When Intelsat (NYSE:I) stock lost more than 10% of its market cap last week on no news of note, I suspected the reason was investors selling the stock over fears of weak earnings. Now that Q3 earnings are out, and Intelsat stock plunged 16% the same day, I'm sure of it.
Granted, when all was said and done, Intelsat recovered most of its losses before the close of trading Tuesday. By the time the closing bell struck on the NYSE, Intelsat shares had lost "only 6.6%." Still, the reason is pretty clear.
Heading into earnings today, analysts had told investors to expect Intelsat to report about a $0.32 per-share loss on $539 million in sales. When earnings actually came out, though, it turned out that Intelsat had "missed" both of those numbers.
Sales came in about $2 million below consensus, at $536.9 million, and they would have been $25 million worse than that but for the effects of newly adopted revenue recognition rules commonly known as "ASC 606." Losses, "adjusted" for one-time items, amounted to $0.46 per share -- and the company's net loss was a whopping $2.74 per share.
All of this helps to explain why Intelsat stock crashed this morning, but why did the stock later recover to close the day with...less of a crash? I suspect here the answer lies in updated guidance that management issued, and specifically, the happy news that Intelsat expects to spend less money on capital investment over the next three years, than previously advised:
- 2018 capital spending, previously expected to range from $375 million to $425 million, will instead be only $235 million to $255 million.
- 2019 capital spending, which we used to think would range from $425 million to $500 million, will instead run from $325 million to $400 million.
- 2020 capex, estimated at $375 million to $475 million before, will now be just $300 million to $400 million.
With less of Intelsat's cash flow going to pay for capex, this all implies stronger free cash flow for the company going forward. So, even if the rest of Intelsat's news today was pretty bad -- this news sounds pretty good.