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Will Fortune Brands (FBHS) Disappoint This Earnings Season?

Zacks Equity Research

Fortune Brands Home & Security, Inc. FBHS is scheduled to report first-quarter 2019 results on Apr 24, after market close.

The company missed estimates all through the trailing four quarters, the average negative earnings surprise being 6.98%. In the last reported quarter, it posted earnings of 86 cents, which missed the Zacks Consensus Estimate of 94 cents by 8.51%.

Over the past six months, the stock has gained 5.1%, almost on par with 5% increase recorded by the industry it belongs to.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Rising cost of sales and operating expenses are major concerns for the company. Material price inflation (on account of tariffs) and rising freight and logistics charges have been escalating Fortune Brands' aggregate costs, of late. We believe that unwarranted rise in costs and expenses might be detrimental to its first-quarter performance.

Also, integration costs associated with the Fiberon acquisition are likely to weigh over its profitability in the quarter.  In addition, the company is experiencing increase in its interest expenses, which might prove detrimental to its profitability.

Moreover, the U.S. housing starts in the first quarter were not impressive. For instance, housing starts recorded a decline of 8.7% in February and 0.3% in March. As Fortune Brands’ results are highly dependent on the U.S. housing market, weaker housing starts might have affected the company’s business.

Amid this backdrop, the Zacks Consensus Estimate for revenues from the company's Cabinets segment is pegged at $562 million. The company generated $625 million in the fourth quarter 2018. On the other hand, the consensus estimate for revenues from Plumbing segment is currently stands at $461 million, reflecting 5.5% decline on a sequential basis.

However, healthy product portfolio and anti-inflationary actionsare likely to positively impact the company’s financials, going forward. Strengthening business of Global Plumbing Group, favorable pricing and cost actions are also likely to have benefited it.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Fortune Brands 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: Fortune Brands has an Earnings ESP of -0.64%.

Fortune Brands Home & Security, Inc. Price and EPS Surprise

Fortune Brands Home & Security, Inc. Price and EPS Surprise | Fortune Brands Home & Security, Inc. Quote

Zacks Rank: Fortune Brands 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:

Axon Enterprise, Inc AAXN has an Earnings ESP of +6.99% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regal Beloit Corporation RBC has an Earnings ESP of +2.13% and a Zacks Rank #3.

Colfax Corporation CFX has an Earnings ESP of +0.91% and a Zacks Rank #3.

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