Shares of KAR Auction Services (KAR -2.00%), which provides a host of services to the auto sector, fell out of bed in the first 30 minutes of the trading day on Feb. 17, dropping as much as 25% in early trading. The big news, quarterly earnings, came out after the close on Feb. 16. Investors were very clearly displeased and showed it by selling the stock.
In the fourth quarter of 2020 KAR Auction Services saw revenue of $530 million, down 21% from the $671 million in the same period of 2019. Worse, the company's adjusted earnings came in at a loss of $0.01 per share in the final stanza of 2020 compared to a profit of $0.19 per share the prior year. Analysts, meanwhile, had been calling for earnings of $0.28 per share. That's a sizable miss, with the company basically laying the blame on the coronavirus pandemic. Full-year results were equally troubling, with revenue off by 20% and adjusted earnings declining roughly 50%.
As if the downbeat earnings news wasn't enough, two analysts downgraded the stock today, as well. Truist Securities took the shares from a buy to hold, while Guggenheim went from neutral on the stock to sell. Investors don't like when companies fall short of earnings estimates, especially when the miss is large, and they also don't like to see analyst downgrades. When both happen on the same day, well, it's no wonder the stock fell so much.
Shares of KAR Auction Services had a bad quarter to end a difficult year. Although the company's outlook calls for net income to return to 2019 levels in 2021, that clearly wasn't enough to placate Wall Street today. This isn't shocking, given the size of the quarterly miss and the two analyst downgrades.