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Why GTT Communications Shares Fell 43% in May

almost 5 years ago by Lucy Cinder

Why GTT Communications Shares Fell 43% in May

Telecommunications

What happened

Shares of GTT Communications (NYSE: GTT) plunged 43.3% lower in May 2019, according to data from S&P Global Market Intelligence, The multinational provider of cloud networking services reported first-quarter results early in the month, falling far short of Wall Street's earnings expectations. GTT's stock fell 26% in the space of two days as investors and analysts wrapped their heads around the disappointing report.

So what

GTT's first-quarter revenue rose 73% year over year, landing at $450 million. This skyrocketing growth followed from the $2.3 billion acquisition of European fiber-network operator Interoute, a deal that closed at the end of May 2018. On the bottom line, GTT reported a net loss of $0.49 per share. The average analyst had been looking for a net loss closer to $0.20 per share on sales in the neighborhood of $457 million.

Now what

On the earnings call, GTT CEO Rick Calder said that his company hopes to achieve organic growth by adding sales representatives with order quotas. The Interoute merger is expected to unlock about $100 million in annual cost-cutting synergies, but the integration process has been costly in these early days. Calder is "incredibly proud of our accomplishments over the past year," but investors appear to be less impressed, as the stock has halved in value over that exact period.

It's disappointing to see GTT missing earnings estimates in four of its last five reports, sometimes by a tremendous margin. On the other hand, EBITDAOpens a New Window. profits are coming in strong at 20% of GTT's total revenues. Positive free cash flow should follow soon, as the Interoute synergies fall into place. This might actually be a good time to buy some of GTT Communications' stock.

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source foxbusiness

Industry: Telecommunications 

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