Please ensure Javascript is enabled for purposes of website accessibility

Why Skyline Champion Stock Just Jumped 15%

By Rich Smith – Updated Apr 22, 2019 at 5:09PM

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 trump estimates. But what was it that drove those earnings, exactly?

What happened

True to their name, shares of Skyline Champion Corporation (SKY -3.12%) are airborne today, up 15.1% as of 11:45 a.m. EST after the company released a boffo fiscal Q3 2019 (no, that's not a typo; Skyline operates on a weird financial calendar) earnings report.

Expected to earn just $0.22 per share on $351.9 million in sales last quarter, the Elkhart, Ind., manufacturer of modular homes instead reported last night that pro forma Q3 earnings were $0.27 per share, and sales came in at $354.7 million -- ahead of estimates on both counts.

Check out the latest Skyline earnings call transcript.

Construction workers reading blueprints in front of a house.

Skyline has a plan for growing profits -- but is it too dependent on low taxes? Image source: Getty Images.

So what

Skyline's GAAP results weren't quite as strong as these pro-forma numbers suggest -- but they were still pretty good. Total homes sold increased 16%, and sales climbed more than 20% year over year. Thanks to a big decrease in income tax, Skyline's per-share profits leapt even higher -- up 73% to $0.19 per diluted share.

Now what

CEO Keith Anderson credited "merger synergies from [Skyline's] combined businesses" for the big increase in profits and predicted that production expansions in California and (especially) Louisiana "will help drive market share" in the coming quarters and years.

Investors seem to be taking those promises at face value, despite the CEO giving no specific guidance for future sales or earnings. Personally, though, I'm a bit leery, seeing how much of Skyline's earnings growth was owed to lower taxes, especially given the company's dramatic rise in costs -- cost of sales up 22% in the quarter, and selling, general, and administrative spending rising 48%, both far in excess of sales growth.

Investors enjoying big gains on their Skyline stock today might want to take these numbers to heart and get while the getting is good.

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

Skyline Champion Corporation Stock Quote
Skyline Champion Corporation
SKY
$58.08 (-3.12%) $-1.87

*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
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

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.