Why Harte-Hanks' Shares Plunged
Jul 18th 2012 5:24PM
Updated Jul 18th 2012 5:34PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of marketer Harte-Hanks (NYS: HHS) were being advertised at a steep discount today after falling as much as 21% in intraday trading after delivering preliminary second-quarter results.
So what: For starters, Harte-Hanks said it's going to take a non-cash charge of $150 million to $177 million related to its Shoppers business. Companies with goodwill on their balance sheets need to keep an eye on how much the assets represented by that goodwill are actually worth. If the value of the assets slips, it may be necessary for the company to write down some or all of the goodwill. In Harte-Hanks case, the writedown decision came as "a result of continuing revenue declines in Shoppers and in conjunction with management's evaluation of the business."
The loss associated with the goodwill writedown will plunge the company's second-quarter bottom line into the red. However, even when excluding the writedown, the second quarter still looks like a lackluster one for investors. Management said adjusted earnings per share should come in between $0.10 and $0.12 on revenue of $195 million to $205 million. Wall Street analysts were looking for revenue of $209 million and EPS of $0.16.
Now what: This is obviously a substandard outcome on multiple fronts, and management said as much. In yesterday's press release, Harte-Hanks CEO Larry Franklin admitted, "We are obviously disappointed with these preliminary results."
While many investors are fleeing today, there isn't a whole lot of detail that came with the preliminary results. Longer-term investors may want to wait for Aug. 2, when the company delivers full results and holds its quarterly conference call to get the full picture on what's going on here.
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