Zacks Investment Research downgraded Innospec Inc. (IOSP) to a Zacks Rank #5 (Strong Sell) on Sep 2, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.
Why the Downgrade?
Despite posting better-than-expected results for second-quarter 2014, Innospec Inc. failed to strengthen investors’ confidence. Reactions followed in the form of downward revision in earnings estimates. A brief discussion on the quarter’s results is provided below:
Innospec Inc’s adjusted earnings came in at 77 cents per share, reflecting an improvement over 75 cents earned in the year-ago quarter and the Zacks Consensus Estimate of 72 cents. Revenues grew 19.6% year over year. Top-line growth was partially offset by a 21.6% increase in the cost of sales. Gross margin dropped by 110 basis points (bps) year over year.
Operating costs, including selling, general and administrative as well as research and development expenses, increased 17.7% year over year. Interest expense doubled to $0.8 million. Long-term debt stood at $134.2 million at the end of the quarter.
Cash flow generation from operating activities has been weak in first-half 2014, declining 10.1% over the year-ago comparable period to $33.8 million. Capital expenditure increased 22.4%.
Over the last 30 days, the Zacks Consensus Estimate for Innospec Inc. had decreased 4.8% to $2.95 for 2014 and 6.1% to $3.10 for 2015. For 2014, the prediction reflects a year-over-year decline of 11.7%.
Other Stocks to Consider
Innospec Inc. presently has a market capitalization of $1 billion. Some better-ranked stocks in the industry include Celanese Corporation (CE), Valhi, Inc. (VHI) and LyondellBasell Industries NV (LYB). All these stocks hold a Zacks Rank #2 (Buy).
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