Weyerhaeuser Company (WY) is scheduled to report its second-quarter 2014 results on Aug 1 before the market opens. The Zacks Consensus Estimate for the quarter is pegged at 34 cents per share.
The company’s first-quarter earnings of 26 cents per share surpassed the Zacks Consensus Estimate by 13.0%. With a positive average earnings surprise of 20.8%, will Weyerhaeuser be able to keep the earnings streak alive for this quarter? Let us see how things are shaping up prior to this announcement.
Factors to Influence Q2 Results
Weyerhaeuser’s divestment of its homebuilding and real estate company, WRECO to TRI Pointe Homes, Inc. (TPH) will stimulate the company’s growth prospects, as freed up resources can be utilized for the core forest products business. Moreover, the transaction will be tax-free for participating shareholders.
Further, out of the divestiture, Weyerhaeuser received $700 million in cash and reduced its shares outstanding by 58.8 million. Lower share count will boost earnings per share.
However, the U.S. housing market, which directly affects Weyerhaeuser’s businesses, remained weak in June as the U.S. housing starts fell 9.3% from the previous month. Drop in home constructions in the south U.S. are believed to be the prime reason behind the decline. Such untoward situations will adversely impact the sales, earnings and cash flow of the company.
Our proven model does not conclusively show that Weyerhaeuser is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Weyerhaeuser has an ESP of -8.8% for second-quarter 2014. This is because the Most Accurate Estimate is 31 cents per share while the Zacks Consensus Estimate is pegged higher at 34 cents.
Zacks Rank: Weyerhaeuser’s Zacks Rank #3 (Hold), when combined with a -8.8% 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.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
United Rentals, Inc. (URI), with Earnings ESP of +2.4% and a Zacks Rank #2.
Simpson Manufacturing Co., Inc. (SSD), with Earnings ESP of +2.2% and a Zacks Rank #3.