What happened
First-quarter earnings came in a little weak for Geo Group (NYSE: GEO), and management's guidance suggested some potential downside to Wall Street's full-year expectations. Investors took note, sending shares of the private prison and mental health facility owner down by as much as 10% in Tuesday trading. As of 2:10 p.m. ET, the stock was still down by 5.1%.
So what
Geo is a real estate investment trust (REIT) specializing in the design, financing, and development of secure facilities, immigration processing centers, and community reentry centers.
On Tuesday morning, the REIT reported first-quarter earnings of $0.19 per share on revenue of $608.2 million. The earnings number was a bit shy of the $0.22 per share estimate, though revenue beat the analysts' consensus by about $2 million.
Revenue was up 10% year over year from $551.2 million in the prior-year period, but net income fell 26% to $28 million from $38.2 million. The comparisons were impacted by a $22.6 million increase in interest expense, though Geo did reduce its net debt by $70 million in the quarter.
"Our financial performance remains strong, which has allowed us to continue to make substantial progress toward our debt reduction and deleveraging objectives," CEO George C. Zoley said in a statement. "Our goal remains to reduce our net leverage to below 3.5 times Adjusted EBITDA by the end of 2023 and to below 3 times Adjusted EBITDA by the end of 2024, and we are optimistic that the successful execution of our debt reduction strategy can unlock equity value for our shareholders."
Now what
Geo said it expects to generate between $2.38 billion and $2.46 billion in revenue in 2023, slightly narrowing its previous guidance range of $2.37 billion to $2.47 billion. That implies some potential downside to the consensus $2.46 billion estimate among analysts.
Higher interest rates have taken a toll on most real estate and real estate-adjacent companies in 2023, and Geo is no exception. But the REIT appears to be weathering the storm well, and long-term shareholders should see little to trouble them in these results.
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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.
