Shares of Plantronics (NYSE:PLT) were down 22% on Thursday as investors had time to digest the headset and videoconferencing hardware manufacturer's updated guidance. The company in the near term appears to be one of the beneficiaries of the pandemic-forced work-from-home movement, but at least one big Wall Street bank sees trouble on the horizon.
Plantronics, which goes by Poly, on Wednesday raised its fiscal fourth-quarter revenue guidance to a range of $395 million to $405 million, up from $354 million to $394 million, citing increased demand for its headsets.
"Widespread mandatory stay-at-home orders across the globe have created a surge in the number of individuals working from home or from remote locations," the company said. "Correspondingly, Poly saw a near-term increase in demand for its enterprise headsets."
But longer term, the COVID-19 pandemic could cause issues for the business if it leads to a recession and causes companies to downsize and cut their IT budgets. Plantronics acknowledged the risk, saying it believes the $226 million in cash it had on hand as of March 28 is "sufficient liquidity to fund its operations and meet its financial obligations."
Still, Plantronics said it is suspending its dividend, which will save $25 million annually, and has deferred debt payments until the first quarter of fiscal 2021. The company also said it was looking to reduce expenses and right-size its cost structure, with plans to provide more details when it releases quarterly results in May.
Plantronics is also fighting issues in its supply chain. On April 14, the company's factory in Mexico was closed when that country began a shelter-in-place order, and it is not expected to reopen until the end of the month. That's the primarily manufacturing site for Plantronics' headsets.
All in, while there is reason for short-term optimism, Plantronics is going to be among the many companies hit hard if we end up in a recession. Plantronics shares had nearly doubled in value over the last month on the near-term optimism, causing Morgan Stanley analyst Meta Marshall to downgrade the shares to underweight from equal weight in anticipation of the tough road ahead.