Shares ofElementis(LSE: ELM) have slumped by as much as 13% in early trading today, after the company warned that it expects full-yearearnings per share to miss market expectations.
Asignificant reduction in oil projects within North America was the reason given for the warning.
Sales of chemicaladditives used in oil sector projects are expected to be around 30% lower this year than the previous year.
Whats more, Elementis personal care business is facing challenges in theLatin America market, where it has been impacted by local currency weaknesses. Further,demand in China for the groups coatings additives weakened in the second quarter.
However, personal care sales are running ahead of forecasts in other markets, which will help the division meet its targets for the year.
Before todays warning, City analysts had been expectingElementis to reportearnings per share of 16.1p for 2015.
And before todays decline, these projections meant that the company was trading at a forward P/E of 19.5; a premium valuation that left little room for error.
Unfortunately, analysts have not yet had time to factor todays news into their earnings projections for Elementis. So, its impossible to place a value on the company at present.
That said, Elementis does support a dividend yield of 4.2%, whichappears safe for the time being Elementis has a cash-rich balance sheet and remains cash generative.
A better pick
Theres no denying that Elementis has racked up an impressive performance during the past five years. Since 2010, the companys shares have gained 332%, and earnings per share have jumped by 70%.
Still, as todays update shows, the companys outlook is at the mercy of outside factors that it cant control. Being a relativelysmall player in such a big market means that Elementis trading is bound to be volatile from time to time.
On the other hand,Croda(LSE: CRDA) is one of the worlds largestspeciality chemical producers and the groups size gives it an enormous advantage.
Crodas shares have returned 642% since June 2005. Over the same period, Elementis has only notched up a gain of 443%. Elementis suffered during the financial crisis while Croda surged ahead.
That being said, Crodas profit growth has lagged that of Elementis during the past five years. Crodas earnings per share have only expanded 42% since 2010.
But Croda has a defensive element to the business. The companys life sciences or healthcare division is growing at a double-digit clip and is unlikely to be affected by global economic trends.
Crodas healthcare salesincreased by 15.8% during the first half of its financial yearthanks to better-than-expected sales of its pharmaceutical grade Omega-3. Increased sales of high purity excipients (a substance that serves as a delivery medium for a drug) also helped boost sales.
With its leading position in the chemicals industry, Croda isnt cheap. The company currently trades at a forward P/E of 21 and supports a dividend yield of 2.5%.
Nevertheless, sometimes you have to pay a premium for quality. Crodas steady growth and defensive nature are worth paying for.
City analysts are forecasting earnings per share growth of 7% per annum is expected for the next two years.
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