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Why Shares of Fabrinet Slumped Today

By Timothy Green – Updated Aug 20, 2019 at 11:15AM

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The company's results were solid, but its guidance was a different story.

What happened

Shares of Fabrinet (FN 0.53%) dropped on Tuesday after the provider of optical and electronic manufacturing services reported its fiscal fourth-quarter results. While Fabrinet beat analyst expectations for revenue and adjusted earnings, the company's guidance fell short of expectations. The stock was down about 14.7% at 10:45 a.m. EDT today.

So what

Fourth-quarter revenue was $405.1 million, up 17.3% year over year and about $5.9 million higher than the average analyst estimate. Because some of Fabrinet's customers ship to Huawei, the blacklisting of that company hurt revenue by around $9 million during the quarter. Fabrinet was able to offset that decline, though, with revenue growth in other areas.

A declining chart.

Image source: Getty Images.

Non-GAAP (adjusted) earnings per share came in at $1.00, up from $0.81 in the prior-year period and $0.09 better than analysts were expecting. Higher revenue along with cost-cutting pushed up the bottom line.

"I'm pleased with our record performance for revenue and earnings in the fourth quarter, especially given some of the unusual business dynamics we experienced during the quarter," said CEO Seamus Grady during the earnings call.

Now what

Those unusual business dynamics will take a toll on Fabrinet's first-quarter results. The company expects to produce revenue between $386 million and $394 million, down from the fourth quarter, along with non-GAAP EPS between $0.80 and $0.84. Analysts were expecting guidance of $407.3 million and $0.96, respectively.

The company's weak guidance is due to a few factors. First, supply chain disruptions are expected as customers restart shipments of some products to Huawei. Second, the industrial laser market continues to decline, and the company sees that decline lasting for a couple more quarters.

With Fabrinet warning about headwinds, a strong fourth-quarter report wasn't enough to prevent the stock from tumbling.

Timothy Green 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.

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