What happened
Shares of Resolute Forest Products (RFP), which has a diversified forest products business that produces a broad range of products from lumber to pulp, fell a dramatic 22% on Feb. 3. The big news was the company's fourth-quarter 2021 earnings update, which investors clearly did not like.
So what
On the top line, Resolute Forest Products generated sales of $834 million in the fourth quarter of 2021, up roughly 8.5% from the same quarter of 2020. That number was well short of the $1.1 billion analysts had been expecting. The company also missed on the bottom line, where it reported adjusted earnings per share of $0.48. That was down from $0.55 in the prior year and far lower than the $0.99 for which analysts had been looking. Investors don't like it when companies miss Wall Street's numbers, so it's not surprising that the stock sold off.
Image source: Getty Images.
Adding downward pressure, meanwhile, was the fact that management specifically noted rising costs and logistics as headwinds. These are issues investors are paying close attention to today and negative news is not treated lightly. Making matters worse, rising costs played a prominent role in the company's outlook as well, though management noted it was expecting a return to a more normal business environment. Only it noted that current market conditions could last for "several months." With investors already on edge about inflation, this update, while entirely realistic, certainly wasn't welcomed by investors as it suggests more business uncertainty in the near term.
Now what
Resolute Forest Products' stock has had a pretty impressive run since the start of 2020, with the shares up more than 300% at one point. Rising lumber prices and the company's role in making staples like paper products was likely behind that rise. However, after such a large advance, investors' expectations are likely higher than they were before. This quarter clearly wasn't what investors wanted to see and they sold the stock.
