What happened
Shares of GCP Applied Technologies (GCP), which supplies chemicals and materials used in construction, were down 10% as of 11 a.m. EDT today. Today's stock drop comes after management reported results well below analyst expectations for the quarter and announced restructuring plans that will likely involve asset sales.
So what
GCP reported that second-quarter revenue came in at $303 million and posted a loss of $27.9 million, or $0.40 per share. Much of that loss came from a $59.8 million debt refinancing charge during the quarter. Adjusting for this one time change, adjusted earnings per share were a more respectable $0.27. That said, earnings came in well below Wall Street expectations, which estimated GCP's second-quarter EPS at $0.39. The culprit for this miss was higher-than-expected raw material costs that hit gross margins.
Management also reduced its fiscal year adjusted pre-tax earnings guidance from $135 million-$150 million to $125 million-$135 million. Since it left its revenue guidance unchanged, these earnings guidance numbers are all assuming higher raw material costs for the rest of the year.
Image source: GCP Applied Technologies.
To add insult to injury, management also announced that it will start a restructuring plan that will involve several asset sales so that management can focus on profitability in its core product markets. Management also expects to implement significant price increases across its core products to offset inflation and foreign exchange impacts.
Now what
GCP Applied Technologies' tenure as a publicly listed company started in early 2016 when it was spun off from W.R. Grace & Co. The fact that the company is already embarking on corporate restructuring isn't exactly a great sign that it's succeeding as an independent company.
While the company's balance sheet looks decent enough and the stock has an absurdly low P/E ratio of 3.2 times, there seems to be some underlying issues here that management needs to work out before investors should be trying to pounce on today's stock drop.
