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Why Is Element Solutions (ESI) Down 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Element Solutions (ESI - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

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

Element Solutions’ Q3 Earnings Beat, Sales Lag Estimates

Element Solutions recorded net loss from continuing operations of $6 million or 2 cents per share in third-quarter 2019 compared with net loss of $4.3 million or 2 cents per share in the year-ago quarter.

Adjusted earnings per share (EPS) of 26 cents surpassed the Zacks Consensus Estimate of 21 cents.

The company generated net sales of $464.7 million, down around 5% year over year. The figure lagged the Zacks Consensus Estimate of $478 million. Organic net sales, barring the impact of currency changes and specific pass-through metal prices, fell 2%.

Per management, the downside can be attributed to the slowdown in the automotive market and strengthening of the U.S. dollar.

Adjusted EBITDA was $115 million, up 6% year over year. Adjusted EBITDA rose 9% on a constant currency basis.

Segment Highlights

Net sales in the Electronics segment fell 4% year over year to $280 million. Organic net sales dipped 1%. Adjusted EBITDA amounted to $73.6 million, up 14% year over year.

Net sales in the Industrial & Specialty unit fell 6% to $184.7 million. Organic net sales declined 4%. Adjusted EBITDA in the segment was $41.8 million, down 4% year over year.

Financial Position

At the end of the third quarter, Element Solutions had cash and cash equivalents of $200.3 million, down 20.6% year over year. Long-term debt was $1,514.2 million at the end of the reported quarter.

Outlook

The company now expects adjusted EPS of 84-87 cents per share for 2019, up from 83-86 cents stated earlier. It reaffirmed its adjusted EBITDA growth outlook of 2-5% on a constant currency basis.

The company now expects a 4% organic net sales decline for 2019 compared with a decrease of 1-3% mentioned earlier.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -6.82% due to these changes.

VGM Scores

At this time, Element Solutions has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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, Element Solutions has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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