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Will Hillenbrand (HI) Spring a Surprise in Q2 Earnings?

Zacks Equity Research

Hillenbrand Inc. HI, a leader in the North American death care industry, is set to report second-quarter fiscal 2017 results on May 2. The question lingering in investors’ minds is, whether this global diversified industrial company will be able to post a positive earnings surprise in the to-be-reported quarter. The company’s earnings exceeded the Zacks Consensus Estimate in three of the trailing four quarters, but posted an average miss of 0.84%.

Let us see how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Hillenbrand is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Hillenbrand has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 44 cents. Although the company’s Zacks Rank #3 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for the second quarter and fiscal 2017 has been stable over the last 30 days. In fact, the current Zacks Consensus Estimate of 44 cents and $2.02 for the second quarter and fiscal 2017 reflect a year-over-year decline of 10.2% and growth of 0.3%, respectively.

Further, analysts polled by Zacks expect revenues of $382 million for the said quarter, down 1.3% from the year-ago period. For fiscal 2017, Zacks consensus revenue is pegged at $1.56 billion, reflecting a 1.4% year-over-year increase.

Hillenbrand Inc Price, Consensus and EPS Surprise


Hillenbrand Inc Price, Consensus and EPS Surprise | Hillenbrand Inc Quote

Factors to Consider

Hillenbrand’s focus on acquisitions, its global presence and margin expansion through operational improvement have been driving earnings since the past few quarters. Hillenbrand’s acquisition of Red Valve Company, a global leader in highly engineered valves, in Feb 2016 complements the Nov 2015 buyout of ABEL.

These takeovers expanded Hillenbrand’s presence in the flow control market and boosted margins. The company expects to continue to remain focused on acquisitions as it will drive profits in core markets.

Over the past one year, shares of Hillenbrand rallied 21.7% in comparison to the Zacks categorized Funeral Services industry, which showcased growth of 16.8%. Notably, the industry is part of the bottom 27% of the Zacks Classified industries (194 out of the 265). On the contrary, the broader Consumer Staples sector is placed at the top 50% of the Zacks Classified sectors (8 out of 16).

However, the year 2016 was also very difficult for Hillenbrand, as the company is facing significant headwinds in key end markets across both segments of its business – Process Equipment Group and Batesville. In the preceding quarter too, the company witnessed a decline in margins due to a shift in the mix of business to large plastics projects and lower demand for industrial equipment in other end markets in the Process Equipment Group and lower burial sales at Batesville.

Unfavorable currency also posed concerns. In terms of the key-end markets, the company expects some of these challenges to persist in 2017. The current political environment has created additional uncertainty globally.

While the company continues to enjoy the benefit from acquisitions and savings related to the restructuring actions taken in 2016 as well as the current year productivity initiatives, significant growth is however unlikely in the near term. Looking forward, the company expects most of the process equipment businesses to face flat to slightly lower demand over 2017, with some segments experiencing modest decline and others experiencing modest growth.

Stocks to Consider

Stocks in the consumer staple sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Pinnacle Foods Inc. PF has an Earnings ESP of +2.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Energizer Holdings, Inc. ENR has an Earnings ESP of +5.88% and a Zacks Rank #2.

Treehouse Foods, Inc. THS has an Earnings ESP of +4.62% and a Zacks Rank #3.

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