Why Is Univar (UNVR) Down 4% Since Last Earnings Report?

It has been about a month since the last earnings report for Univar (UNVR). Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Univar 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.

Univar's Earnings & Revenues Lag Estimates in Q2

Univar logged a profit (on a reported basis) of $16.3 million or 10 cents per share in second-quarter 2019, down around 71% from a profit of $56.1 million or 40 cents a year ago. The bottom line in the reported quarter includes integration and transaction related costs associated with the company's acquisition of Nexeo Solutions.

Barring one-time items, earnings were 42 cents a share in the quarter, down from 47 cents a year ago. The results missed the Zacks Consensus Estimate of 44 cents.

The company’s revenues were $2,584.6 million in the quarter, up 9% year over year. It, however, lagged the Zacks Consensus Estimate of $2,810.2 million.

On a constant currency basis, revenues rose around 11% year over year. Gains in the company’s U.S. business was masked by a soft Canadian agriculture sector and weaker demand for chemicals and ingredients from global industrial end markets.

Segment Review

Revenues at the USA division shot up around 21% year over year on a reported basis to $1,628.7 million in the quarter, driven by the Nexeo acquisition and better sales force execution. Gross profit rose around 29% year over year, helped by favorable product and end-market mix.

Revenues at the Canada segment dropped roughly 10% year over year to $406.5 million. Gross profit was flat year over year in the quarter. The segment witnessed strong performance in the industrial chemical business and certain commodity products. This was, in part, offset by lower volumes due to a weak agriculture sector.

The EMEA segment raked in sales of $458.9 million, down around 11% year over year. Gross profit was down around 7% year over year.

Sales from the LATAM unit rose roughly 17% to $116.6 million. Gross profit rose around 8% year over year. The segment gained from the Nexeo acquisition, strong performance in Mexico energy markets and the Brazilian agriculture sector and cost control actions, partly offset by weak industrial demand.

Balance Sheet

Univar ended the quarter with cash and cash equivalents of $109.5 million, down around 15% year over year. Long-term debt was $3,117.1 million, up around 20% year over year.

Outlook

For 2019, Univar has revised its adjusted EBITDA forecast factoring in lower-than-expected demand for chemicals and ingredients, higher expected net cost synergies from Nexeo and outlook from many supplier partners. The company now sees adjusted EBITDA of between $725 million and $740 million, compared with its prior view of $740 million and $760 million.

The company also expects to generate $275-$325 million in free cash flow in 2019.

Moreover, Univar expects adjusted EBITDA of between $180 million and $190 million for the third quarter of 2019, up from $157 million it earned a year ago.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -15.27% due to these changes.

VGM Scores

At this time, Univar has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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. It's no surprise Univar has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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