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Why Is Element Solutions (ESI) Up 6.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Element Solutions (ESI). Shares have added about 6.2% 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 catalysts.

Element Solutions' Q1 Earnings and Sales Top Estimates

Element Solutions recorded earnings from continuing operations of 3 cents per share in first-quarter 2020 against a loss of 2 cents per share in the year-ago quarter.

Adjusted earnings per share (“EPS”) of 25 cents for the quarter surpassed the Zacks Consensus Estimate of 20 cents.

The company generated net sales of $452.6 million, down 1.6% year over year. The figure, however, surpassed the Zacks Consensus Estimate of $438 million. Organic net sales, barring the impact of currency changes, specific pass-through metal prices and acquisitions, fell 3% year over year.

Revenues declined mainly due to the impact of the coronavirus in Asia, partly offset by strong sales in many of the company’s end markets.

Segment Highlights

Net sales in the Electronics segment rose 1% year over year to $269 million in the reported quarter. Organic net sales dipped 2% from the year-ago reported figure. Adjusted EBITDA was $67 million, up 18% year over year.

Net sales in the Industrial & Specialty unit fell 5% year over year to $184 million. Organic net sales declined 3%. Adjusted EBITDA in the segment was $44 million, up 3% year over year.

Financial Position

Element Solutions ended the quarter with cash and cash equivalents of $497.4 million, up 155.9% year over year. Long-term debt was $1,512.2 million at the end of the quarter, down 0.3% year over year.

The company generated cash flows from operating activities of $61 million in the reported quarter. Free cash flows for the first quarter was $51 million.

Element Solutions repurchased 3.7 million shares of its common stock for $33.1 million in the reported quarter.

Outlook

The company expects adjusted EBITDA of $70-$75 million for the second quarter of 2020. It noted that its adjusted EBITDA cannot be accurately predicted or quantified at this time due to the extent of the impact of the coronavirus outbreak.

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 -20% due to these changes.

VGM Scores

Currently, Element Solutions has a great 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 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 this revision indicates a downward shift. Notably, Element Solutions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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