What's In The Cards For Univar (UNVR) This Earnings Season?

Univar Inc. (NYSE:UNVR) is expected to release second-quarter 2016 results ahead of the bell on Aug 9.

Univar is a global distributor of chemicals and innovative services, offering solvents, resins, pigments, acids, bases, surfactants, glycols, inorganic compounds and alcohols. It also provides transportation and warehousing infrastructure, chemicals and hazardous materials’ handling services. The company serves the coatings and adhesives, food, oil and gas, personal care and pharmaceutical industries.

Last quarter, this chemical company’s earnings matched the Zacks Consensus Estimate. The company posted an average negative earnings surprise of 62.39% in the last four quarters.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Univar reported revenues of $1,999 million in the first quarter of 2016, down 13.1% from the year-ago quarter owing to lower demand from oil and gas markets, deflation in chemical prices and currency headwinds. The company’s net earnings fell to $14 million from $19.7 million in the prior-year quarter.

Univar faced headwinds in the upstream oil and gas markets due to declining rig count in first-quarter 2016. Demand in the market declined through the quarter and is expected to remain low, but not drop further, in the second quarter. Industrial demand in the first quarter was also soft and is anticipated to remain sluggish in the second quarter.

Univar’s sales in the first quarter also declined due to prices. Chemical prices deflated in the quarter. Management expects a rise in prices due to seasonality in the second quarter. However, in the last earnings call, the company stated that it was yet to witness the increase.

Univar intends to continue implementing initiatives targeted at growth. The company plans to continue its pursuit of several acquisitions after the two acquisitions completed in the first quarter. The company is also executing several cost saving programs, in an attempt to drive productivity and operational excellence and grow organically. The company also expects its asset-light business model, which provides stability, to sustain in the current uncertain macroeconomic environment.

For second-quarter 2016, the company projects adjusted EBITDA to be modestly above $134.1 million reported in the first quarter. This is primarily due to a slower beginning to the usual seasonal increases in demand from industrial markets.

Earnings Whispers

Our proven model does not conclusively show that Univar is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Univar is currently pegged at 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate both stand at 18 cents.

Zacks Rank: Univar carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies in the basic materials sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Ryerson Holding Corporation (NYSE:RYI) has an Earnings ESP of +8.70% and a Zacks Rank #1 (Strong Buy).

International Flavors & Fragrances Inc. (NYSE:IFF) has an Earnings ESP of +0.71% and a Zacks Rank #2 (Buy).

Alamos Gold, Inc. (TO:AGI) has an Earnings ESP of +100% and a Zacks Rank #2.