Element Solutions (ESI) Down 1.6% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Element Solutions (ESI). Shares have lost about 1.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Element Solutions due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Element Solutions’ Q2 Earnings Beat Estimates, Sales Up Y/Y
Element Solutions recorded earnings (as reported) from continuing operations of 32 cents per share in second-quarter 2021, up from a penny per share in the year-ago quarter.
Adjusted earnings per share (EPS) of 35 cents for the quarter beat the Zacks Consensus Estimate of 34 cents.
The company generated net sales of $586.6 million, up around 52% year over year. Organic net sales, barring the impact of currency changes, specific pass-through metal prices and acquisitions, climbed 30% year over year. While the company faced headwinds from supply chain constraints and raw material shortages, it benefited from strong demand in its end markets.
Segment Highlights
Net sales in the Electronics segment jumped 51% year over year to $382 million in the reported quarter. Organic net sales increased 25% from the year-ago quarter’s reported figure. Adjusted EBITDA was $91 million, up 56% year over year.
Net sales in the Industrial & Specialty unit shot up 53% year over year to $205 million. Organic net sales moved up 41% year over year. Adjusted EBITDA in the segment was $42 million, up 58% year over year.
Financial Position
Element Solutions ended the quarter with cash and cash equivalents of $318.4 million, up around 34% year over year. Long-term debt was $1,505.8 million at the end of the quarter, down 0.3% year over year.
The company generated cash flows from operating activities of $80 million in the reported quarter. Free cash flows for the quarter were $72 million.
Outlook
The company raised its adjusted EBITDA guidance for 2021 to the band of $505-$520 million from $500-$510 million it expected earlier. It also expects adjusted EPS of at least $1.35 for the year.
For the third quarter, the company sees adjusted EBITDA to be in the range of $125-$130 million. It expects the impact of rising logistics costs to persist in the third quarter. However, it expects its pricing actions in the wake of raw material inflation to support margins.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
Currently, Element Solutions has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Element Solutions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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