Key Points
EquipmentShare.com beat earnings last night.
Actual GAAP profit was only $0.03 per share, however.
And free cash flow was deeply negative.
Construction equipment rental company EquipmentShare.com (NASDAQ:EQPT) stock crashed 21% through 10:40 a.m. ET Tuesday despite beating on earnings last night.
Analysts had forecast EquipmentShare to earn $0.12 per share on $1.4 billion in Q3 sales. The company actually earned $0.16 per share on sales of nearly $1.5 billion, according to data from StreetInsider.com.
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EquipmentShare Q3 earnings
So why are investors so upset with EquipmentShare today? After all, the company grew its revenue by 55% year over year, with rental revenue, in particular, up 49% and equipment sales revenue surging 76%. Net earnings nearly tripled to $20 million.
Still, that was less than half the company's "adjusted" net income number ($46 million). So while EquipmentShare's adjusted profit may have been $0.16 per share, its actual earnings calculated under generally accepted accounting principles (GAAP) were just $0.03 per share.
Free cash flow was even worse. Much worse. Operating cash flow so far this year is negative $179 million. Subtract from that the cost of buying equipment to rent (net of equipment sold), purchases of "property and other fixed assets," and capitalized software costs, and I'd put EquipmentShare's total cash burn so far this year at more than $1.1 billion, and on course for $1.5 billion in cash burn for the year.
What's next for EquipmentShare stock?
EquipmentShare is burning cash like mad. Regardless of what the company says its "profit" might be, this doesn't give me a lot of confidence in its quality of earnings. Earnings beat or no earnings beat, I'd probably avoid this stock.
With the earnings quality in question, it's just too risky.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.