Estimates have come down substantially after ugly second quarter
results, sending GSE to a Zacks Rank # 5 (Strong Sell), with an
About the Company
GSE Environmental (GSE) is a manufacturer and marketer of
geosynthetic lining products and services, used for environmental
protection and confinement applications. Their solutions are used
mainly in agriculture, aquaculture, mining, power, waste
containment, wastewater, and other industrial
applications. Headquartered in Houston, GSE has
manufacturing facilities in the US,
Chile, Germany, Thailand and Egypt. It also has
sales offices throughout the world.
Disappointing Second Quarter Results
Total net sales for the second quarter were $108.2 million,
compared to $139.2 million for the prior year period. The
loss in the quarter was $6.9 million,
or ($0.34) per diluted share compared to adjusted net
income of $5.8 million or $0.29 per diluted share in
the prior year period.
Declining EBITDA caused GSE to breach its debt covenant in respect
of its total leverage. The company obtained a waiver of
default from its lenders and amended the credit facility.
According to the management, very weak European economy has left
the industry with excess capacity, leading to overall margin
Due to disappointing results and uninspiring guidance, quarterly
and annual estimates have been revised sharply downwards in the
past few weeks. Zacks consensus estimates for the current quarter
and year are now $0.09 and ($0.69) respectively down from $0.22 and
$0.47 per share, 60 days ago.
Current consensus estimates represent 68% and 134% year-over-year
earnings' decline for the current quarter and current year.
In July, GSE announced that Mark Arnold, its President and CEO will
be leaving the Company. The Board has appointed Charles
Sorrentino, a current member of the Board, as interim President and
CEO. Leadership change adds more uncertainty to the outlook for the
The Bottom Line
The company is trying to implement a global cost cutting plan but
they still expect continued margin pressure until supply and demand
conditions normalize. With its global footprint, the company may
benefit in the longer-term when the global economy improves,
provided they are able to execute their initiatives on cutting
costs and streamlining operations properly.
Further, there are uncertainties related to the leadership change
and the balance sheet. But in view of near-term challenges, it is
safer to stay away from the stock for the time being.
GSE is currently Zacks Rank # 5 (Strong Sell) stock and it has a
recommendation of "Underperform". Further, Zacks Industry
Rank of 205 out of 265 also indicates some weakness in the short-
to mid- term. As such investors should like to avoid this stock for
the time being.
Investors seeking exposure to the industry could look at Energy
Recovery (ERII) or Ceco Environmental (CECE); both are Zacks Rank
#2 (Buy) stocks.
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