What happened
Shares of Helios (HLIO 2.13%), which makes highly engineered motion control and electronic controls, fell just over 12.5% in morning trading on Nov. 7. The news driving Wall Street's dour view of the company was its pre-market third-quarter earnings update, which was filled with negatives.
So what
On the top line, Helios brought in $207.2 million in the third quarter of 2022, a 7% year-over-year decline. The hydraulic division's sales were down 2% while the electronics segment's revenue dropped 15%. In both cases, sales in the Americas were higher, but were more than offset by weakness in other markets. Rising costs, meanwhile, led to weaker margins year over year in both divisions and resulted in adjusted earnings per share falling 16% to $0.90 per share. In addition to the headwinds from the inflationary environment, the company also had to deal with closures related to Hurricane Ian and a strong dollar.
Some of the headwinds here aren't shocking or unusual, but there's another issue to contend with: Helios missed Wall Street's consensus on both the top and bottom lines. The top-line shortfall was in the mid single digits while the earnings miss was in the high single digits. Although not terrible per se, given the difficult backdrop, investors don't like it when companies fall short like this. So, it is understandable to some degree that the stock sold off today.
Now what
The problem is that it appears there's more bad news to come, with management lowering its full-year projections across a number of financial metrics. Most notably, the sales guidance fell from $930 million (the low end of its previous guidance) to a range of $885 million to $910 million. Earnings guidance dropped from $4.35 per share (again the low end of the previous range) to somewhere between $3.85 per share and $4.10 per share, which is notably below 2021's $4.25 per share in earnings. Add that update to the weak quarterly results and a glass-half-empty view of things seems fairly rational.
