Shares of high-performance audio equipment company Rockford (NASDAQ:ROFO) were hit hard in Friday's session, with the company's market value dipping nearly 25% on Thursday night's news that first-quarter losses widened substantially year over year because of production problems that inflated costs and, the company said, made it difficult to meet demand.
It was bad news for Rockford, whose Rockford Fosgate product line is highly regarded among high-end car audio aficionados and teenagers with too much spending money and a general dislike for their aural health. The company's shares had crept gingerly upward since the company reported 2003 financial results in late February, but those gains were erased in spades last week.
That's perhaps unsurprising given that Rockford's company's full-year earnings release included a first-quarter forecast of between $37 million and $39 million and a loss of $0.27 per share, as well as the admission that delays obtaining a part needed for its amplifier products was expected to push several million dollars of shipments and a dime per share of earnings into the second quarter.
The financial forecast didn't come true. Revenues came in slightly higher than expected at $40.6 million (up $200,000 from year-ago levels) but the company nevertheless lost $0.60 per share, down from a loss of $0.11 last year, as supply problems shredded gross margins and SG&A expenses came in above plan. Compounding the bad news was President and CEO Gary Suttle's revelation that the company's new wireless audio products aren't expected to sell as well as hoped this year.
The company insists demand for its products is strong, though, investors no doubt wish that strength was reflected in profits: Rockford was in the red last year after several consecutive years of net profit. I appreciate the clarity and candor of management's press releases, which give me some confidence that the company is being run with regard for stockholders.
Friendly management or not, however, small companies (Rockford's market capitalization is about $45 million) are usually punished harshly for missteps like last week's, as the shares' plummet clearly illustrates.
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Fool contributor Dave Marino-Nachison doesn't own shares of Rockford.
