Why Healthcare Services Group Is Tanking Today

What happened

After the company reported fourth-quarter earnings, shares of Healthcare Services Group (NASDAQ:HCSG), a provider of outsourced housekeeping and dining services for healthcare facilities, dropped as much as 12% in afternoon trading on Wednesday. Shares were down about 9% as of 2:20 p.m. EST today.

So what

Here's a look at the headline numbers from the quarter:

Revenue dropped 1% to $496 million. That was below the $509 million that Wall Street was expecting.  Net income jumped 57% to $31.5 million, or $0.42 per share. That was above the $0.37 consensus analyst estimate.

It is worth pointing out that the huge jump in earnings was largely attributable to a one-time reduction in overhead expenses related to deferred compensation. The company's bottom line was also boosted by a significantly lower tax rate.

Image source: Getty Images.

Given the weak revenue and caveats surrounding the reported EPS, it isn't hard to figure out why shares are taking a step back today.

Now what

2018 was a challenging year for Healthcare Services Group. It was heavily impacted when two of its customers filed for Chapter 11 bankruptcy protection earlier in the year. Management has been focused on renegotiating its customer contracts to ensure that it won't be caught off guard again.

That focus should lead to a more durable business over the long term, but it is hurting the company's reported revenue growth in the short term. That compromise won't appease traders, but I think it is a prudent strategy that business-focused shareholders should applaud.