Shares of TTM Technologies (NASDAQ:TTMI) fell as much as 16.9% on Wednesday, following the company's release of solid third-quarter results with a side of uninspiring guidance. As of 2:30 p.m. EDT, the printed circuit board manufacturer's stock had recovered slightly to a 14% drop.
TTM's third-quarter revenue came in at $756 million, 13% above that for the year-ago period. On the bottom line, earnings rose 56% to $0.50 per share. Your average Wall Street analyst would have settled for earnings near $0.45 per share on sales in the neighborhood of $751 million.
So far, so good. However, TTM's management set up their fourth-quarter earnings target at approximately $0.47 per share, and the expected revenue range stretched from $720 million to $760 million. These goals point to roughly flat year-over-year revenue and 18% lower earnings. Here, analysts had been looking for earnings of roughly $0.64 per share and sales near $827 million.
TTM's management implied that the soft guidance was a direct downside of this quarter's surprising strength.
"Following record third-quarter revenues in the cellular end market, we're anticipating weaker sales and profits in the fourth quarter," said CEO Tom Edman in a prepared statement.
Digging deeper into that statement, Edman offered the following explanation in a conference call with analysts:
"As we look at the cellular ramp every year, we look at that combination of Q3 and Q4. And what happened this year versus last year is that we had an earlier start. We had forecast that," Edman said according to a transcript from Seeking Alpha. "Those designs were released earlier than last year, and we were able to start from a higher yield performance level. And so as we -- because of that, we were able to push out higher unit volumes in the third quarter portion of the ramp."
In other words, the fourth quarter looks weak simply because the third quarter contained some of the orders management had expected in the year-ending period. Taken together, the third and fourth quarter's total sales -- reported figures from the third quarter plus the midpoint of fourth-quarter guidance -- should come up 5% below the total analyst targets for those two periods. On its own, the fourth-quarter revenue shortfall is a much spookier 11%.
There are other moving parts in this equation, such as further order shifts into the first quarter and rising average selling prices per circuit board. But the quarter-to-quarter revenue shift is a clear enough explanation of what's going on here to make me question the wisdom in today's large price drop.