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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 second-quarter 2019 results on Aug 1, after market close.

The company missed estimates thrice and beat once in the trailing four quarters, the average negative earnings surprise being 4.02%. In the last reported quarter, it posted earnings of 63 cents, which beat the Zacks Consensus Estimate of 59 cents by 6.78%.

In the past month, the stock has lost 4.5%, wider than the industry’s decline of 1.6%.

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

Factors to Consider

Escalating cost of sales and operating expenses have been a major concern for Fortune Brands. Notably, material price inflation and rising freight charges are increasing the company’s aggregate costs. In addition, it is experiencing increase in interest expenses. We believe that unwarranted rise in costs and expenses might prove detrimental to its second-quarter performance.

Also, the U.S. housing starts in the second quarter were not impressive. For instance, housing starts recorded a decline of 0.9% in both May and June. As Fortune Brands’ results are highly dependent on the U.S. housing market, weaker housing starts might have affected the company’s business.

Moreover, the company’s investments in organic growth for developing new products, capacity expansion across Doors & Security segment and Fiberon platform might drag down second-quarter margins of the company. Integration costs associated with the Fiberon acquisition might also dampen Fortune Brands’ profitability in the quarter.

However, strong demand across most of its product lines, particularly the value cabinets category products, is likely to boost the company’s revenues in the upcoming quarter.

Notably, the Zacks Consensus Estimate for revenues from the company's Cabinets segment is pegged at $654 million. The segment generated $638 million in the year-ago quarter. The consensus estimate for revenues from Plumbing segment currently stands at $502 million, implying a 3.7% increase from the year-ago reported figure.

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 -0.28%.

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

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

Fortune Brands Home & Security, Inc. price-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.

Stocks to Consider

Here are some companies from the Zacks Industrial Products sector you may want to consider as our model shows that these have the right mix of elements to beat estimates this earnings season:

Axon Enterprise, Inc. AAXN has an Earnings ESP of +10.21% and a Zacks Rank of 1.You can see the complete list of today’s Zacks #1 Rank stocks here.

AptarGroup, Inc. ATR has an Earnings ESP of +0.56% and a Zacks Rank of 2.

MRC Global Inc. MRC has an Earnings ESP of +2.55% and a Zacks Rank #3.

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