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Will V.F. Corp (VFC) Strategies Facilitate Q3 Earnings Beat?

Zacks Equity Research

We expect the designer, manufacturer and marketer of branded apparel and related products, V. F. Corporation VFC to beat expectations when it reports third-quarter 2017 results on Oct 23. In the last quarter, the company delivered a positive earnings surprise of 3.6%.

In fact, the company has recorded an average positive surprise of 0.7% in the last four quarters, missing estimates only in one quarter.

What to Expect?

The question lingering in investors’ minds now is whether V.F. Corp. will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is $1.12 per share, reflecting a year-over-year decline of 1.8%. We note that the Zacks Consensus Estimate has been stable ahead of the earnings release. Analysts polled by Zacks anticipate revenues of $3.41 billion, down 1.4% from the year-ago quarter.

V.F. Corporation Price, Consensus and EPS Surprise

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

However, we note that the stock has outperformed the industry in the last three months. The company’s shares have increased 13.7%, while the industry grew 2.1%.

Factors at Play

V.F. Corp's second-quarter 2017 results marked a comeback as earnings topped estimates after delivering two straight quarters of in-line results. Also, sales broke its four-quarter long negative surprise trend, backed by strength in 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.

Notably, the company’s Outdoor & Action Sports coalition has delivered positive revenue surprise in the last two quarters. Further, its Imagewear coalition has delivered better-than-expected profits in five of the last six quarters.

Management expects to sustain its solid momentum in 2017, which encouraged it to raise outlook.

The momentum in V.F. Corp.’s shares can largely be attributable to its focus on 2021 strategy that provides visibility into its efforts to grow business and boost shareholder value. The company recently raised 2021 revenue and earnings per share targets to include the impact of the Williamson-Dickie acquisition, which is expected to contribute more than $1 billion to revenue and in excess of 25 cents per share to earnings through 2021.

The company now anticipates five-year compounded annual revenue growth rate (CAGR) of 5-7% to more than $15 billion, through 2021. This compares with the previous forecast of 4-6% at a five-year CAGR. Further, it now estimates earnings per share growth of 11-13% at a five-year CAGR, to more than $5 per share. The company had previously predicted earnings per share growth of 10-12% at a five-year CAGR. Moreover, the company had previously anticipated generating cumulative operating cash flows in excess of $9 billion in the five-year period between 2017 and 2021 along with returning about $8 billion to shareholders in the form of dividends and share repurchases.

However, adverse currency translations continue to be a hurdle and are expected to hurt margins and sales in 2017. Nonetheless, we expect V.F. Corp.’s growth strategies to help it sail through these headwinds this earnings season.

What the Zacks Model Unveils?

Our proven model shows that V. F. Corp. is likely to beat earnings estimates this quarter. 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. Earnings ESP of +0.07% and the company’s Zacks Rank #2 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Procter & Gamble Company PG currently has an Earnings ESP of +0.77% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Colgate-Palmolive Co. CL currently has an Earnings ESP of +0.41% and a Zacks Rank #2.

Ralph Lauren Corp. RL has an Earnings ESP of +2.63% and a Zacks Rank #2.

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