Personal Finance

Why Jeld-Wen Stock Plunged 15% This Morning

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What happened

Window and door manufacturer Jeld-Wen (NYSE: JELD) got blown off its hinges Wednesday morning after the company reported earnings far short of analysts' estimates. Jeld-Wen shares plunged as much as 15.5% in early trading before clawing their way back to only about a 7.6% loss as of 12:24 p.m. EST.

Sales in the fourth quarter of 2017 grew a bare 0.3% to just $976 million -- short of the $1 billion Wall Street expected. Earnings for the quarter were only $0.26 per share, adjusted for one-time items. Wall Street had expected these pro forma profits to come in at $0.42 per share.

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Image source: Getty Images.

So what

"Profits" may even be too charitable a term to describe what Jeld-Wen reported for Q4. Actually, when calculated according to GAAP accounting principles, which factor in "non-cash tax charges and expenses related to the December debt refinancing," what Jeld-Wen reported was an $0.89-per-share loss.

Still, the news wasn't all bad. "Jeld-Wen completed 2017 by delivering another consecutive quarter of earnings growth and margin improvement," said CEO and President Mark Beck. For the year, sales grew a more respectable 2.6% to $3.8 billion, helping to put Jeld-Wen just barely in the black with a GAAP profit of less than $0.01 per share. Additionally, the company reported that it generated $202.7 million in positive free cash flow for the year, up 66% from last year's tally.

Now what

Management expects 2018 to see more improvement in 2018. Guidance for this year forecasts sales growth between 8% and 11%, including organic growth of 3%. On the other hand, capital spending could as much as double this year to between $100 million and $120 million, which could send Jeld-Wen's free-cash-flow number crashing back down.

Based on its current market capitalization of $3.7 billion, Jeld-Wen's 2017 free cash flow gives the stock a P/FCF ratio of 18.3. That would seem pricey even assuming the company could grow its free cash flow consistently at the 11% rate projected for sales this year -- which it probably can't, given that it is also ramping up capital spending.

I think investors are right to sell Jeld-Wen.

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

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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