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Element Solutions (ESI) Down 13.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Element Solutions (ESI). Shares have lost about 13.9% 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' Q1 Earnings Top, Sales Lag Estimates

Element Solutions recorded net loss from continuing operations of $3.5 million or 2 cents per share in first-quarter 2019, narrower than a loss of $8.9 million or 4 cents in the year-ago quarter.

Adjusted earnings per share (EPS) for the quarter were 20 cents, which surpassed the Zacks Consensus Estimate of 18 cents.

The company generated net sales of $459.8 million, down 6.6% year over year. The figure lagged the Zacks Consensus Estimate of $463 million. Organic net sales, barring the impact of currency changes, specific pass-through metal prices and acquisitions, fell 3%.

Adjusted EBITDA came in at $99 million, down 5% year over year. Adjusted EBITDA rose 1% on a constant-currency basis.

Per management, weakness in end-markets from second-half 2018 persisted in the reported quarter as reflected in the financial results.

Segment Highlights

Net sales in the Electronics segment fell 8% year over year to $266 million. Organic net sales dipped 5%. Adjusted EBITDA amounted to $56 million, down 6%.

Net sales in the Industrial & Specialty unit fell 5% to $194 million. Organic net sales were flat. Adjusted EBITDA in the segment was $42 million, down 4%.

Financial Position

As of Mar 31, 2019, Element Solutions had cash and cash equivalents of $230.4 million, down roughly 44.9% year over year. Long-term debt was $1,516.5 million at the end of the first quarter.

Outlook

The company reiterated previous guidance for 2019. It expects adjusted EPS in the range of 82-87 cents per share. Adjusted EBITDA growth is projected in the band 5-8% at constant currency. The company expects flat to 2% organic net sales growth.
 

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Element Solutions has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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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