Univar (UNVR) Down 34.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Univar (UNVR). Shares have lost about 34.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

Univar’s Earnings and Revenues Lag Estimates in Q4

Univar slipped to a loss (on a reported basis) of $55.1 million or 33 cents per share in fourth-quarter 2019, from a profit of $1.2 million or a penny per share a year ago.

Barring one-time items, earnings were 29 cents a share in the quarter, down from 33 cents a year ago. It also lagged the Zacks Consensus Estimate of 33 cents. The results were impacted by reduced demand in global industrial markets.

The chemical maker’s revenues were $2,155 million in the quarter, up roughly 9% year over year. However, it lagged the Zacks Consensus Estimate of $2,273 million.

On a constant currency basis, revenues rose around 10% year over year. Contribution from the Nexeo buyout was partly offset by reduced demand for chemicals and ingredients from global industrial markets, softness in the energy markets and chemical price deflation in the United States, Canada and EMEA.

Full-Year Results

Loss (as reported) for 2019 was 61 cents per share, compared with earnings of $1.21 per share a year ago. Adjusted earnings were $1.40 per share, down from $1.62 in 2018.

Revenues were $9,286.9 million for the full year, up around 8% year over year.

Segment Review

Revenues at the USA division rose around 17% year over year on a reported basis to $1,353.9 million in the quarter, driven by the contributions of the Nexeo acquisition, partly masked by chemical price deflation and reduced demand for chemicals. Gross profit rose around 23% year over year, aided by favorable product and end-market mix.

Revenues at the Canada segment fell roughly 3% year over year to $256.2 million, impacted by weakness in the Canadian energy markets and chemical price deflation. Gross profit rose around 9% year over year.

The EMEA segment raked in revenues of $418.9 million, down around 8% year over year, hurt by chemical price deflation. Gross profit was down around 4% year over year.

Revenues from the LATAM unit rose roughly 36% to $126 million. Gross profit jumped around 73% year over year. The segment gained from the Nexeo acquisition and an increase in Mexico's energy sales.

Financials

Univar ended 2019 with cash and cash equivalents of $330.3 million, up around 172% year over year. Long-term debt was $2,688.8 million, up around 15% year over year.

Net cash provided by operating activities was $363.9 million for 2019, up from $289.9 million a year ago.

Outlook

Moving ahead, Univar envisions sustained weakness in end markets and a challenging competitive environment in the first half of 2020. It expects the first quarter to be the weakest of the year.

For 2020, the company sees adjusted EBITDA of $700-$740 million. Univar expects adjusted EBITDA of $150-$160 million for the first quarter of 2020.

Univar also expects to generate free cash flow of $120-$170 million for full year 2020.

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 -6.17% due to these changes.

VGM Scores

Currently, Univar has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 this revision has been net zero. It's no surprise Univar has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.