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Element Solutions (ESI) Down 10.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Mutual Fund Report for CSRSX

A month has gone by since the last earnings report for Element Solutions (ESI). Shares have lost about 10.3% 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 drivers.

Element Solutions' Q4 Earnings, Sales Lag Estimates

Element Solutions recorded net loss from continuing operations (as reported) of $14.2 million or 5 cents per share in fourth-quarter 2018, narrower than a loss of around $18.8 million or 6 cents a year ago.

Adjusted earnings for the reported quarter were 2 cents per share, missing the Zacks Consensus Estimate of 3 cents.

The company raked in net sales of $478 million for the quarter, down roughly 2% year over year. It also lagged the Zacks Consensus Estimate of $480 million. Organic net sales, barring the impact of currency changes, specific pass-through metal prices and acquisitions, rose 1%.

Adjusted EBITDA for the reported quarter came in at $99 million, down 5% year over year. Adjusted EBITDA fell 1% on a constant currency basis.

 

 

FY18 Results

For 2018, net loss from continuing operations (as reported) was $77 million or 27 cents per share, lower than net loss $191.8 million or 68 cents per share recorded in 2017.

Net sales for the year rose roughly 4% year over year to $1,961 million. Organic net sales went up 3%. The company achieved organic growth notwithstanding a difficult macro environment.

Segment Highlights

Net sales from the Electronics segment fell 4% year over year to $282.1 million. Organic net sales dipped 1%. Adjusted EBITDA for the division was $58.3 million, down 8%.

Net sales from the Industrial & Specialty unit rose 1% to $196.3 million. Organic net sales rose 4%. Adjusted EBITDA for the segment was $40.6 million, up 1%.

Financial Position

Element Solutions exited 2018 with cash and cash equivalents of $233.6 million, down roughly 10% year over year. Long-term debt at the end of the year was $5,350.7 million, down around 2%.

Outlook

The company reiterated its earlier guidance for 2019. It expects organic net sales growth of 1-3% and adjusted EBITDA growth (in constant currency) of 5-8% for 2019. The company expects foreign exchange headwinds of roughly 2% to net sales and around $15 million to adjusted EBITDA factoring in end-2018 exchange rates.

Element Solutions also expects adjusted earnings for the year to be 82-87 cents per share, including the impact of lower share count as a result of its repurchase of 37 million shares on Feb 8, 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Element Solutions has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. 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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