Will Lennox (LII) Miss Earnings Estimates?

Zacks

Building products manufacturer Lennox International, Inc. (LII) is set to report third-quarter 2013 results before the opening bell on Oct 21. In the last reported quarter, it delivered 10.1% positive earnings surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider

In the second quarter of 2013, Lennox posted impressive results with earnings per share of $1.31 increasing 33.7% year over year. The increase in earnings was mainly due to favorable margins and healthy growth in revenues. Total revenue in second quarter grew 8.7% year over year to $913.1 million as a result of better volumes and price/mix.

The new construction as well as Lennox’s replacement businesses are performing well and are expected to continue their growth momentum. The company continues to have a strong foothold in South America and Asia Pacific, although the European market still makes us cautious.

Based on the past performance, management expects earnings per share for full year 2013 in the range of $3.45-$3.75, significantly up from previous projections of $3.25-$3.55. Core sales for 2013 are expected to grow 6%–8%, compared with previous projections of 3%–6% range.

Earnings Whispers

Our proven model does not conclusively show that Lennox 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 see below.

Negative Zacks ESP: The Expected Surprise Prediction or ESP for Lennox is -2.38% since the Most Accurate Estimate stands at $1.23 per share, while the Zacks Consensus Estimate is higher at $1.26.

Zacks Rank: Lennox’s Zacks Rank #4 (Sell) when combined with a negative ESP lowers the possibility of a positive surprise prediction. We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks in the broader machinery sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Honeywell International Inc. (HON), with Earnings ESP of +0.81% and a Zacks Rank #2 (Buy).

Power Solutions International (PSIX), with Earnings ESP of +4.55% and a Zacks Rank #3 (Hold).

Generac Holdings Inc. (GNRC), with Earnings ESP of +2.41% and a Zacks Rank #3 (Hold).

Read the Full Research Report on LII
Read the Full Research Report on PSIX
Read the Full Research Report on HON
Read the Full Research Report on GNRC


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