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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 third-quarter 2019 results on Oct 23, after market close.

In the trailing four quarters, the company reported average negative earnings surprise of 3.29%. In the second quarter, it posted earnings of $1.03, which came in line with the Zacks Consensus Estimate.

In the past three months, the stock has gained 12.4% compared with the industry’s rally of 1.3%.

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

Factors to Consider

Weakness in the construction market in Canada might have adversely impacted sales particularly of cabinetry products in the region. Given the company’s Plumbing and Cabinet segments’ significant operational presence in Canada, this headwind is likely to have affected sales of both. In addition, the U.S. housing starts in the third quarter were not impressive. For instance, housing starts recorded a decline of 9.4% and 4% in September and July, respectively. As Fortune Brands is highly dependent on the U.S. housing market, weaker housing starts might have affected the company’s business.

Also, escalating costs of sales and operating expenses pose a concern for Fortune Brands. In both the first and second quarter of 2019, the company’s cost of sales jumped 7% year over year on account of material price inflation and rising freight charges. These issues might have adversely impacted its margin and profitability in the to-be reported quarter as well.

Moreover, the company’s investments for developing new products, capacity expansion in Mexico and supply chain transition, particularly in China might have dragged down its third-quarter margins. Integration costs associated with acquisitions are likely to have dampened Fortune Brands’ profitability in the quarter.

However, the company’s acquisition of Fiberon (in September, 2018), which complemented its existing door brand — Therma-Tru — and enhanced growth opportunities in the outdoor living space, is likely to have boosted third-quarter revenues. Amid this backdrop, the Zacks Consensus Estimate for revenues from the company's Cabinets, Plumbing and Doors & Security segments are pegged at $612 million, $493 million, $392 million, respectively. These projections imply an increase of 2.2%, 6.7% and 22.5% for Cabinets, Plumbing and Doors & Security segments, respectively, from the year-ago reported figures.

Earnings Whispers

According to our quantitative model a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: Fortune Brands has an Earnings ESP of -0.69% as the Most Accurate Estimate is pegged at 96 cents, lower than the Zacks Consensus Estimate of 97 cents.

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).

Key Picks

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

Cintas Corporation CTAS has an Earnings ESP of +0.16% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

MRC Global Inc. MRC has an Earnings ESP of +9.96% and a Zacks Rank of 3.

Sealed Air Corporation SEE has an Earnings ESP of +2.40% and a Zacks Rank #3.

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