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Units of StoneMor Partners (NYSE: STON) are getting thrashed on Friday morning, down more than 44% by 11:15 a.m. EDT, after the company temporarily cut its distribution in half.
StoneMor Partners announced that its upcoming third-quarter distribution would only be $0.33 per unit, which is 50% less than the prior period. Driving this decision: the company's third-quarter results, which while not yet finalized, led the company to the conclusion that it needed to cut the payout. The company expects those results to be much weaker than anticipated, due to its ongoing efforts to regrow its sales force. Those efforts, according to CEO Larry Miller, have "meaningfully lagged our expectations, resulting in a negative impact on our revenue."
StoneMor believes that the reduction will protect and position it to achieve its long-term targets for future growth. When combined with its cost-saving measures, the reduction will boost liquidity by $12 million per quarter. StoneMor intends to use that incremental liquidity to fund acquisitions that are immediately accretive to cash.
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The company currently anticipates that it will take it six to nine months to get its sales productivity up to where it wants to be. At that time it will reassess the distribution and reset it to an appropriate level.
StoneMor clearly underestimated its ability to restructure its sales force without impacting production. Its initial aim was to trim underperforming sales reps and replace them with stronger performers. Instead, it has not been able to hire new sales reps as quickly as it anticipated. So, while the company is calling this a temporary distribution reduction, the question clearly remains whether or not the company can achieve its goals.
Furthermore, there are no guarantees that it will reset the payout back to its prior level upon completing its sales-restructuring program. Those concerns mean that today's plunge should not be considered a buying opportunity.
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Matt DiLallo owns shares of StoneMor Partners. The Motley Fool recommends StoneMor Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.