Please ensure Javascript is enabled for purposes of website accessibility

Why Welbilt Stock Dropped 23% Today

By Rich Smith – Nov 5, 2018 at 10:26AM

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

Earnings aren't great -- and guidance is worse.

What happened

Manitowoc (MTW -1.72%) spun off its restaurant equipment-making division Welbilt (WBT) last year -- and judging from today's results, Manitowoc may have made the right decision to toss Welbilt overboard. Shares of Welbilt are tumbling in midmorning trading, down 22.6% as of 11:10 a.m. EDT, after the company reported Q3 earnings that fell short of analyst expectations.

Wall Street had predicted Welbilt would earn $0.27 per share on sales of $421.3 million in Q3. Instead, Welbilt reported just a $0.19-per-share profit today ($0.25 "adjusted"), and on sales of only $412.9 million.

Frost covering the inside of a freezer

Investors are giving Welbilt stock the cold shoulder after earnings. Image source: Getty Images.

So what

From a sales perspective, Welbilt's results actually weren't all that bad. Q3 revenue grew 8.5% year over year, and nearly half of that growth was "organic" (i.e., not coming from acquisitions). However, Welbilt's profits declined 14% as the company struggled to overcome "margin headwinds" caused by "rising freight costs and from the section 232 tariffs on raw materials" instituted by the Trump Administration.

Now what

And you can expect more of the same in the year's final quarter, now under way. Updating guidance for the full fiscal year, Welbilt management warned that although it expects to end the year with sales up 8% to 10% over 2017 levels, "adjusted earnings per share" (those are the pro forma profits Wall Street tends to focus on when setting earnings targets) will probably range from only $0.73 and $0.81 per share.

Taken at the midpoint, this works out to zero earnings growth compared to last year, despite sales growing strongly. Arguably worse -- $0.77 a share would be a good $0.11 less than what Wall Street will be looking for at year-end.

No wonder investors are deciding to get out now.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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

Welbilt, Inc. Stock Quote
Welbilt, Inc.
WBT
The Manitowoc Company, Inc. Stock Quote
The Manitowoc Company, Inc.
MTW
$7.98 (-1.72%) $0.14

*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 analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

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

Premium Investing Services

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