Despite beating analysts' expectations for the quarter, Celestica (CLS) - Get Report shares were shellacked Friday after the company reported a disappointing outlook and continued execution problems at some of its factories.
Shares of the Canadian electronics manufacturing services firm plummeted 13%, losing $1.53 to $10.21 in more than double the usual trading volume.
last earnings report in July, the stock had gained 23.1% as of Thursday's close, and CIBC World Markets analyst Todd Coupland said investors should take their money now.
"Given the recent run-up in Celestica's share price, investors can take profits as the market absorbs the flat outlook and deferral of benefits from the restructuring and execution," Coupland wrote in a Friday note. He cut his rating from buy to hold and lowered his target price from $14 to $13. His firm has a banking relationship with Celestica.
Analysts were frustrated that execution issues continue to plague several of its factories, specifically in Mexico, which operated at a $7 million loss this quarter.
Worse, noted Citigroup analyst Jim Suva, the company "would give no indication as to when the operations
would be profitable which we believe will disappoint many."
Suva noted that gross margins were 5.6%, 40 basis points below his estimate and flat year over year. His firm has a banking relationship with the company.
"The operational issues in Mexico continue to impede their margins and they had to take an inventory writeoff of $6 million in the quarter," said Amit Daryanani, an analyst with RBC Capital Markets. "That's why you don't see
better margins with the strong revenue."
Revenue totaled $2.39 billion, up from $1.99 billion in the same quarter last year, attributable to growth in the company's consumer segment. The results surpassed the average analyst forecast of $2.25 billion.
For the third quarter, Celestica lost $42.1 million, or 19 cents a share, more than the $19.6 million, or 9 cents a share a year ago. Results for the latest quarter include $82 million in restructuring charges.
Without certain items, the company reported $40.5 million, or 18 cents a share, on the bottom line. In the same period last year, Celestica posted a profit of $27.1 million, or 12 cents a share.
On that basis, the company beat the consensus forecast by 2 cents.
For its fourth quarter, Celestica anticipates revenue of $2.25 billion to $2.45 billion, and pro forma earnings ranging from 15 cents to 23 cents a share. The Street had expected an EPS of 22 cents on sales of $2.4 billion.
While the December quarter is historically one of the strongest for the company, "they guided lower because some of the consumer programs will slow down," Daryanani says. In addition, the company is losing some business with
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( SLR). (He does not own shares of the company but his firm seeks to do banking with the companies it covers.)