Checkpoint Systems Shares Got Crushed: What You Need to Know

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 radio-frequency identification tag maker Checkpoint Systems (NYS: CKP) plummeted 23% Wednesday after slashing its third-quarter and annual outlook.

So what: Checkpoint's guidance was so alarming -- it cut its annual profit forecast by about 70% and raised the number of employees affected by its restructuring plan from 204 to 1,000 -- that investors are being forced to seriously question the company's viability. CEO Rob van der Merwe cited major weakness in Europe for the profit warning, adding that several retailers "abruptly stopped their automatic ordering processes from their suppliers and in other cases, held back on placing orders pending the reduction in new material input costs such as cotton."

Now what: The drastic demand drop prompted management to expand its restructuring initiatives, with plans to now close four production facilities and shift eight countries to an indirect sales model. The new strategy should lead to cost savings of about $49 million in 2012 (compared with the original plan's goal of $20 million to $25 million) and $58 million annually over the long haul. So while today's 20%-plus plunge wasn't pretty for current shareholders, prospective buyers might be looking at a tasty turnaround opportunity.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies 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 Fool's disclosure policy always gets a perfect score.

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