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Why Is Element Solutions (ESI) Up 11.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Element Solutions (ESI). Shares have added about 11.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Element Solutions due for a pullback? 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’ Earnings and Sales Lag Estimates in Q3

Element Solutions recorded earnings (as reported) of 22 cents per share in third-quarter 2022 compared with 15 cents in the year-ago quarter.

Adjusted earnings per share came in at 36 cents in the quarter, which missed the Zacks Consensus Estimate of 37 cents.

The company generated net sales of $618.5 million, roughly flat year over year. The figure missed the Zacks Consensus Estimate of $660.7 million. Organic net sales rose 5%. The company faced headwinds from the weakening of the electronics market, lack of demand recovery in Europe and raw material and logistics cost inflation in the reported quarter.

Segment Highlights

Net sales in the Electronics segment fell 6% year over year to $388 million in the reported quarter. Organic net sales were up 5% from the year-ago quarter’s reported figure.

Net sales in the Industrial & Specialty unit rose 13% year over year to $231 million. Organic net sales moved up 6% year over year.

Financial Position

Element Solutions ended the quarter with cash and cash equivalents of $234 million, down around 16% year over year. Long-term debt was $1,886.8 million at the end of the quarter, down roughly 0.6% year over year.

Cash from operating activities was $127 million for the quarter. Free cash flow was $116 million in the reported quarter.

The company repurchased 3 million shares of its common stock during the third quarter.

Outlook

The company updated its guidance for adjusted EBITDA for 2022 to a range of $525-$530 million factoring in incremental currency headwinds and reduced macroeconomic growth assumptions. It now sees full-year adjusted earnings per share in the range of $1.40-$1.42. It anticipates generating free cash flow of $250 million for 2022.

The company also forecasts fourth-quarter 2022 adjusted EBITDA to be roughly flat year over year on a constant currency basis.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -20.09% due to these changes.

VGM Scores

At this time, Element Solutions has a nice Growth Score of B, a grade with the same score on the momentum front. 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 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. It's no surprise Element Solutions has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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