Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Spartan Motors Stock Dropped 35% Today

By Rich Smith - Oct 31, 2018 at 3:08PM

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

Can "industry-wide" factors explain a 62% drop in profit?

What happened

Shares of specialty vehicles maker Spartan Motors ( SHYF -2.34% ) are down a whopping 33.8% as of 2 p.m. EDT, which is just barely off their low of the day at down nearly 35%.

An earnings report is to blame.

This morning, Spartan reported GAAP profits of $0.15 a share and pro forma profits of $0.17 for fiscal Q3 2018. Whichever flavor of earnings you choose to focus on, however, these results fell far short of the $0.25 per share that Wall Street was looking for. This was despite the fact that quarterly sales of $226.2 million missed analyst expectations by barely $1 million.

A fire engine with its lights on driving down a city street.

Spartan makes emergency response vehicles like fire trucks, but it's Spartan stock that's having an emergency right now. Image source: Getty Images.

So what

Spartan did not willingly accept blame for the big earnings disappointment, arguing that "multiple external factors ... resulted in production and labor inefficiencies and shipment delays," and that these obstacles were both "significant" and "industrywide" -- not limited to Spartan. To the contrary, management pointed to its near-20% growth in sales year over year as evidence that the business remains strong, lamenting only that "gross profit margin decreased 350 basis points to 11.6% of sales."

Now what

Investors don't seem to be satisfied with that explanation, however, and are selling off Spartan shares in droves.

Forecasting, Spartan interim CFO Matt Long argues that "the underlying business fundamentals in each of our business segments remain strong," and that management is taking "proactive steps and cost reduction actions to help mitigate the unfavorable market conditions experienced in the third quarter."

However, Spartan says that while it expects to close out 2018 with sales between $790 million and $815 million, it will probably earn only $0.41 to $0.47 per share, down roughly 30% from its previous forecast of between $0.58 and $0.64 per share. That gives Spartan stock a current-year valuation of about 16.6 times earnings, which is not bad for a stock growing sales at nearly 20%. But that may not good enough unless Spartan can turn around its margins and get its profits growing again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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

The Shyft Group, Inc. Stock Quote
The Shyft Group, Inc.
SHYF
$48.41 (-2.34%) $-1.16

*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 service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.