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Why Knowles Corp. Dropped Tuesday

By Brian Pacampara – Oct 27, 2015 at 2:27PM

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Knowles' uninspiring outlook has Mr. Market very concerned.

What: Shares of acoustic component technologist Knowles Corporation (KN 0.31%) were down 19% at 2:30 p.m. Tuesday after its quarterly results and outlook disappointed Wall Street.

So what: Knowles shares rose sharply in September on optimism over its microphone supply agreement with Apple, but today's in-line Q3 results -- EPS of $0.16 on revenue of $294.6 million -- coupled with downbeat Q4 guidance is forcing Mr. Market to sober up a bit. In fact, FBR Co. analyst Christopher Rolland mentioned a few risks surrounding Knowles, including Chinese handset launch delays and potentially softer-than-expected iPhone 6 builds, forcing investors to quickly recalibrate their near-term growth estimates.

Now what: Management now expects Q4 EPS of $0.18-$0.24, versus the consensus estimate of $0.23, on revenue of $290 million-$310 million. "For Q4, we anticipate a solid finish to the year with the midpoint of guidance highlighting sequential revenue growth in both of our business segments and improved operating margins," said President and CEO Jeffrey Niew. "Our core microphone business has improved significantly from the beginning of the year, and we look forward to continued multi mic adoption and increased traction with intelligent audio solutions to fuel future growth." Given Knowles' worrisome top-line trend and still-fickle competitive position, however, I wouldn't bet too heavily on that bullishness just yet.  

Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of and recommends AAPL. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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