What happened
Shares of Vertiv Holdings (VRT -7.41%), a recent special purpose acquisition corporation (SPAC) offering from Goldman Sachs and a manufacturer of cooling systems for data centers, collapsed on Wednesday, falling 43% through 10:30 a.m. ET after reporting a huge earnings miss for the fourth quarter of 2021.
Analysts had forecast that Vertiv would earn $0.28 per share on sales of $1.42 billion in Q4. Vertiv came very close to hitting that revenue target, but missed earnings by a mile, reporting only a $0.06-per-share profit.
So what
Sales grew only modestly in Vertiv's fourth quarter, up 8% year over year, and profits were cut in half from last year's $0.12. Management blamed "inflationary and supply chain pressures" for its abysmal profit.
Vertiv didn't charge enough for its products to offset these higher costs. "We consistently underestimated inflation and supply chain constraints for both timing and degree, which dictated a tepid 2021 pricing response," explained CEO Rob Johnson. But the CEO says, "We learned a hard lesson from our slow response in 2021, and we acted decisively late last year and early this year with aggressive price actions."
Image source: Getty Images.
Now what
Management promised that "significant pricing actions implemented at end of 2021 and early 2022" will help to add "$100 million year-over-year favorable price-cost in 2022 ... [and] deliver a strong second half 2022 and position Vertiv well for 2023." Q4 orders were up strongly -- 51.2% year over year -- which should, in theory, enable Vertiv to capitalize on the price increases.
That being said, management warned that Vertiv's problems with its supply chain "continued to accelerate in the fourth quarter, and no significant improvement is currently assumed for [any point in] 2022." As a result, while management sees sales growth accelerating to 13% this year, earnings per share will only be about $0.11 -- down 67% from the $0.33 Vertiv earned in all of last year, and well below the $1.33 per share that Wall Street had forecast.
Or put more simply: After missing earnings in Q4 2021, Vertiv says it will keep on missing earnings all through 2022, too.
