Stock Story -
Electronics distributor Richardson Electronics (NASDAQ:RELL) fell short of analysts' expectations in Q2 CY2024, with revenue down 19.5% year on year to $47.37 million. It made a GAAP loss of $0.01 per share, down from its profit of $0.28 per share in the same quarter last year.
Is now the time to buy Richardson Electronics? Find out by reading the original article on StockStory, it's free.
Richardson Electronics (RELL) Q2 CY2024 Highlights:
- Revenue: $47.37 million vs analyst estimates of $48.01 million (1.3% miss)
- EPS: -$0.01 vs analyst estimates of -$0.05 ($0.03 beat)
- Gross Margin (GAAP): 31.1%, up from 27.9% in the same quarter last year
- Market Capitalization: $164.2 million
Specialty Equipment DistributorsHistorically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, Richardson Electronics's sales grew at a weak 4.2% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Richardson Electronics's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.5% annually.
This quarter, Richardson Electronics missed Wall Street's estimates and reported a rather uninspiring 19.5% year-on-year revenue decline, generating $47.37 million of revenue. Looking ahead, Wall Street expects sales to grow 13.9% over the next 12 months, an acceleration from this quarter.
Operating Margin Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Richardson Electronics was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 4.6%.
Analyzing the trend in its profitability, Richardson Electronics's annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, which doesn't help its cause.
EPS Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Richardson Electronics's full-year EPS flipped from negative to breakeven over the last five years. This is encouraging and shows it's at a critical moment in its life.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. Sadly for Richardson Electronics, its EPS declined more than its revenue over the last two years, dropping by 41.4%. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
In Q2, Richardson Electronics reported EPS at negative $0.01, down from $0.28 in the same quarter last year. Despite falling year on year, this print easily cleared analysts' estimates. Over the next 12 months, Wall Street is optimistic. Analysts are projecting Richardson Electronics's EPS of negative $0 in the last year to reach break even.
Key Takeaways from Richardson Electronics's Q2 ResultsWe were impressed by how significantly Richardson Electronics blew past analysts' EPS expectations this quarter. On the other hand, its revenue unfortunately missed. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The market was likely expecting more, however, and the stock traded down 4.5% to $10.57 immediately following the results.
