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Why Daktronics Stock Dropped Today

Shares of Daktronics (NASDAQ: DAKT) were down 13% as of 2:30 p.m. ET Tuesday after the digital display company announced disappointing quarterly results.

For its fiscal second quarter ended Oct. 28, Daktronics' revenue grew 6.4% year over year to $199.4 million, translating to net income of $2.2 million, or $0.05 per share. Though the company did swing from a loss of $0.29 per share in the same year-ago period, its performance fell short of Wall Street's consensus estimates; most analysts were anticipating earnings of $0.13 per share on revenue closer to $213 million.

On Daktronics' healthy cash flows, backlog improvements

Daktronics' chairman and CEO Reece Kurtenbach lauded the company's margin expansion and cash flow generation. Indeed, Daktronics' free cash flow swung to $35.1 million over the first six months of the fiscal year, from -$37.7 million a year earlier.

Daktronics' product order backlog also declined to $306.9 million at the end of the quarter, from $400.7 million at the start of the fiscal year and $463.1 million at the end of the same year-ago period. Kurtenbach credited his teams' "efforts to reduce lead times and the more stable environment, allowing more consistent output."

What's next for Daktronics investors?

Daktronics management didn't provide specific forward financial guidance, but rather broadly described plans to focus on driving profitable growth and cash-flow generation. The company will also focus on investing in "high-return projects and technologies, including digital technologies for both internal and customer-facing uses."

In any case, this wasn't exactly a "bad" quarter for Daktronics, as the company drove modest top-line growth while meaningfully improving its cash flows and profit margins. But with shares still up more than 200% so far in calendar 2023, it's clear the market wanted more. I think Daktronics stock is enduring a healthy pullback and should be well positioned to continue generating value for shareholders going forward.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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