What: Shares of energy contractor Quanta Services Inc (PWR -2.26%) dropped 29% on Friday after the company warned that third-quarter results wouldn't be as strong as expected.
So what: Quanta Services didn't release full third-quarter results but gave investors some preliminary numbers. Revenue is expected to be "slightly below the midpoint" of previous guidance of $1.9 billion to $2.0 billion for the quarter. It's earnings, however, where investors were extremely disappointed, because management said earnings would be $0.22 to $0.24 per share versus previous guidance of $0.34 to $0.40 per share.
Management also said that factors that affected the third quarter negatively would also impact the fourth quarter.
Now what: A number of factors are working against Quanta, including delays in projects and competitors bidding aggressively on smaller transmission projects. These both have the effect of lowering margins, and without larger transmission projects to fill the gap, we're seeing lower earnings short-term.
Management maintained its bullish stance long-term, and that may be how investors have to look at the company. Earnings expectations for 2016 that currently stand at $1.97 per share will likely come down, and that will make the stock look like a little less of a value. Long-term, I think Quanta is well positioned for the growing electrical transmission needs in the U.S., but short-term the business is under pressure, and I don't know that we've seen the bottom of this stock yet.
