LSB Industries: Zacks’ Bear of the Day Play

Nothing hurts the top line like unplanned outages, and or the complete loss of a production facility.  This is what has happened to LSB Industries; in May the chemical segment was adversely impacted by a 17 day unplanned outage, and then from September 3 to the 23 the same plant lost their ammonia production.  The first issue hurt Q215 sales, which declined 9.4% y/y, and the second issue is expected to hurt Q3 operating income by between $9-$10 million.  Due to these reasons, LSB Industries (LXUSnapshot Report) is the Zacks Bear of the Day.

This Zacks Ranked #5 (Strong Sell) company is a diversified holding company which is engaged, through its subsidiaries, in the manufacture and sale of chemical products for the explosives, agricultural and industrial acids markets; the manufacture and sale of a broad range of hydronic fan coils and water source heat pumps as well as other products used in commercial and residential air conditioning systems; and the manufacture or purchase and sale of certain automotive and industrial products, including automotive bearings and other automotive replacement parts.

In their most recent earnings report, the company saw sales decline 9.4%, EPS fell to $0.02 from $0.47 a year ago, Chemical sales fell 16.9% y/y, and a water main break which adversely impacted production at their chemical plant in Pryor, Oklahoma.  Further, company management stated that it lost 35,000 to 40,000 tons of UAN (a solution of urea and ammonium nitrate in water used as a fertilizer) due to the shutdown at the ammonia plant in September.  Moreover, the company stated that they lost 7,000 to 10,000 tons of ammonia as well.

Decreasing Estimates

As you can see in the graph below, recent earnings misses, and reduced guidance have negatively impacted the overall price of the company.

Specifically, over the past 30 days, estimates for Q3 15, FY 15, and FY 16 have all declined; Q3 15 plummeted from $0.08 to -$0.23, FY 15 fell from $0.37 to $0.12, and FY 16 dropped from $1.59 to $1.53.

Bottom Line

Plant shutdowns in two separate quarters, each of which had adverse impacts on the production and sales, has this company trying to dig itself out of a large hole.  While it is expected that LSB Industries will turn their ship around in Q2 16, they still have several difficult quarters ahead of them.

If you are inclined to invest in the Diversified Operations segment, you would be better served to look into Compass Diversified Holdings (CODISnapshot Report), and or Danaher Corp (DHRAnalyst Report), which  both carry a Zacks Rank #2 (Buy).

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