Shares of communications equipment supplier CommScope (COMM -2.05%) disintegrated -- down 40.9% through 11:05 a.m. ET -- after the company delivered an earnings warning Monday morning.
Wall Street analysts had been predicting CommScope would deliver nearly $2 billion in sales in Q3, with a $0.30 per share profit. CommScope, however, just advised that it's going to miss that mark by about 20%, with sales coming in at only $1.6 billion -- and a huge net loss to boot.
NASDAQ: COMM
Key Data Points
Why CommScope earnings flopped
What went wrong at CommScope this quarter? A better question would be whether anything went right.
"A weaker macroeconomic backdrop and customer inventory digestion" (i.e., there's too much supply out there in the market, and customers are still working through the oversupply of products they already bought) "continues to negatively impact revenues," lamented CommScope CEO Chuck Treadway. Treadway then proceeded to blame his own customers for "continuing to hold higher than required" inventories rather than buying more stuff, resulting in "low order rates."
Whoever's to blame, the numbers caused by this situation don't look good at all -- $1.6 billion in revenues would equate to about a 30% drop in sales year over year. And instead of a $0.30 per share profit, CommScope is predicting its loss could be as high as $3.98 per share.
Should you sell CommScope stock?
Admittedly, CommScope phrased all of the above as a "preliminary" assessment of Q3 financial results. So these numbers could change somewhat. But CommScope's guidance suggests the situation really is quite bad. The "softer demand environment" is expected to continue into at least the first half of 2024 -- which means by implication that Q4 results are going to be pretty weak as well.
Management only gave guidance in terms of its "core segment adjusted EBITDA," a very non-GAAP number that could mean just about anything. But for what it's worth, the company thinks this number will range from $1 billion to perhaps $1.05 billion. For context on what that means, S&P Global Market Intelligence shows that over the past four years at least, CommScope has consistently produced positive EBITDA numbers -- but negative GAAP income in each of those years. So I wouldn't get too excited about that "1 billion" number if I were you.
Long story short, CommScope is probably going to lose money this year. The only question is how much.
