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Will Reynolds Beat Earnings in 1Q?

Japamala jmukhopadhyay

Reynolds American Inc. (RAI) is set to report its 2013-first quarter results on April 23. In the last reported quarter, the company posted a 2.6% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Reynolds benefited from improved pricing and volume gains for moist snuff products that offset declines in cigarette volumes and marketing expenses.  

Revenues slipped marginally from the year-ago quarter mainly due to declining cigarette shipment volumes. Governmental actions and anti smoking campaigns have led to the decline in shipment volumes. Moreover, higher excise taxes and increasing popularity of other tobacco products led to the decline. However, the American Snuff and Santa Fe segment reported positive results on the back of innovations and positive pricing during the quarter.

Earnings Whispers?

Our proven model does not conclusively show that Reynolds American is likely to beat earnings this quarter. That is because a stock needs to have both a positive Zacks Earnings Expected Surprise Prediction (ESP) and a Zacks Rank of #1, 2 or 3 for this to happen (Read: Zacks Earnings ESP: A Better Method). That is not the case here as you will see below.

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate stands at 69 cents. That is a difference of 0.00%.

Zacks Rank #3 (Hold): Reynolds’Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a non positive ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Flower Foods.(FLO), Earnings ESP of +4.88% and a Zacks Rank #1 (Strong Buy)

Kraft Foods Group, Inc. (KRFT), Earnings ESP of +3.13% and a Zacks Rank #2 (Buy)

Amazon.com Inc. (AMZN), Earnings ESP of +100.00% and a Zacks Rank #3 (Hold)

Read the Full Research Report on RAI

Read the Full Research Report on AMZN

Read the Full Research Report on FLO

Read the Full Research Report on KRFT

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