What's in the Cards for Univar (UNVR) this Earnings Season?

Univar Inc.UNVR is slated to release fourth-quarter 2016 results ahead of the bell on Feb 22.

The chemical company logged adjusted earnings of 17 cents per share in third-quarter 2016, compared with earnings of 9 cents per share in the prior year quarter. That missed the Zacks Consensus Estimate of 20 cents.

Univar recorded net sales of $1,999.7 million for the quarter, down 9.5% year over year. It missed the Zacks Consensus Estimate of $2,055 million.

The company has delivered an average negative earnings surprise of 21.81% in the trailing four quarters.

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

Univar Inc. Price and EPS Surprise

Univar Inc. Price and EPS Surprise | Univar Inc. Quote

Factors to Consider

Notwithstanding macroeconomic challenges and sustained oil and gas headwinds, Univar expects adjusted EBITDA for the fourth quarter to be comparable to that of year ago quarter.

The company expects fourth-quarter adjusted EBITDA to be in the range of $127 million and $132 million. The company has narrowed its adjusted EBITDA outlook for 2016 from a range of $550 million to $565 million to a range of $555 million to $560 million. The company also expects to record a significant non-cash mark-to-market accounting loss related to pension in the fourth quarter.

Univar faced headwinds in the upstream oil and gas markets in the third quarter. Weak demand in this market coupled with lower selling prices hurt revenues in the quarter. The company is focused on reducing operating costs in this space in response to sluggish demand.

Univar is 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.

Moreover, Univar looks to strengthen its balance sheet by reducing debt amid the sluggish macroeconomic environment. The company cut its debt by $100 million through the third quarter and sees more reductions in the final quarter of 2016.

While industrial demand is expected to remain sluggish and headwinds from oil & gas are likely to persist, the company's productivity actions and organic growth initiatives are expected to offset some of the negative impact in the to-be-reported quarter.

Univar has outperformed the Zacks categorized Chemicals-Diversified industry in the past three months. The company's shares have gained around 19.4% over this period, compared with roughly 9.4% gain recorded by the industry.

Earnings Whispers

Our proven model shows that Univar is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for Univar is +14.29% as the Most Accurate Estimate stands at 24 cents while the Zacks Consensus Estimate is pegged at 21 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Univar currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Univar's Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.

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:

Intrepid Potash, Inc. IPI has an Earnings ESP of +20% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Koppers Holdings Inc. KOP has an Earnings ESP of +3.85% and a Zacks Rank #3.

IAMGOLD Corporation IAG has an Earnings ESP of +100% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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