Resideo stock tumbles following news of $110M revenue shortfall

Smart home and security products maker Resideo saw its stock plunge by more than 40 percent on Wednesday morning following the publication of its preliminary Q3 revenue results in which the company said it expects to see a $110 million shortfall in revenue from its Products & Solutions segment for 2019.

In a press release announcing the results, the company said that the Products and Solutions segment had experienced revenue decline in certain product families within the Comfort business and in its Residential Thermal Solutions (RTS) gas combustion business. In fact, approximately $88 million of the overall revenue shortfall was traced back to declines in these businesses.    

Specifically, the company said it believed the RTS slowdown was due to recent regulatory changes and a general slowdown across large OEM customers in the sector. On the Comfort side, Resideo attributed the declines to lower sales volume in non-connected thermostats.

“We believe a poor pre-spin cutover from the prior generation of non-connected thermostats to the T-Series line impacted the adoption of mid-level T-Series thermostats,” read the company’s statement.  “The cutover effects became markedly more pronounced in the third quarter after the prior generation of non-connected thermostats were discontinued. The company is working with its channel partners to enhance and better position the T-Series and expects significant improvement in 2020. “

And while its Security business continues to grow, Resideo indicated that a new large customer delayed its purchase beyond the fourth quarter which will have a negative impact on their Q4 revenue of approximately $22 million.

"While I am disappointed in our preliminary results for the third quarter, we remain confident in the fundamentals of our business," said Mike Nefkens, president and CEO of Resideo. "The issues impacting our second-half 2019 results underscore the urgency to simplify our operations, reduce our cost structure, increase agility throughout the organization and drive adoption of our products in the professional, do-it-for-me channel where Resideo is a market leader. We are aggressively addressing challenges through a comprehensive operational and financial review of the company, with a particular focus on the Products & Solutions segment. We are targeting areas to drive improved financial performance and are confident we are pursuing the necessary changes to deliver superior shareholder value."

Though its security products and connected thermostats have experienced solid growth, the company said that these products have yet to benefit from “lifecycle value engineering,” which has adversely impacted gross margins for the Products & Solutions segment in 2019. “The company is actively investing in its value engineering team and expects meaningful improvement to gross margins over the next 18 months,” read the company’s statement.

To read more about the company’s financial projections and what their operational and financial review will entail, click here.

New CFO Appointed

Following the publication of its Q3 revenue results, Resideo also announced that Robert (Bob) Ryder has named as the company’s interim chief financial officer effective Nov. 7. Ryder, the former CFO of Constellation Brands, will succeed Joseph Ragan, who is leaving the company on Nov. 6, 2019, to “pursue other opportunities.”

 "We are pleased to welcome Bob to our executive leadership team during this interim period," said Nefkens. "He's a proven operator with significant relevant experience, making him the ideal person to support us while we search for a permanent CFO. Bob's strong financial and operational acumen make him well suited to deliver a seamless transition as we execute on our strategic priorities, including the comprehensive business review we announced today. We are excited about the important role he will play in helping to drive sustainable and profitable growth. We also want to thank Joe for his significant contributions to Resideo, particularly his work preparing the company for and overseeing its spin-off one year ago. We wish him the best in his future endeavors."

Additionally, AnnMarie Geddes, Resideo vice president and controller, has been named interim chief accounting officer, effective immediately. Geddes has been with Resideo since its spinoff from Honeywell in October 2018. Previously she held multiple roles at Boart Longyear, including vice president and corporate controller, CFO North America, and vice president positions for Tax, Treasury, and Transformation.