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What's in Store for Fortune Brands (FBHS) in Q4 Earnings?

Zacks Equity Research

Fortune Brands Home & Security, Inc. FBHS is scheduled to report fourth-quarter 2018 results on Jan 31, after market close.

The company has a dismal earnings surprise history. In the trailing four quarters, its earnings surpassed the Zacks Consensus Estimate once and missed thrice, the average negative earnings surprise being 4.54%. Notably, in the last reported quarter, the company posted earnings of 93 cents, which missed the Zacks Consensus Estimate of $1.05 by 11.43%.

Over the past six months, the company’s shares have lost 25.8%, wider than 11.5% decline recorded by the industry it belongs to.


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

Factors to Consider

Rising cost of sales and operating expenses are a major cause of concern for the company. In the first nine months of 2018, the Fortune Brands' cost of sales jumped 5.6% year over year. Material price inflation (on account of tariffs) and higher freight charges has been escalating Fortune Brands' aggregate costs, of late. The company expects tariffs to adversely impact its business by nearly $2-$3 million in the fourth quarter.

Fortune Brands expects higher costs, impact of bond financing and inefficiencies existing within Security operations to weigh over its near-term profitability. Notably, due to these issues, the company has lowered its earnings view for 2018 from $3.62-$3.72 per share to $3.41-$3.49.

Amid this backdrop, the Zacks Consensus Estimate for revenues from the company's Cabinets segment is pegged at $624 million. The company generated $626 million in revenues a year ago. On the other hand, the consensus estimate for revenues from Plumbing segment in the to-be-reported quarter is currently pegged at $505 million, reflecting 7.7% growth year over year.

However, Fortune Brands remains focused on strengthening its competency on the back of meaningful business acquisitions. In September 2018, the company successfully completed the acquisition of Fiberon, LLC. As a matter of fact, this $470 million buyout complements Fortune Brands' existing door brand — Therma-Tru — as well as enhances its growth opportunities in the outdoor living space.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Fortune Brands in the to-be-reported quarter. This is because 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. But that is not the case here as you will see below.

Earnings ESP: Fortune Brands has an Earnings ESP of -1.68% as the Most Accurate Estimate of 92 cents is pegged lower than the Zacks Consensus Estimate of 94 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Fortune Brands Home & Security, Inc. Price and EPS Surprise

Fortune Brands Home & Security, Inc. Price and EPS Surprise | Fortune Brands Home & Security, Inc. Quote

Zacks Rank: Fortune Brands carries a Zacks Rank #4 (Sell), which when combined with the company’s negative ESP makes surprise prediction difficult.

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

Key Picks

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

Ascent Capital Group, Inc. ASCMA has an Earnings ESP of +18.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies, Inc. AIT has an Earnings ESP of +0.56% and a Zacks Rank #3.

Emerson Electric Co. EMR has an Earnings ESP of +0.84% and a Zacks Rank #3.

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