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Key Predictions for Q3 Earnings Reports of VFC, WHR, HAS

Zacks Equity Research

Delving deep into third-quarter earnings season, we note that the ongoing scenario displays a decent picture with improved revenue growth trend. Per the Earnings Outlook dated Oct 18, nearly 52 of the S&P 500 members have already posted their financial numbers. Out of these companies, approximately 76.9% delivered positive earnings surprises while 73.1% surpassed the top-line expectations.

Notably, earnings for the 52 S&P 500 companies have improved 13.3% from the same period last year, with revenues increasing by 6.9%. Total third-quarter earnings for the S&P 500 members are anticipated to increase 3% year over year, on 4.9% growth in revenues.

A Look at Consumer Discretionary Sector

The performance of the index depends upon all 16 Zacks sectors, out of which eight sectors are expected to witness an earnings decline in the third quarter including the Consumer Discretionary space. Currently, the sector is placed at the bottom 38% (10 out of 16) of the Zacks classified sectors. Nevertheless, the sector has gained 10.7% year to date, which is lesser than the S&P 500’s growth of 14.3%.  

According to the report, about 8.1% of the S&P 500 companies in the same sector have reported their results, wherein 66.7% companies delivered an earnings beat while all surpassed revenue estimates. Further, earnings for these companies increased 0.8% on a year-over-year basis while revenues improved 6.8%.

Markedly, the Consumer Discretionary sector consists of household appliances, textile, apparel as well as toys, games and hobbies stocks, among others. So, let’s see what awaits these stocks that are slated to report third-quarter 2017 earnings releases on Oct 23.

Notably, our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Let’s See How VFC, WHR and HAS Are Placed

VF Corporation VFC seems to be gaining from its focus on 2021 strategy that provides visibility into its efforts to grow business and boost shareholder value. Additionally, the company’s international and direct-to-customer platforms, the Outdoor & Action Sports coalition and the company’s workwear business, which forms a part of the Imagewear coalition, look encouraging. However, adverse currency translations continue to be a hurdle and are expected to hurt margins and sales in 2017. (Read: Will V.F. Corp Strategies Facilitate Q3 Earnings Beat?)

V.F. Corporation Price, Consensus and EPS Surprise

V.F. Corporation Price, Consensus and EPS Surprise | V.F. Corporation Quote

Notably, the company’s earnings have outpaced the Zacks Consensus Estimate by an average of 0.7% in the trailing four quarters. While V.F. Corp has an Earnings ESP of -0.07%, it flaunts a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. Further, the Zacks Consensus Estimate of $1.12 per share for the third quarter has been stable in the last 30 days.

The Zacks Consensus Estimate for the company’s revenues is pegged at $3,413 million for the to-be-reported quarter, down more than 1% from third-quarter 2016. Also, the same for the Outdoor & Action Sports, Imagewear, Jeanswear and Sportswear segments are projected to be $2,379 million, $145 million, $689 million and $128 million, respectively. These estimates show a year-over-year decline of 48.5%, 1.8% and 9% for the Imagewear, Jeanswear and Sportswear segments, respectively. However, the same for the Outdoor & Action Sports segment implies an increase of 1.8% from the prior-year quarter.

Let’s take a sneak peek at Whirlpool Corporation WHR, the leading manufacturer of home appliances in the world that is unlikely to beat earnings estimates this quarter. We believe that volatility in commodity prices, particularly steel, might have adversely affected the company’s operating performance. This is quite evident from Whirlpool’s second-quarter results, which were hurt by raw material cost inflation. However, the company has been riding on its innovation strategy that helps it to tap additional sales and gain market share. (Read more: Will Near-Term Challenges Mar Whirlpool's Q3 Earnings?)

Whirlpool Corporation Price, Consensus and EPS Surprise

Whirlpool Corporation Price, Consensus and EPS Surprise | Whirlpool Corporation Quote

A look at Whirlpool’s surprise history reveals that its earnings have lagged the Zacks Consensus Estimate for four straight quarters now. In fact, the company has an Earnings ESP of -0.90%. The Zacks Consensus Estimate for the impending quarter has also moved down by 9 cents to $3.90 in the last seven days. However, the company’s Zacks Rank #3, increases the predictive power of ESP.

The Zacks Consensus Estimate for the company’s revenues is pegged at $5,487 million for the to-be-reported quarter, up 4.6% from third-quarter 2016. Notably, the same for North America, Latin America, EMEA and Asia regions are pegged at $3.1 billion, $0.8 billion, $1.3 billion and $0.3 billion, respectively. In the third quarter of 2016, revenues for North America, Latin America, EMEA and Asia regions were $2.9 billion, $0.8 billion, $1.3 billion and $0.3 billion, respectively.

Lastly, Hasbro, Inc. HAS is a company that together with its subsidiaries operates as a play and entertainment company. The company’s earnings have outpaced the Zacks Consensus Estimate for 10 straight quarters now. Also, its consistent efforts to establish global presence via strategic partnerships and rapid growth in emerging markets remain encouraging.

Hasbro, Inc. Price, Consensus and EPS Surprise

Hasbro, Inc. Price, Consensus and EPS Surprise | Hasbro, Inc. Quote

However, Hasbro has an Earnings ESP of -4.06%. This is because the Most Accurate estimate of $1.89 is pegged lower than the Zacks Consensus Estimate of $1.97. Also, the company’s Zacks Rank #4 (Sell) lowers the chances of an earnings beat.  

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

We note that the Zacks Consensus Estimate for the quarter under review has moved down by a penny to $1.97 in the last seven days. This estimate is also down from $2.03 reported in the third quarter of 2016. Further, the same for revenues is pegged at $1,774 million, indicating a year-over-year increase of 5.6%.

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