Why Shares of ADT Are Down 10% Today

An earnings miss sends investors heading for the exit.

Lou Whiteman
Lou Whiteman
Aug 7, 2019 at 11:34AM
Consumer Goods

What happened

Shares of ADT (NYSE:ADT) traded down more than 12% on Wednesday morning after the security system specialist reported an unexpected loss in the second quarter. The loss appears to be due at least in part to one-time items, and the company provided an optimistic outlook for the future, but investors on Wednesday were in no mood to hang around.

So what

After markets closed Tuesday, ADT reported a second-quarter loss of $0.02 per share on revenue of $1.284 billion, with earnings coming in well below the $0.16-per-share consensus estimate despite a slight beat over the $1.25 billion in projected revenue.

The company said in a statement that the net loss of $104 million, compared to a $67 million loss in the same three months of 2018, was due to a loss on the extinguishment of a $67 million debt, as well as a $28 million decline in "other" income year over year due to miscellaneous items from last year.

A woman programs her home security system.

Image source: Getty Images.

ADT did say that operating income, interest expense, and tax benefits improved year over year. Diluted earnings per share before special items came in at a loss of $0.02 per share, versus a loss of $0.07 in the prior year. Commercial organic revenue grew 19% from 2018, and the residential side of the business installed more than 100,000 new, higher-revenue-generating panels.

"We generated strong revenue growth ahead of our expectations during the second quarter, with a solid performance from residential and commercial," CEO Jim DeVries said in a statement. "We're confident that our sharp focus on the fundamentals of our business, combined with our numerous exciting strategic initiatives, will help us leverage the trusted ADT brand to further grow the business and enhance shareholder value over the long-term."


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Now what

ADT, following the earnings release, raised its full-year 2019 revenue estimate to between $5 billion and $5.15 billion, up from previous guidance of $4.9 billion to $5.1 billion, and raised the lower end of its full-year adjusted EBITDA guidance by $10 million. That's a step in the right direction, considering ADT lowered its full-year EBITDA guidance back in March.

The company still has challenges on the horizon. ADT's bread-and-butter home monitoring system is under pressure from a new generation of self-installed security products, including Alphabet's Nest, available at a lower monthly fee. But DeVries' comments suggest ADT is making progress with its own higher-margin, high-tech offerings.

Shares of ADT are now down more than 18% year to date, trailing the S&P 500 by more than 30 percentage points for the year. The stock is also now down nearly 60% from its 2017 initial public offering. This business has its issues, but the recent declines, coupled with the improving guidance, make this sell-off look like an overreaction.