What happened

Airplane component parts supplier Wesco Aircraft Holdings (NYSE:WAIR) is seeing its stock drop despite reporting financial results yesterday (after market close) that beat consensus estimates.

For its fiscal Q1 2019, Wesco reported earning $0.06 per diluted share ($0.17 pro forma) on sales of $395.3 million. Wall Street analysts had predicted the company would earn $0.16 pro forma on sales of only $390.1 million.

Despite this apparently good news, Wesco stock is down 10.1% as of 12:20 p.m. EST.

Cartoon characters watch stock chart fall through a floor

Wesco beat earnings, but its stock price fell? That's a head-scratcher. Image source: Getty Images.

So what

So what had investors so upset about Wesco's results? Let's take a look.

Q1 sales grew about 9% year over year, faster than expected. The cost of those sales, however, increased more than 10%, and selling, general, and administrative expenses also grew faster than sales. Consequently, pre-tax income at Wesco declined more than 10%, to just $22.1 million. But if all that’s true, then why did Wesco earn $0.06 per share in Q1 2019, versus losing a fraction of a cent in the year-ago quarter?

Simple: It paid less income tax -- $2.6 million instead of $13.4 million.

Now what

I suspect this is the main reason investors weren't thrilled with Wesco's earnings beat. Beat or no, the results really weren't great. Moreover, with Wesco predicting it will grow sales even more slowly over the rest of 2019 than it did in Q1 ("mid-single-digits," management said), the potential for a sales slowdown could be weighing on sentiment as well.

When you get right down to it, though, whatever happens with sales later this year, it seems to me that what Wesco really needs to do is get its costs growth under control. If and when it does that, I'd expect the share price to improve in response.

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.