(By Rich Bieglmeier) A. Schulman, Inc.
) is expected to report earnings before the market opens on Monday, July 9, 2012. Management will host the conference immediately afterwards.
Wall Street anticipates that SHLM will earn $0.62 for its 3rd quarter. iStock expects the specialty chemicals maker to report earnings that will miss Wall Street's consensus number. The iEstimate is 61 cents – a 1 cent downside surprise.
Schulman has an excellent history of topping the Street's profit view. In 13 of the last 16 quarters, the plastics maker exceeded earnings per share (eps) forecasts. Clearly, iStock is out on a ledge with our earnings disappointment prediction.
While surpassing expectations has been no sweat for SHLM, the price performance surrounding earnings has been symmetrical, eight rewarding bulls and eight rewarding bears out of the last 16 announcements.
However, the stock price has dropped 100% of the time when A.'s profits earned an "F" and missed in the last four years. For the three underwater results, the price slumped 13%, 10.7%, and 11%, from the most recent backwards.
Eps estimates have steadily fallen throughout the quarter, staring out at 69 cents 90 days ago, then 64 cents 30 days ago, to today's 62 cents. Typically, this isn't a good sign heading into the quarterly checkup. However, history has favored companies that report their earning early in the week - a hesitation iStock holds.
We see a few worrisome spots as we reviewed SHLM's most recent financial filings. There was a big dip in cash and cash equivalents in the most recent quarter. Some of it could be due to a recent acquisition (more on that later), but it could also mean the company needs the money to run day to day operations as revenue dipped.
Using up the cash could be tied to rising accounts receivables and days out for payment, which means customers aren't paying as quickly. Additionally, rising interest expenses as a result of acquiring Elian SAS could be a drag on the bottom line. Lastly, a rising dollar negatively impacted A. Schulman in the last quarter. iStock expects to see the same on Monday morning.
On the plus side, SHLM increased its dividend and could enhance its share repurchase program.
Overall, iStock believes the risks outweigh the positives for A. Schulman, Inc. (SHLM) when earnings are announced on Monday morning. While actual eps are important, forward guidance will make or break the stock's price performance. With the global slowdown in full swing, look for a muddled outlook with Asia as the biggest concern.