Macquarie Infrastructure Company (MIC - Free Report) is scheduled to report fourth-quarter 2018 results on Feb 20.
The company pulled off average positive earnings surprise of 3.85% in the trailing four quarters, beating estimates twice. Notably, in the last reported quarter, it reported earnings of 29 cents, which missed the Zacks Consensus Estimate of 56 cents by 48.21%.
In the past six months, the stock has lost 5% compared with 4% decline recorded by the industry it belongs to.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Rising cost of sales and operating expenses are major concerns for the company. In the third quarter of 2018, Macquarie's cost of services and cost of product sales increased 8.8% and 33.9% year over year, respectively. Overall, operating expenses rose 7.2% to about $393.5 million. Of late, higher selling, general and administrative and interest expenses have been escalating Macquarie's aggregate costs, and might affect its profitability in the future as well.
Poor performance of the company’s International-Matex Tank Terminals segment due to low capacity utilization and lower than average rates of storage (on account of reduces rates of distillates and gasoline in the New York Harbor) is a concern. Notably, for 2018, it anticipates storage utilization of the segment to remain close to the low 80% range. Macquarie intends to offset the ongoing challenges within IMTT segment with repurposing and repositioning moves, but these initiatives will bring in benefits only over the long term.
High outstanding debt is another concern for the company. Incidentally, total long-term debt for Macquarie witnessed a CAGR of 33.5% from 2013 to 2017. Exiting the third quarter, the company had long-term debt of more than $3 billion. We believe that a highly leveraged balance sheet can inflate its financial obligations and hurt profitability.
Although Macquarie's expansion initiatives through buyouts bode well for long-term growth, high capital expenditure will negatively impact its short-term earnings. These are expected to put pressure on the company's profitability.
Our proven model does not conclusively show an earnings beat for Macquarie in the to-be-reported quarter. This 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. But that is not the case here as you will see below.
Earnings ESP: Macquarie has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 55 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Macquarie has a Zacks Rank #5 (Strong Sell), which along with the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Reliance Steel & Aluminum Co. (RS - Free Report) has an Earnings ESP of +2.92% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Brady Corporation (BRC - Free Report) has an Earnings ESP of +0.47% and a Zacks Rank #2.
Clarus Corporation (CLAR - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank #1.
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