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Ferroglobe PLC (NASDAQ:GSM) Implodes On Widening Net Loss and Sales Miss

A more extensive than expected net loss, revenue missed estimates and shrinking margins all but sums up Ferroglobe PLC (NASDAQ:GSM) woes in the market. The stock has since taken a significant hit on waning investor’s confidence about the company’s long-term prospects. The stock is currently languishing at an all-time low. Investors’ confidence in the stock has also hit an all-time low, amidst concerns about the company’s growth prospects. The stock has lost more than 80% in market value. As it stands, things are not looking good amidst soaring short selling pressure. The stock finds itself in the current mess on the company reporting disappointing third-quarter results. Net loss in the quarter widened to ($2.9) million compared to a net profit of $66 million reported in the second quarter. Sales, on the other hand, came in at $526.8 million compared to sales of $583 million reported in the second quarter. Adjusted EBITDA margin stood at 8.5% in the quarter, nearly half a margin of 14.8% reported in the second quarter. “Following strong growth in our business over several sequential quarters, market conditions in our main products deteriorated through Q3,” said Pedro Laree, CEO of Ferroglobe.

Cash Flow Woes
Ferroglobe did not meet its cash flow targets in the quarter as deteriorating market conditions left the company with elevated debt levels. The company consequently resorted to curtailing production. Besides, the company exited the quarter with a net debt of $510.9 million up from a net debt of $475.3 million as of the end of June 30, 2018. According to the chief executive officer, they have taken swift action to position the company on the global production base. As part of the strategy, plans are underway to limit the company’s exposure to silicon metal and manganese-based alloys business. In return, focus shifts towards cost-effective plants and geographies.

Cost Cutting Drive
In a bid to curtail widening net loss, Ferroglobe has embarked on a cost-cutting drive as it seeks to draw down inventory levels. The costs cuts should also help the company strengthen its free cash flow profile. Generating free cash flow is top on the agenda. For that reason, the company intends to carry out reductions in working capital as well as non-core asset sales. Lowering interest expense is also a top priority. Ferroglobe has consequently slashed plans to issue any dividend as it seeks to strengthen its cash position and deleverage its balance sheet. Mid this year, the company announced a $20 million program for the purchase of ordinary shares. The company has already purchased 2.9 million shares of which 1.2 million are troy be canceled and the remaining 1.7 million geld in treasury.

Analysts Estimates
Ferroglobe finds itself in a precarious position after the posting of disappointing financial results. The disappointing results acted as fuel in accelerating a sell-off wave that began early in the year. While the stock has lost more than 80% in market value, one analyst remains optimistic about the stock’s long-term prospects. According to an analyst at B. Riley FBR, Ferroglobe Is a ‘buy’ after the recent implosion the analyst has since initiated coverage of the stock with a $4 a share price target. The price target implies a 50% plus upside. Analysts at JP Morgan, on the other hand, have lowered their estimates of the stock and withdrew share price target, citing market uncertainty. Equity research firm Oppenheimer on its part has downgraded the stock to ‘perform’ from an ‘outperform.’ Until conditions improve, Ferroglobe looks set to remain under pressure. Soaring short selling pressure and waning investors’ confidence points to further underperformance of the stock.

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