Why Is Element Solutions (ESI) Down 19.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Element Solutions (ESI). Shares have lost about 19.4% 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 drivers.

Element Solutions' Q4 Earnings and Sales Top Estimates

Element Solutions recorded earnings from continuing operations of 29 cents per share in fourth-quarter 2019, compared with a loss of 5 cents per share in the year-ago quarter.

Adjusted earnings per share (EPS) of 22 cents for the quarter surpassed the Zacks Consensus Estimate of 20 cents.

The company generated net sales of $454.7 million, down roughly 5% year over year. The figure, however, topped the Zacks Consensus Estimate of $445 million. Organic net sales, barring the impact of currency changes, specific pass-through metal prices and acquisitions, fell 4%.

The company saw continued weakness in its industrial markets in the reported quarter. However, it gained from stability in Asian electronics and cost control actions.

Full-Year Results

Earnings (as reported) from continuing operations for 2019 were 30 cents per share, compared with a loss of 27 cents per share a year ago. Adjusted earnings were 88 cents per share, up from 17 cents in 2018.

Revenues were $1,835.9 million for the full year, down around 6% year over year.

Segment Highlights

Net sales in the Electronics segment fell 4% year over year to $272 million in the reported quarter. Organic net sales dipped 4%. Adjusted EBITDA was $63 million, up 7% year over year.

Net sales in the Industrial & Specialty unit fell 7% to $183 million. Organic net sales declined 6%. Adjusted EBITDA in the segment was $40 million, down 2% year over year.

Financial Position

Element Solutions ended 2019 with cash and cash equivalents of $190.1 million, down roughly 19% year over year. Long-term debt was $1,513.2 million at the end of the year, down around 72% year over year.

The company generated cash flows from operating activities of $171 million in 2019. Adjusted free cash flows for the year was $238 million.

Outlook

The company expects adjusted EPS of 93-97 cents for 2020. It also sees adjusted EBITDA growth of 2-4% on a constant currency basis.

Moreover, the company expects a roughly 1% year-over-year growth in organic net sales for 2020.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -12.12% due to these changes.

VGM Scores

Currently, Element Solutions has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Element Solutions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.