Industrial gas producer and supplier, Praxair Inc. (PX) is scheduled to report fourth-quarter 2014 results on Jan 28, before the market opens. The Zacks Consensus Estimate for the quarter is pegged at $1.57 per share.
Praxair failed to deliver better-than-expected results in the trailing four quarters, resulting in a negative average earnings surprise of 0.31%. In the last reported quarter, the company’s earnings of $1.62 per share came below the Zacks Consensus Estimate of $1.63. Let us see how things are shaping up prior to this earnings announcement.
Factors to Affect Q4 Results
Demand for Praxair’s products and services are largely influenced by industrial activities in the U.S. as well as in foreign countries where it serves. In fourth-quarter 2014, economic activities in Japan and China decelerated, while the Eurozone faced political uncertainties. Also, industrial activities in the U.S. were flat in October, and declined 0.1% in December. A 1.3% monthly gain in November came as the only breather.
Weak industrial activities as well as a soft global economy must have negatively affected demand for industrial gases in the fourth quarter. To add to the woes, declining oil prices forced some oil-producing companies to curtail their production, adversely impacting Praxair’s businesses from the oil and gas industry.
Also, effective Dec 31, 2014, Praxair has replaced the Venezuelan government’s official exchange rate of 6.3 bolivars per U.S. dollar with the Venezuelan government’s SICAD II currency exchange system rate of approximately 50 bolivars per U.S. dollar. The new rate will now be used for converting the results of the company’s Venezuelan business.
The exchange rate replacement will result in a charge of roughly $131 million, to be recorded in Praxair’s fourth-quarter results. Further, it will impact the company’s 2015 revenues and earnings to the tune of $100 million and 7 cents per share, respectively.
Earnings Whispers?
Our proven model conclusively shows that Praxair is likely to miss earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at -1.91%. This indicates the possibility of lower-than-expected earnings for the stock.
Zacks Rank: Praxair currently holds a Zacks Rank #4 (Sell).
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.
Stocks to Consider
Here are some companies you may want to consider in the chemical-diversified industry as our model shows they have the right combination of elements to post an earnings beat this quarter:
Compass Minerals International Inc. (CMP), with an Earnings ESP of +2.60% and a Zacks Rank #1 (Strong Buy).
Trecora Resources (TREC), with an Earnings ESP of +5.00% and a Zacks Rank #2 (Buy).
Airgas, Inc. (ARG), with an Earnings ESP of +0.81% and a Zacks Rank #3 (Hold).
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