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Why Cubic Stock Just Fell 18%

By Rich Smith - Nov 21, 2019 at 12:00PM

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Cubic dropped the ball in 2019 -- and looks set to fumble again in 2020.

What happened

Shares of Cubic ( CUB ) are in a tailspin this morning, falling 18% through 10:55 a.m. EST after the military contractor and maker of transportation systems software reported unexpectedly strong sales -- but unexpectedly weak profits -- in its fourth and final quarter of fiscal 2019.

Analysts had predicted Cubic would earn $1.94 per share, adjusted for one-time items on sales of $440.3 million in its fiscal fourth quarter 2019. Sales actually topped those estimates, coming in at $471.2 million, but earnings fell short -- only $1.86 per share, pro forma.  

Man in a suit, as though he's flying, fumbling a football.

Image source: Getty Images.

So what

The news wasn't all bad. Q4 2019 sales actually set a record for Cubic: They had risen 24% in comparison to last year's Q4. What's more, Cubic's actual GAAP earnings for the quarter -- $1.33 per share earned from continuing operations -- exceeded last year's take by a good 66%. And full-year GAAP earnings of $1.67 were several times the $0.29 per share Cubic earned in all of fiscal 2018.  

For that matter, even the pro forma news wasn't as lousy as the term "earnings miss" might imply. Adjusted earnings for the quarter rose 33% year over year, and adjusted earnings for the year was up 43%.

Now what

So why are investors so upset with these results? Guidance may be more the problem than actual results.

Updating its forecast for the new fiscal year, Cubic management noted that it expects to take in between $1.58 billion and $1.64 billion -- so about $1.61 billion at the midpoint -- in revenue this year and to earn (adjusted) between $3.10 and $3.70 ($3.40 midpoint) on those sales.

Just as in Q4, however, sales won't be the issue; earnings will be. TheFly.com notes that analysts should be satisfied if Cubic hits its forecast. (Analysts are only looking for about $1.59 billion in sales this year.) But with Wall Street forecasting a $3.97-per-share adjusted profit in 2020, it sure looks like Cubic is headed for another earnings miss next year.

No wonder investors are upset.

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.

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