Will GrafTech (GTI) Miss Q3 Earnings Despite Review Plans? - Analyst Blog

GrafTech International Ltd (GTI), a premium producer and retailer of carbon and graphite-mattered science-based solutions, is scheduled to release third-quarter results after the market closes on Oct 30. In the preceding quarter, the company generated a gigantic negative earnings surprise of 600% with negative earnings surprise for the last four trailing quarters. Let's see how things are shaping up for the upcoming earnings publication.

Factors to Influence Q3 Results

GrafTech, well known for its high-quality offerings, enjoys a superior brand value in the market. The company is experiencing increased traction from the sales of its advanced consumer electronics and high temperature furnace application products. Following its poor second-quarter results, the organization has started reviewing different aspects of its resource and business structure for the upcoming quarters.

Nevertheless, GrafTech still remains troubled with several issues in its business. With negative trends in the earnings estimate revisions, the company's share prices have also been steadily declining over time. Further, due to loss of demand in its Industrial Material business segment, the revenue and profit margins are dropping at an alarming rate. Lower needle coke sales volume and weaker graphite electrode realized pricing are responsible for such downtrend. Investors are losing confidence on GrafTech as the company is continuously reducing its guidance, conducting business operations in a highly challenging environment and have been experiencing negative earnings momentum since the last few quarters.   

Irrespective of all the approaching problems, the company expects to generate better results in the third quarter, backed by its Chinese market expansion, superior supply dynamics and favorable market pricing instruments.

Earnings Whispers

Our proven model does not conclusively show that GrafTech is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, #2 or #3 for this to happen. That is not the case here as we will see below.

Zacks ESP: Earnings ESP for the stock, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate is currently pegged at 33.33%.

Zacks Rank: GrafTech's Zacks Rank #5 (Strong Sell), when combined with 33.33% ESP, makes surprise predictions difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings.

Other Stocks to Consider

Here are some companies in the industry that investors may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Century Aluminum Co. (CENX) with an Earnings ESP of +11.76% and a Zacks Rank #1 (Strong Buy).

Worthington Industries, Inc. (WOR) with an Earnings ESP of +10.29% and a Zacks Rank #1.

Alamo Group, Inc. (ALG) with an Earnings ESP of +4.44% and a Zacks Rank #2 (Buy).