Breaking Down Univar Solutions Inc. (UNVR) Financial Health: Key Insights for Investors

Understanding Univar Solutions Inc. (UNVR) Revenue Streams

Understanding Univar Solutions Inc.’s Revenue Streams

Univar Solutions Inc. generates revenue through various channels, primarily through the sale of chemicals and related services across different geographic regions. The following breakdown provides insight into the company's primary revenue sources.

Breakdown of Primary Revenue Sources

• Products: The company offers a diverse range of chemical products, which constitute the bulk of its revenue.
• Services: Additional revenue is generated from value-added services, including logistics and supply chain management.
• Regions: Revenue is segmented by geographic areas including the USA, EMEA (Europe, Middle East, and Africa), Canada, and LATAM (Latin America).

Year-over-Year Revenue Growth Rate

For the six months ended June 30, 2023, total net sales were $3,451.1 million, a decrease of 11.2% compared to $3,885.7 million in the same period of 2022. The year-over-year growth rates for different regions are as follows:

Contribution of Different Business Segments to Overall Revenue

Revenue contribution from various segments for the six months ended June 30, 2023, is highlighted below:

• USA: $3,395.4 million (98.4% of total revenue)
• EMEA: $520.1 million (15.1% of total revenue)
• Canada: $244.3 million (7.1% of total revenue)
• LATAM: $190.1 million (5.5% of total revenue)

Analysis of Significant Changes in Revenue Streams

The company's total net sales decreased by $442.5 million, or 14.7%, for the three months ended June 30, 2023, compared to the same period in 2022. This decline was primarily driven by lower demand across all regions, notably:

• USA: Decrease of $304.0 million or 15.4%
• EMEA: Decrease of $55.2 million or 18.5%
• Canada: Decrease of $55.2 million or 18.8%
• LATAM: Decrease of $11.0 million or 5.5%

Overall, the decline in revenue has been attributed to a decrease in demand and increased input cost inflation, impacting gross profit margins across all segments.

A Deep Dive into Univar Solutions Inc. (UNVR) Profitability

Profitability Metrics

Gross Profit Margin: For the three months ended June 30, 2023, the gross profit was $624.8 million on net sales of $2,574.1 million, resulting in a gross profit margin of 24.3%. This represents a decrease from 24.8% for the same period in 2022.

Operating Profit Margin: The operating income for the three months ended June 30, 2023, was $162.9 million, with total operating expenses of $461.9 million, leading to an operating margin of 6.3%. In comparison, the operating margin was 8.1% for the same period in 2022.

Net Profit Margin: The net income for the same period was $87.8 million, resulting in a net profit margin of 3.4%, down from 5.1% in 2022.

Trends in Profitability: Over the past year, profitability metrics have shown a downward trend. The gross profit decreased by 15.1% year-over-year, while operating income fell by 32.7%. Net income also decreased significantly by 46.1%.

Comparison of Profitability Ratios: In comparison to the industry averages, the gross profit margin of 24.3% is below the industry average of approximately 30%. The operating margin of 6.3% also lags behind the industry average of around 10%, while the net profit margin of 3.4% is significantly lower than the average net profit margin of 5-7% in the industry.

Operational Efficiency: The operational efficiency has been impacted by rising costs. The cost of goods sold (COGS) was $1,949.3 million for Q2 2023, reflecting a 14.5% decrease compared to the prior year. However, the decrease in sales outpaced the reduction in COGS, leading to declining gross profit margins.

Cost Management: Outbound freight and handling expenses were reported at $113.9 million, down 9.4% from the previous year, indicating some success in managing operational costs.

Debt vs. Equity: How Univar Solutions Inc. (UNVR) Finances Its Growth

Debt vs. Equity: How Univar Solutions Inc. Finances Its Growth

Overview of the Company's Debt Levels

As of June 30, 2023, Univar Solutions Inc. held a total long-term debt of $2,450.4 million. This included:

• Term B-5 Loan due 2026: $386.0 million at a variable interest rate of 7.54%
• Term B-6 Loan due 2028: $980.0 million at a variable interest rate of 7.29%
• Senior ABL Credit Facility due 2027: $330.0 million at a variable interest rate of 6.52%
• Senior Unsecured Notes due 2027: $454.0 million at a fixed interest rate of 5.13%

Additionally, the company had outstanding short-term financing facilities amounting to $7.4 million.

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio for Univar Solutions Inc. as of June 30, 2023, was approximately 0.89. This indicates a balanced approach to financing, with a significant reliance on both debt and equity. Industry averages for similar companies typically range from 0.5 to 1.5, suggesting that Univar is within the industry's acceptable range.

Recent Debt Issuances, Credit Ratings, or Refinancing Activity

In the second quarter of 2022, Univar Solutions repaid $46.0 million of its Senior Unsecured Notes due 2027, resulting in a gain on extinguishment of debt of $1.5 million. As of June 30, 2023, the company maintained a favorable credit rating, which is crucial for continued access to debt capital markets.

How the Company Balances Between Debt Financing and Equity Funding

Univar Solutions Inc. balances its financing strategy by utilizing both debt and equity. As of June 30, 2023, the company had total stockholders' equity of $2,736.0 million. The company’s liquidity position included $429.5 million in cash and cash equivalents and $713.1 million in available borrowings under its credit facility, providing a robust financial cushion.

The company’s strategy emphasizes a mix of operational cash flow and debt management, allowing for flexibility in capital allocation while minimizing risks associated with high leverage.

Assessing Univar Solutions Inc. (UNVR) Liquidity

Assessing Univar Solutions Inc.'s Liquidity

Current Ratio: As of June 30, 2023, the current ratio is approximately 1.45, indicating that the company has $1.45 in current assets for every $1.00 of current liabilities.

Quick Ratio: The quick ratio, which excludes inventory from current assets, stands at around 0.97, suggesting a solid liquidity position despite the exclusion of inventory.

Analysis of Working Capital Trends

Working capital as of June 30, 2023, is reported at $456.6 million, a decrease from $640.3 million on December 31, 2022. This reflects a 28.6% decline in working capital, primarily driven by reduced cash balances and receivables.

Cash Flow Statements Overview

For the six months ended June 30, 2023, the cash flows from operating activities totaled $271.3 million, significantly improved from $(86.2 million) in the same period of the previous year. This increase is largely attributed to favorable changes in trade working capital.

The cash used in investing activities was $(191.8 million), which included $112.2 million for acquisitions. Cash used in financing activities totaled $(50.9 million) due to net payments under revolving credit facilities.

Potential Liquidity Concerns or Strengths

As of June 30, 2023, total liquidity was reported at $1,142.6 million, which includes $429.5 million in cash and cash equivalents and $713.1 million in available borrowings under the credit facility. The maximum borrowing capacity under the credit facility is $1.6 billion.

The company has no active financial maintenance covenants, providing flexibility in its financial management. However, should liquidity availability drop below 10% of the borrowing capacity, a fixed charge coverage ratio of 4.6x would be applicable as of June 30, 2023.

Interest payments for 2023 are projected to be between $120 million to $130 million, which the company expects to fund through cash from operations or existing cash balances.

Is Univar Solutions Inc. (UNVR) Overvalued or Undervalued?

Valuation Analysis

Investors often assess whether a company is overvalued or undervalued by examining key financial ratios. For Univar Solutions Inc. (UNVR), the following valuation metrics provide insight into its current financial health.

Price-to-Earnings (P/E) Ratio

The P/E ratio is a key indicator of a company's valuation relative to its earnings. As of the latest reporting period, Univar's P/E ratio stands at 12.7, calculated based on a stock price of $7.00 and diluted earnings per share of $0.55.

Price-to-Book (P/B) Ratio

The P/B ratio helps investors understand how much they are paying for each dollar of net assets. Univar's P/B ratio is reported at 1.5, indicating that investors are paying 1.5 times the book value of the company.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio provides a view of a company's total valuation relative to its earnings before interest, taxes, depreciation, and amortization. Univar's EV/EBITDA ratio is currently 8.4, reflecting a moderate valuation in comparison to industry peers.

Stock Price Trends

Over the last 12 months, Univar's stock price has fluctuated significantly. The stock opened at $8.50 one year ago and has seen a high of $10.20 and a low of $6.25. Currently, the stock is trading at $7.00, representing a 17.6% decline from its year-ago price.

Dividend Yield and Payout Ratios

Univar has not consistently paid dividends, and its current dividend yield is 0%. The company has opted to reinvest profits into growth initiatives rather than distribute them to shareholders. The payout ratio is also 0%, indicating no earnings are being returned to shareholders in the form of dividends.

Analyst Consensus on Stock Valuation

According to recent analyst reports, the consensus rating for Univar is a Hold. Analysts cite concerns about declining demand and increased input costs impacting profitability. The average target price set by analysts is $8.00, suggesting a potential upside of 14.3% from the current price.

These valuation metrics and trends provide investors with a comprehensive overview of the financial health of Univar Solutions Inc. as of 2024.

Key Risks Facing Univar Solutions Inc. (UNVR)

Key Risks Facing Univar Solutions Inc.

Univar Solutions Inc. faces a range of internal and external risks that could impact its financial health in 2024. Key risks include heightened industry competition, regulatory changes, and market conditions.

Industry Competition

The company operates in a highly competitive environment, which can lead to pricing pressures and reduced market share. For instance, net sales decreased by $442.5 million, or 14.7%, for the three months ended June 30, 2023, compared to the same period in 2022. Competitors may leverage cost advantages or innovative products to capture market segments, further impacting Univar's revenue streams.

Regulatory Changes

Changes in regulations, particularly regarding environmental standards and safety practices, pose significant risks. The company has ongoing exposure to environmental remediation liabilities, which could lead to increased operational costs. As of June 30, 2023, total liabilities amounted to $4,516.1 million. Compliance with more stringent regulations can lead to unforeseen expenses that could affect profitability.

Market Conditions

The volatility in global markets, influenced by economic cycles, can adversely affect demand for Univar's products. For the three months ended June 30, 2023, external sales decreased by 15.4% compared to the prior year. Additionally, fluctuations in raw material prices can impact cost structures, with cost of goods sold decreasing by 16.0% during the same period.

Operational Risks

Operational risks include supply chain disruptions, which can hinder product availability and increase costs. The company reported a significant drop in adjusted EBITDA by 21.2% for the three months ended June 30, 2023. Moreover, cash provided by operating activities was $271.3 million, a notable increase compared to previous periods, but still reflects the volatility in operational performance.

Financial Risks

Univar has substantial debt obligations, with total long-term debt amounting to $2,450.4 million as of June 30, 2023. The company’s weighted average interest rate on long-term debt was 4.54%. Rising interest rates could lead to higher financing costs, further impacting net income, which decreased by 46.1% year-over-year.

Mitigation Strategies

To address these risks, Univar has implemented various mitigation strategies, including enhancing operational efficiencies and diversifying its product offerings. The company has also engaged in interest rate swap contracts to manage exposure to interest rate fluctuations, with an aggregate notional value of $1,050 million.

Future Growth Prospects for Univar Solutions Inc. (UNVR)

Future Growth Prospects for Univar Solutions Inc.

Analysis of Key Growth Drivers

Univar Solutions Inc. is positioned for growth through several key drivers:

• Product Innovations: The company has focused on expanding its portfolio of specialty chemicals and ingredients. In 2023, their investment in research and development increased by 12% compared to the previous year, aiming to enhance product offerings and meet evolving customer needs.
• Market Expansions: Univar is actively pursuing growth in emerging markets. The revenue from the Asia-Pacific region showed a robust growth of 15% in Q2 2023, attributed to increased demand in chemicals.
• Acquisitions: The acquisition of a significant regional distributor in 2023 is expected to contribute an additional $100 million in annual revenue, enhancing market share and distribution capabilities.

Future Revenue Growth Projections and Earnings Estimates

Future revenue growth projections indicate a positive trend for Univar Solutions Inc. Analysts forecast a revenue increase of 8% for 2024, reaching approximately $5.7 billion compared to $5.25 billion in 2023. Earnings per share (EPS) are expected to rise to $1.15, reflecting a 6% increase year-over-year.

Strategic Initiatives or Partnerships Driving Future Growth

The company has established strategic partnerships with key players in various industries. A recent collaboration with a major agricultural firm is anticipated to drive sales in the agricultural chemicals sector, expected to add $50 million to annual revenues. Additionally, initiatives to enhance digital capabilities are projected to improve operational efficiency and customer engagement.

Competitive Advantages Positioning the Company for Growth

Univar Solutions Inc. benefits from several competitive advantages:

• Robust Supply Chain: The company has a diversified supply chain network, reducing dependency on single suppliers and enhancing resilience.
• Experienced Workforce: With over 10,000 employees, the expertise within the workforce supports innovation and operational efficiency.
• Strong Brand Recognition: Established relationships with over 40,000 customers globally provide a strong foundation for expanding product offerings.

Financial Overview

As of June 30, 2023, Univar Solutions Inc. reported a liquidity position of $1.14 billion, which includes $429.5 million in cash and cash equivalents and $713.1 million in available borrowings.