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Why Visteon Shares Plunged on Thursday

Lou Whiteman, The Motley Fool

What happened

Shares of Visteon (NASDAQ: VC) plummeted 20% on Thursday after the auto parts supplier reported first-quarter earnings that badly missed Wall Street expectations and received an analyst downgrade as a result.

So what

Visteon, a maker of cockpit electronics and connected-car technology, said on Thursday morning that it earned $0.53 per share in the first quarter, well shy of the $1.03 per share analysts had expected. Sales for the quarter came in at $737 million, ahead of the $718 million consensus.

The company blamed the miss on sales mix, launch challenges related to its new curved-center information display, inefficiencies associated with a plant transfer in Mexico, and the timing of engineering expenses.

A Visteon digital instrument cluster.

A Visteon digital instrument cluster. Image source: Visteon.

In a statement announcing the results, Visteon CEO Sachin Lawande called it a "challenging vehicle production environment" but said he expects the problems the company faced in the first quarter to be temporary.

"The operational challenges that affected our margins are expected to diminish and be largely resolved in the second and third quarters," Lawande said.

Not everyone is convinced. B. Riley FBR analyst Christopher Van Horn downgraded Visteon shares to "neutral" from "buy" and lowered his price target to $75 from $130, saying that product and volume challenges are pushing him to the sidelines.

Now what

Following the miss, Visteon lowered its full-year adjusted EBITDA forecast to $245 million to $270 million, down from $280 million to $310 million, while reiterating its guidance of $2.9 billion to $3 billion in revenue. The company did win $1.4 billion in new business in the quarter, including new work supplying the red-hot electric vehicles market including battery management systems. It also strengthened its commercial vehicle sales channel with the addition of a second heavy-duty-truck customer.

Visteon has been a turbulent stock, down 45% over the past year but up 30% in 2019 prior to Thursday's plunge. Investors seem to be torn between the strength of the company's product portfolio and worries about what Lawande admits has been a challenging auto market.

It's hard to imagine that debate being resolved any time soon.

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Lou Whiteman 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.