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Emerson (EMR) to Report Q2 Earnings: Will it Disappoint?

Zacks Equity Research

Emerson Electric Co. EMR is set to release second-quarter fiscal 2019 (ended March 2019) results on May 7, before market open.

The company pulled off average positive earnings surprise of 4.56% in the last four quarters, beating estimates thrice. Notably, in the last reported quarter, Emerson’s earnings of 74 cents per share surpassed the Zacks Consensus Estimate by 12.1%.

In the past three months, the company’s shares have rallied 3.7% compared with the industry’s rise of 4.1%.

Factors to Influence Q2 Results

Rising cost of sales and operating expenses are major concerns for Emerson. Material cost inflation and tariffs-related headwinds have been escalating the company’s aggregate costs of late. As a matter of fact, we believe that unwarranted rise in costs and expenses might be detrimental to Emerson’s fiscal second-quarter performance. Unfavorable mix might also hurt margins of the company's Commercial & Residential Solutions segment.

Moreover, its policy of acquiring a large number of companies adds to the integration risks, which might be dilutive to its margins in the fiscal second quarter. In fact, integration costs associated with A.E. Valves acquisition (closed in December) and GE Intelligent Platforms acquisition (closed in January) are likely to weigh over its profitability in the to-be-reported quarter. In addition, the company is experiencing increase in its interest expenses, which might prove detrimental to its profitability.

Furthermore, Emerson’s operations are spread across the world, majority of which are outside the United States. Therefore, it is more prone to global economic and political risks. In addition, unfavorable movement in foreign currencies is likely to hurt its earnings in the to-be reported quarter as well.

Amid this backdrop, the Zacks Consensus Estimate for revenues from the Automation Solutions segment is currently pegged at $3,056 million, higher than $2,117 million reported in the year-ago quarter. Revenues from Commercial & Residential Solutions segment are expected to be $1,611 million compared with $1,483 million reported a year ago.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Emerson in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Emerson has an Earnings ESP of -1.79%, as the Most Accurate Estimate of 83 cents is pegged lower than the Zacks Consensus Estimate of 84 cents.

Emerson Electric Co. Price and EPS Surprise

Emerson Electric Co. Price and EPS Surprise | Emerson Electric Co. Quote

Zacks Rank: Emerson carries a Zacks Rank #4 (Sell).

As it is, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies from the same space you may want to consider as our model shows that these have the right combination of elements to beat estimates this earnings season:

DXP Enterprises, Inc. DXPE has an Earnings ESP of +2.50% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc AAXN has an Earnings ESP of +6.99% and a Zacks Rank #3.

Colfax Corporation CFX has an Earnings ESP of +2.27% and a Zacks Rank #3.

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Emerson Electric Co. (EMR) : Free Stock Analysis Report
 
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