth quarter of 2017 grew a bare 0.3% to just $976 million -- short of the $1 billion Wall Street expected. Earnings for the quarter were only $0.26 per share, adjusted for one-time items. Wall Street had expected these pro forma profits to come in at $0.42 per share.
Image source: Getty Images.
So what
"Profits" may even be too charitable a term to describe what Jeld-Wen reported for Q4. Actually, when calculated according to GAAP accounting principles, which factor in "non-cash tax charges and expenses related to the December debt refinancing," what Jeld-Wen reported was an $0.89-per-share loss.
Still, the news wasn't all bad. "Jeld-Wen completed 2017 by delivering another consecutive quarter of earnings growth and margin improvement," said CEO and President Mark Beck. For the year, sales grew a more respectable 2.6% to $3.8 billion, helping to put Jeld-Wen just barely in the black with a GAAP profit of less than $0.01 per share. Additionally, the company reported that it generated $202.7 million in positive free cash flow for the year, up 66% from last year's tally.
Now what
Management expects 2018 to see more improvement in 2018. Guidance for this year forecasts sales growth between 8% and 11%, including organic growth of 3%. On the other hand, capital spending could as much as double this year to between $100 million and $120 million, which could send Jeld-Wen's free-cash-flow number crashing back down.
Based on its current market capitalization of $3.7 billion, Jeld-Wen's 2017 free cash flow gives the stock a P/FCF ratio of 18.3. That would seem pricey even assuming the company could grow its free cash flow consistently at the 11% rate projected for sales this year -- which it probably can't, given that it is also ramping up capital spending.
I think investors are right to sell Jeld-Wen.
