What happened
With the week winding down, it seems that the S&P 500 and Dow Jones Industrial Average are both on the verge of locking in a decline for the first week of May. Shares of specialty chemicals companies, however, are poised to tumble notably more as investors wrestle with their uninspiring quarterly earnings reports.
As of 1:51 p.m. ET, shares of Ashland(NYSE: ASH) are down 11.2% since the end of last Friday's trading session, while shares of Mativ(NYSE: MATV) and Ingevity(NYSE: NGVT) have fallen 15.4% and 15.1%, respectively, during the same period, according to data provided by S&P Global Market Intelligence.
So what
Failing to meet analysts' revenue and earnings expectations, Ashland reported sales of $603 million and adjusted earnings per share of $1.43 for Q2 2023. The consensus among analysts was that Ashland would report $629 million on the top line and $1.50 per share on the bottom line. Besides the company's recent performance, management's increasingly dour outlook on the remainder of 2023 also motivated investors to click the sell button.
Initially, Ashland had guided for 2023 revenue of $2.5 billion to $2.7 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $600 million to $650 million. This week, however, management revised the 2023 guidance downward, expecting to generate revenue of $2.3 billion to $2.4 billion and adjusted EBITDA of $580 million to $610 million.
Yesterday, several analysts took a more bearish stance on Ashland's stock, contributing to its sell-off. WellsFargo, for example, cut its price target to $100 from $110, and Mizuho reduced its price target to $129 from $139.
Reporting Q1 2023 sales of $392.6 million, Ingevity came up short of analysts' expectations that the company would report $411.2 million for the quarter. Disappointment followed on the bottom line as well. While analysts estimated the company would book Q1 2023 EPS of $1.13, Ingevity reported $1.09.
Like with Ashland, Ingevity provided revised 2023 guidance that did little to inspire investors. Management projects Ingevity will book sales of $1.75 billion to $1.95 billion -- a less fruitful outlook than the $1.9 billion to $2.1 billion that it had originally forecast. Profitability is also expected to lower than originally thought. Whereas management had first guided for 2023 adjusted EBITDA of $495 million to $515 million, it now expects to generated adjusted EBITDA of $450 million to $480 million.
Despite the lower revenue and adjusted EBITDA forecasts, management reaffirmed its 2023 free cash flow forecast: approximately $160 million.
Also like Ashland, Ingevity found itself on the radar of analysts following its quarterly earnings report -- and not in a good way. Wells Fargo cut its price target on Ingevity's stock to $66 from $80, and Loop Capital slashed its price target to $64 from $92.
With regard to Mativ, the stock's tumble is not directly related to any news -- earnings report or otherwise. Instead, the stock's fall is more likely the result of its specialty chemicals peers' surprisingly weak quarterly earnings in addition to the downward revised outlooks for 2023.
Investors won't have to wait long to learn how Mativ performed in the first quarter of 2023; the company plans on reporting its financial results after the market closes on May 10.
Now what
Between the financial reporting, less robust outlooks for 2023, and bearish opinions from analysts, it's no wonder that Ashland, Ingevity, and Mativ found themselves spiraling lower this week. Fortunately for chemical-minded investors, there are plenty of other names to consider.
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