Why Zep Shares Got Zapped

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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 chemical maker Zep plunged 17% today after its quarterly results missed Wall Street expectations

So what: The stock has rallied nicely in 2013 on steadily improving fundamentals, but a wide third-quarter miss -- EPS of $0.28 on revenue of $186 million versus the consensus of $0.42 and $197 million -- is forcing analysts to recalibrate their growth estimates. While management said that its diversification and expansion initiatives are right on track, weak demand and higher costs are weighing heavily on profitability.

Now what: Unfortunately for Zep bulls, management doesn't expect the operating pressure to let up anytime soon. "[W]e are currently experiencing organic revenue declines and expect this to continue over the next twelve months," said Chairman and CEO John Morgan. "We will therefore restructure the business to bring costs in-line with our revenue expectations and improve return on invested capital, while continuing to prudently invest in future growth initiatives." With the stock now off about 20% from its 52-week highs and trading at a forward P/E of 10, it might even be a good time to buy into that turnaround talk. 

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The article Why Zep Shares Got Zapped originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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