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Univar (UNVR) Up 7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Activision Blizzard (ATVI) closed the most recent trading day at $45.14, moving -1.27% from the previous trading session.

A month has gone by since the last earnings report for Univar (UNVR). Shares have added about 7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Univar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Univar's Q4 Earnings Beat Estimates, Revenues Lag

Univar recorded profits (on a reported basis) of $1.2 million or a penny per share in fourth-quarter 2018, down roughly 96% from a profit of $27 million or 19 cents a year ago. The bottom line in the reported quarter includes a pension mark-to-market loss of $34.2 million and acquisition and integration related expenses of $15.1 million.

Barring one-time items, earnings came in at 33 cents a share in the quarter, beating the Zacks Consensus Estimate of 32 cents.

The company’s revenues edged up 0.6% year over year to $1,971.2 million in the quarter, falling shy of the Zacks Consensus Estimate of $2,022.1 million.

The company faced challenges in Canada and weaker-than-expected demand from most industrial end markets in the reported quarter. However, it gained from improved operational execution.

FY18 Results

For 2018, profit was $172.3 million or $1.21 per share, up around 44% from $119.8 million or 85 cents per share recorded in 2017. Adjusted earnings per share were $1.62 per share, up from $1.39 per share a year ago.

Revenues for the year went up around 5% year over year to $8,632.5 million.

Segment Review

Revenues at the USA division increased 2.8% year over year to $1,161.5 million in the reported quarter. Gross profit rose 3.1% year over year to $268.2 million, helped by improved execution.

Revenues at the Canada segment declined 2.7% year over year to $264.5
million. Gross profit fell 11.4% year over year to $51.5 million in the quarter. The segment faced headwinds from weak demand in energy markets in Western Canada and continued challenges in the weather-impacted agriculture business.

The EMEA segment raked in sales of $452.8 million, down 1.8% year over year. Gross profit edged down 0.6% year over year to $104 million.

Sales from the Rest of World unit declined 4% to $92.4 million. Gross profit declined 6.4% year over year to $20.6 million. Strong performance in Mexico was offset by weakness in Brazil.

Balance Sheet

Univar ended 2018 with cash and cash equivalents of $121.6 million, down around 74% year over year. Long-term debt was $2,350.4 million, down around 17% year over year.

Outlook

On a stand-alone basis, Univar expects adjusted EBITDA for 2019 to be roughly equal to its 2018 results of $640.4 million. Foreign currency translation is forecast to lower adjusted EBITDA by roughly $13 million in 2019. While the company expects to face headwind from an uncertain demand environment, it expects to gain from improvement in sales force efficiency and productivity gains.

The company also expects free cash flow of $250-$300 million for 2019, representing an increase from $195.3 million in 2018.

For first-quarter 2019, Univar expects to generate adjusted EBITDA of $140-$145 million and adjusted earnings per share of 27-29 cents.

The company expects sustained weakness in global industrial markets. Foreign currency translation is also forecast to lower adjusted EBITDA by roughly $6 million in the first quarter. Factoring in these challenges, Univar expects the first quarter to be the weakest quarter of 2019.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -39.85% due to these changes.

VGM Scores

At this time, Univar has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Univar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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