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Will GrafTech (GTI) Q2 Earnings Disappoint on Market Woes?

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Industrial electrical equipment maker GrafTech International Ltd. is scheduled to report second-quarter 2015 results on Jul 29 before the market opens. The Zacks Consensus Estimate for the quarter is pegged at a loss of 5 cents per share.
GrafTech International underperformed in three out of four trailing quarters, while surpassing estimates in one quarter. Average earnings surprise stands at a negative 162.5%. Last quarter, the company reported loss of 10 cents per share, comparing unfavorably with the Zacks Consensus Estimate of 5 cents of loss per share. Let us see how things are shaping up for this quarter.

Factors to Influence Q2 Results

Global economic conditions remained uncertain in second-quarter 2015. Lingering impact of lower oil prices, strengthening U.S. dollar against major foreign currencies, struggling Chinese economy and political unrest in some emerging nations acted as the primary headwinds. In the U.S., industrial production fell 1.4% year over year.

GrafTech International’s segmental business as well as its overall profitability is largely influenced by economic activities in the U.S. and the foreign countries served. Difficult operating conditions are anticipated to hamper the product demand in the company’s Engineered Solution segment. Also, high steel imports will affect the demand in the Industrial Materials segment.

Considering these negatives, GrafTech International has scaled down its earnings before interest, tax, depreciation and amortization (“EBITDA”) forecast to the lower end of the previously provided guidance range of $30−$40 million.  

Earnings Whispers

Our proven model conclusively shows that GrafTech International is likely to miss earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Expected Surprise Prediction or ESP for GrafTech International is currently -80.0%. This is because the Most Accurate estimate of loss per share of 9 cents stands higher than the Zacks Consensus Estimate of a loss of 5 cents per share.

Zacks Rank: GrafTech International currently carries a Zacks Rank #5 (Sell).

We caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Stocks to Consider

Here are some companies you may want to consider in the machinery industry as our model shows they have the right combination of elements to post an earnings beat this quarter:

IDEX Corporation (IEX - Free Report) , with an Earnings ESP of +1.12% and a Zacks Rank #2.

Ideal Power, Inc. , with an Earnings ESP of +3.13% and a Zacks Rank #3.

Chart Industries Inc. (GTLS - Free Report) , with an Earnings ESP of +10.87% and a Zacks Rank #3.

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