Why Alto Ingredients Stock Crashed After Earnings

What happened

Shares of Alto Ingredients dropped 9.4% as of 11:45 a.m. EDT on Wednesday, after the company formerly known as Pacific Ethanol beat on sales but missed on profits in its second-quarter 2021 financial report, released Tuesday after market close.

Analysts had forecast that the producer of specialty alcohols like hand sanitizer would earn $0.15 per share on $288.1 million in sales this past quarter. In fact, it did $298.1 million in sales — but managed to earn only $0.11 per share.

So what

Sales for Q2 2021 surged 40% in comparison to Q2 2020. Unfortunately (although I suppose that depends on how you look at it), for all the concern over the delta variant of COVID-19 lately, Americans seem to be much less frantic to acquire disinfectant this year than last, and as a result, the profitability of Alto’s products took a steep dive this time around.

Gross profits were cut by more than half, and Alto’s gross profit margin contracted by roughly two-thirds, to just 5.1%.

On the bottom line, Alto’s net profit for the quarter was about 60% less than last year — the aforementioned $0.11 per share.

Now what

And yet, if Alto seems to have been caught flat-footed by the reversal in popularity of disinfectant, it’s nonetheless doubling down. Although not providing specific guidance for the rest of this year, CEO Mike Kandris said, “We have focused our business on our most profitable and strategic operations, strengthened our balance sheet and expect to repay the remaining term debt in 2021. As such, we are now pursuing opportunities to expand profitably through enhanced service offerings and products, reinvestment in infrastructure, and accretive vertical integration.”

How fast delta spreads, and whether it rekindles peoples’ desire to stock up on disinfectant, may be the key to determining whether this will be the right course of action — or just doubling down on a losing bet.