Why Shares of Catalent Fell 36% This Week

What happened

Shares of Catalent (CTLT -0.18%), which provides delivery and development solutions for healthcare companies, fell 36% this week, according to data from S&P Global Intelligence. The stock closed last week at $66.18 then opened on Monday at $65.76. The stock hit its 52-week low on Thursday afternoon when it fell to $41.10, rising to only $42.40 at the close. Its 52-week high is $136.13. The stock is down more than 66% so far this year.

So what

The stock tumbled after the company reported its fiscal 2023 first-quarter earnings on Tuesday. Revenue was down only slightly, from $1.025 billion in the first quarter last year to $1.022 billion. However, earnings took a big hit, falling to $0.00 in earnings per share (EPS) compared to $0.49 in Q1 a year ago.

The company operates in two segments. Biologics' revenue was down 5%, while Pharma and Consumer Health was up 4%. The company said that macroeconomic conditions explained the earnings drop. These conditions include inflation, an unfavorable foreign exchange rate, and short-term, cash-sensitive decisions by some of Catalent's customers.

The second whammy was the company's lowered forecast for the year. It said it now expected revenue to be between $4.625 billion and $4.875 billion instead of between $4.975 billion and $5.225 billion. It also lowered earnings before interest, taxes, depreciation and amortization (EBITDA) to land between $1.310 billion and $1.390 billion, compared to earlier estimates of between $1.220 billion and $1.3 billion. The forecast for net income dropped from $660 million to $730 million, to $567 million and $648 million.

Now what

The contract drug manufacturer, working at 50 global sites, supplies more than 70 billion doses of products to more than 1,000 customers each year. It is seeing reduced sales regarding COVID-19 sales, which isn't surprising. However, the returns from COVID-19 sales have been invested into a growing biologics platform, especially in gene and cell therapies, and that should give the company a solid base going forward. Given that the stock hit its 52-week low, it won't be surprising to see it get at least a short-term lift next week. Investors will want to see how the company's $1 billion purchase of Bettera, completed in October of 2021, continues to add to the company's bottom line. Catalent said that the acquisition of the manufacturer of gummy, soft chew, and lozenge segments for nutritional supplements contributed 10% to the company's revenue growth.

Catalent is also expected to close soon on its $475 million purchase of Metrics Contract Services, a specialty contract development and manufacturing organization. The deal, announced in August, is expected to help Catalent meet customers' demands while growing the company's ability to handle highly potent compounds.