Resideo Investor Sues Over Stock Drop Caused by ‘Disappointing’ Third Quarter Financial Results

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A proposed class action alleges Resideo Technologies Inc. investors were harmed when the company unexpectedly revealed negative financial results for the third quarter of 2019. The case claims the home automation products company and its CEO and CFO misled investors by touting Resideo’s “bright future” while failing to reveal that it was facing several challenges that would cause its Q3 earnings to fall well below stated estimates.

The lawsuit explains that Resideo formed as a spin-off of non-party Honeywell International, Inc., with the new company taking over Honeywell’s former home product and ADI security system business. Prior to the spin-off, the suit says, Honeywell reportedly represented that Resideo would become “the market leader in home heating, ventilation and air conditioning controls, and security markets, as well as a global distributor of security and fire protection products.”

According to the lawsuit, Resideo and its top executives stated to investors in October 2018 that the company was looking forward to a “bright future” and was “not threatened by competition.” Over the next few quarters, the defendants, the case says, continued to tout Resideo’s supposedly positive financial outlook, stating in part that the company was “on-track to deliver continued growth in 2018 and beyond.”

In truth, the case alleges, Resideo was still directly competing with former parent Honeywell, whose continued sale of a “key product line,” including thermostats, “cannibalized” the defendants’ business. Further, Resideo’s Residential Thermal Solutions (RTS) business, which sells components to heating system manufacturers, was facing supply chain issues stemming from industry-wide declines, the suit says. Nevertheless, the defendants, the lawsuit argues, continued to mislead investors with regard to the company’s financial health, even going so far as to praise Resideo’s supply chain management.

The case claims the truth was revealed when Resideo released disappointing third quarter financial results on October 22, 2019 and lowered its earnings guidance for 2019. According to the complaint, the company’s earnings “significantly missed estimates” due to lower thermostat sales and the poor performance of the RTS business. Upon this news, the suit says, Resideo’s stock price fell over 37 percent, damaging investors.