Electro Optic Systems Holding Ltd (ASX: EOS) shares are falling lower today after the company announced short-term impacts will cause it to miss its previous FY20 earnings guidance. At the time of writing, the Electro Optic share price is down 6.79% to $5.90.
What’s pushing the Electro Optic share price lower?
In October, the defence, space, and communications company had announced that underlying earnings before tax (EBIT) for the full FY20 would come in the range of $20 to $30 million.
Today, the Electro Optic share price is plummeting lower after the company reported, on 18 December, it was advised around 12 days of December shipments would not be received by its foreign customer before 31 December 2020. This is the cut off date to enable Electro Optic to recognise the revenue in FY20.
The company says the specific causes of the disruption are international air freight bottlenecks, and a fall in import license activity in the offices of the customer’s foreign government.
Electro Optic says that in a normal year, this event would be unremarkable, but this year the December shipments exceeded any other month as delivery momentum increases.
The heavy skew of revenue and profits to quarter four, and specifically December, has made the outcome for the full year unusually dependent on activity in the final weeks of the year.
The affected revenue, for which all costs have already been incurred in 2020, may exceed $20 million. This revenue will now be shifted into quarter one of 2021 along with associated profit.
However, the deferral of revenue recognition into FY21 will not affect any prior cash flow assumptions by the company.
The company also said that the recent strengthening of the Australian dollar to 76 cents, compared to 72 cents at the time of the last guidance update, meant there would be an impact to EBIT. This is because its manufacturing costs are largely Australian dollar denominated, versus revenue which is largely in US dollars.
Recent activities
Last week, the company announced it was awarded a $34.4 million contract by the Commonwealth of Australia. The release said the government will use its C4 EDGE solution to provide combat radios, satellite terminals, cryptography, networking middleware, command applications, batteries, and power management into a coherent system.
In November, Electro Optic also advised it would build and operate a medium earth orbit (MEO) satellite constellation, which it expected to launch and operate in 2024 – producing a positive operating cash flow. The company advised this satellite communications system will be optimised for defence and government customers.
About the Electro Optic share price
Electro Optic is a leading Australian technology company operating in the space and defence markets. Formed in 1983, it became a publicly-traded company on the Australian Stock Exchange in 2002.
The Electro Optic share price has lost around 20% in 2020, after dropping by as much as 60% in March. At the current level, the Electro Optic share price has a mountain to climb to reach its 52-week high of $10.80.
The company commands a market capitalisation of $947 million.
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More reading
- Electro Optic Systems (ASX:EOS) share price climbs on government contract win
- Why the Electro Optic Systems (ASX:EOS) share price is shooting higher today
Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
The post Here’s why the Electro Optic (ASX:EOS) share price is down 7% today appeared first on The Motley Fool Australia.
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