What happened

Despite "beating" both sales and earnings estimates in its second-quarter earnings report that was released after close of trading yesterday, advanced explosive-systems-maker DMC Global's (NASDAQ:BOOM) stock closed 14.4% lower on Friday. 

Analysts had predicted DMC would earn $0.88 per share for the quarter on sales of no more than $105 million. Instead, DMC reported a $1.15 per-share profit and sales of $111 million. 

Glowing red arrow on a red stock chart headed down

Image source: Getty Images.

So what

DMC's sales increased 37% year over year. Combined with a 38% gross profit margin on those revenues (up 500 basis points from a year ago), this resulted in improved gross, operating, and net profits.

DMC management credited "a more favorable product mix and improved manufacturing and supply chain efficiencies at DynaEnergetics" for the bottom-line improvements, where the company's $1.15 per-share profit increased 167% year over year.

Now what

All of this sounds pretty fantastic. So why did DMC stock decline?

That's the bad news. After beating expectations in Q2, DMC management proceeded to lower expectations dramatically for the third fiscal quarter currently underway. Heading into yesterday's report, analysts were thinking DMC might earn as much as $0.89 per share on $107 million in Q3. But according to management, sales this quarter will not exceed $102 million and could be as low as $96 million -- presumably with earnings coming in lower than expected, as well.

The result? Investors looked right past the good news from Q2 and focused on the bad news for Q3 -- and sold off the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.