NN (NASDAQ:NNBR) Misses Q4 Sales Targets, But Stock Soars 9.1%
Industrial components supplier NN (NASDAQ:NNBR) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 5.3% year on year to $106.5 million. The company’s full-year revenue guidance of $465 million at the midpoint came in 1% below analysts’ estimates. Its non-GAAP loss of $0.02 per share was 64.7% above analysts’ consensus estimates.
Revenue: $106.5 million vs analyst estimates of $108.6 million (5.3% year-on-year decline, 1.9% miss)
Adjusted EPS: -$0.02 vs analyst estimates of -$0.06 (64.7% beat)
Adjusted EBITDA: $12.06 million vs analyst estimates of $10.88 million (11.3% margin, 10.8% beat)
Management’s revenue guidance for the upcoming financial year 2025 is $465 million at the midpoint, missing analyst estimates by 1% and implying 0.2% growth (vs -5.1% in FY2024)
EBITDA guidance for the upcoming financial year 2025 is $58 million at the midpoint, above analyst estimates of $53.48 million
Operating Margin: -15.8%, down from -7.2% in the same quarter last year
Free Cash Flow Margin: 3.5%, up from 1.1% in the same quarter last year
Market Capitalization: $135.4 million
“We are pleased overall with the results of our first full year of our transformation plan, during which we made immediate and significant progress.” said Harold Bevis, President and Chief Executive Officer of NN,
Company Overview
Formerly known as Nuturn, NN (NASDAQ:NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Engineered Components and Systems
Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, NN struggled to consistently increase demand as its $464.3 million of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a sign of poor business quality.
NN Quarterly Revenue
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. NN’s recent history shows its demand remained suppressed as its revenue has declined by 3.5% annually over the last two years.
NN Year-On-Year Revenue Growth
This quarter, NN missed Wall Street’s estimates and reported a rather uninspiring 5.3% year-on-year revenue decline, generating $106.5 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.
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Operating Margin
NN’s high expenses have contributed to an average operating margin of negative 4% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.
Looking at the trend in its profitability, NN’s operating margin decreased by 2.9 percentage points over the last five years. NN’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.
NN Trailing 12-Month Operating Margin (GAAP)
NN’s operating margin was negative 15.8% this quarter. The company's consistent lack of profits raise a flag.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Sadly for NN, its EPS declined by 17.1% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
NN Trailing 12-Month EPS (Non-GAAP)
Diving into the nuances of NN’s earnings can give us a better understanding of its performance. As we mentioned earlier, NN’s operating margin declined by 2.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For NN, its two-year annual EPS growth of 2.8% was higher than its five-year trend. Its improving earnings is an encouraging data point, but a caveat is that its EPS is still in the red.
In Q4, NN reported EPS at negative $0.02, up from negative $0.10 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast NN’s full-year EPS of negative $0.17 will reach break even.
Key Takeaways from NN’s Q4 Results
We were impressed by how significantly NN blew past analysts’ EBITDA and EPS expectations this quarter. On the other hand, its revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this quarter was mixed but still had some key positives. The stock traded up 9.1% to $2.95 immediately after reporting.
Sure, NN had a solid quarter, but if we look at the bigger picture, is this stock a buy? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
