Why Resideo Technologies Stock Dropped Today

The comfort and security solutions specialist left investors squirming today with high spinoff costs and disappointing forward guidance.

Steve Symington
Steve Symington
Mar 7, 2019 at 2:24PM
Technology and Telecom

What happened

Shares of Resideo Technologies (NYSE:REZI) were down 27.2% as of 12 p.m. EST Thursday despite reasonably strong fourth-quarter results from the smart-home comfort and security products company.

More specifically, in a press release this morning, Resideo said its fourth-quarter revenue climbed 5% year over year to $1.266 billion, translating to adjusted net income of $38 million, or $0.31 per share. The results were technically mixed relative to analysts' consensus estimates, which called for adjusted earnings of $0.54 per share on revenue of $1.25 billion.

Stock market chart with a red arrow going down

IMAGE SOURCE: GETTY IMAGES.

So what

That said, Resideo's adjusted bottom-line result included a $35 million payment under a reimbursement agreement related to Resideo's spinoff from former parent company Honeywell International. It's unclear whether Wall Street's models accounted for that payment.

Nonetheless, Resideo CEO Mike Nefkens called it a "strong performance [...] despite the spin-related cost base coming in higher than expected." He said, "I am proud of our team's accomplishments as we successfully executed the spin and met or exceeded financial expectations," adding that the "disruption from the spin is mostly behind us."

Check out the latest earnings call transcripts for the companies we cover.

Now what

Looking forward to the full year, however, Resideo also revised its outlook to call for 2019 revenue growth in the range of 2% to 5%, the midpoint of which is below its previous guidance for 4% growth. According to CFO Joe Ragan, the new range "reflects moderating housing metrics, shifting portfolio mix [...], and increased growth investment for the future." Thus, Resideo sees 2019 pro forma adjusted EBITDA in the range of $410 million to $430 million -- well below the $510 million most analysts were anticipating.

In the end, coupling Resideo's cloudy fourth-quarter results with that underwhelming outlook gave the market more than enough reason to bid down Resideo stock in response today.