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Why GTT Communications Stock Crashed Today

Anders Bylund, The Motley Fool

What happened

Shares of GTT Communications (NYSE: GTT) plunged as much as 56.8% lower on Thursday, closing the trading day at a 46.3% loss. The networking and telecommunications company reported terrible second-quarter results and started looking for drastic solutions to its business problems.

So what

GTT's second-quarter sales came in at $434 million, below Wall Street's $448 million consensus estimates. On the bottom line, analysts had been looking for a $0.05 loss per share. The actual losses clocked in at $0.59 per share.

The company has hired an advisor to help it find buyers for some "non-strategic assets," aiming to reduce the company's financial debt and quarterly interest expenses.

Close-up shot of a technician's hands as they attempt to recombine two bundles of slashed network cables.

Image source: Getty Images.

Now what

Reducing the debt load looks like a good move, considering that GTT absorbed a $49 million interest charge in this quarter. That's a significant chunk of the incoming revenue and far above the company's $31 million in operating income.

When asked what kind of assets GTT might unload in order to stabilize that rickety balance sheet, CEO Richard Calder offered this high-level view: "Our highly strategic products are clearly wide-area networking, LAN leading with our most strategic products offer defined wide-area networking, Internet services, transport and infrastructure, ethernet, wavelength and unified communications," Calder said. "So things that fall outside of that portfolio are less strategic to us."

A successful asset sale could be just what the doctor ordered, but GTT is actually in deep trouble here. The company reported just $34 million of cash equivalents and $1.8 billion in property and equipment, balanced against a hair-raising $3.2 billion of long-term debt. GTT's $1.8 billion of goodwill won't do much to offset that back-breaking debt load.

This stock is falling for good reason and I wouldn't touch it with a 10-foot network cable until the debt-related panic is resolved.


Anders Bylund 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