Why KAR Auction Stock Just Dropped 11%

What happened

Shares of KAR Auction Services (NYSE: KAR) are plummeting in midday trading Wednesday, down 10.8% as of 1:25 p.m. EDT after the used- and salvage-car auction company reported disappointing numbers for its fiscal second quarter of 2019 last night.

Expected to earn $0.37 per share on sales of $691.5 million, KAR instead reported "operating adjusted net income from continuing operations per diluted share" of only $0.30 -- despite booking $719.1 million in sales.

White car next to an auctioneer's gavel.

Image source: Getty Images.

So what

Nor was that the end of the bad news. KAR's "$0.30" profit, it turns out, was only a pro forma number -- not GAAP. Calculated according to generally accepted accounting principles, KAR's Q2 profit from continuing operations was actually only $0.20 per share, a 29% decline in profit from the $0.28 per share, GAAP, that the company earned in Q2 2018.

Net income for the quarter, which includes profit both from continuing operations and the discontinued IAA operation, came to $0.41 -- also a decline from last year -- about 40% lower.

Now what

Despite the disappointing quarter, KAR management stuck by its original guidance for full-year earnings, predicting that by year-end, it will have earned between $0.92 and $1.02 per diluted share from its continuing operations and between $1.24 and $1.34 per share in "operating adjusted net income per share."

At the midpoint of that latter range, therefore, KAR appears to be still promising to hit analyst predictions for full-year earnings. Given that reassurance, I wouldn't be terribly surprised to see KAR's share price bounce back in relatively short order.

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.

This article was originally published on Fool.com