It has been about a month since the last earnings report for V.F. Corporation VFC. Shares have added about 4.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
V.F. Corp Q3 Earnings & Sales Beat, Up Y/Y, Outlook Raised
V.F. Corp.’s third-quarter 2017 adjusted earnings from continuing operations came in at $1.23 a share, which jumped 6% year over year, alongside beating the Zacks Consensus Estimate of $1.12. On a currency neutral basis, earnings surged 10% year over year.
V.F. Corp. generated total revenues, including royalty income, of $3,508.8 million that increased about 5% year over year and surpassed the Zacks Consensus Estimate of $3,413 million. Net sales of $3,481.2 million also advanced 6% from the prior-year quarter. On a currency neutral basis, revenues jumped 4%. Revenues in the quarter continued to gain from strength in international and direct-to-customer platforms, the Outdoor & Action Sports coalition and the company’s workwear business.
The company’s reported gross margin increased 100 basis points (bps) to 50.1%, thanks to better pricing and favorable mix shift toward high margin businesses, which was partly negated by foreign currency headwinds and higher product costs. Notably, foreign currency hurt gross margin by 80 bps.
Adjusted operating income slipped 2% to $593 million, while the adjusted operating margin contracted 140 bps to 16.9%. Currency headwinds affected operating margin by 80 bps.
Revenues at Outdoor & Action Sports grew 8% to $2,502.6 million (up 6% on a currency neutral basis).
Jeanswear revenues of $697.7 million dipped 1% year over year (down 1% on a currency neutral basis as well).
Imagewear revenues rose 9% (8% on a currency neutral basis) to roughly $138.9 million.
Revenues at Sportswear remained flat on both reported and currency neutral basis to $140.3 million.
Other revenues dropped 6% to $29.4 million, on both reported and currency neutral basis.
V.F. Corp. ended the quarter with cash and equivalents of $1,546.1 million, long-term debt of $2,144.2 million and shareholders’ equity of $3,937.4 million. In the first three quarters of 2017, the company generated $6.7 million cash from operating activities.
On Oct 19, 2017, the company raised its quarterly dividend by 10% to 46 cents per share, which is payable on Dec 18 to shareholders with record as on Dec 8.
Further, as of the quarter end, the company had shares worth $4.2 billion remaining under its standing authorization.
On Apr 28, V.F. Corp. divested its Licensed Sports Group (‘’LSG’’) business to Fanatics Inc., which included the sale of its Majestic brand. Also, management implemented its plan of discontinuing with its licensing unit, which led the company to bring assets of its JanSport brand under the “held for sale” category. In August 2016, the company completed the sale of its Contemporary Brands businesses, including the 7 For All Mankind, Splendid and Ella Moss brands.
All these businesses are classified as discontinued operations in the company’s financial statements.
Management remains impressed with the company’s quarterly performance, which encouraged it to raise its outlook. For 2017, management now anticipates revenues to grow 6% to nearly $12.1 billion. Currency neutral revenues are expected to rise 5.5%. The Williamson-Dickie buyout is estimated to contribute nearly $200 million to revenues. Earlier, management projected 2017 revenues to grow 3.5% (or 4.5% on a currency neutral basis) to $11.85 billion.
Direct-to-consumer revenues are now anticipated to rise 13%, as compared with 10-11% growth forecasted earlier. The company expects digital revenues to surge about 30% now, higher than the previously expected growth of 25%.
V.F. Corp. now anticipates gross margin to be around 50%, up from 49.5% expected earlier. Adjusted operating margin is now expected at about 13.4%, compared with 13.7% guided earlier. Both the gross and operating margin include 50 bps negative impacts from currency headwinds and 20 bps adverse impact from the Williamson-Dickie’s buyout.
Finally, the company now envisions earnings per share to be $3.01, reflecting a 1% rise (6% on a currency neutral basis) from the year-ago period figure of $2.98. Earlier management expected EPS to be roughly $2.96.
The company expects cash flow from operations of approximately $1.5 billion for 2017, as compared with the prior forecast of $1.45 billion. Effective tax rate is projected to be 20%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
Currently, the stock has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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