Snap-on Incorporated SNA is scheduled to report fourth-quarter and full-year 2015 results, before the opening bell, on Feb 4.
Snap-on has not missed earnings expectations in five years – which is an extraordinary feat. Last quarter, it registered a positive earnings surprise of 2.6%, with an average earnings surprise of 3.9% over the last four quarters.
Let's see how things are shaping up for this announcement.
Factors to Consider
Snap-on’s Repair Systems & Information segment has been gaining traction on the back of factors like rising penetration in emerging markets, continued software and hardware upgrades, and productivity enhancements. Under this segment, undercar equipment is an important, high-visibility and high-value product line for the company. It has been a major revenue driver in the past quarters, and will likely be the same in the to-be-reported quarter.
Additionally, Snap-on’s $13-million buyout of Italy-based Ecotechnics S.p.A. in last year will further boost the segment’s performance. Ecotechnics’ maintenance equipment for automatic vehicle air conditioning enjoys high demand from OEM dealerships and automotive aftermarket.
Moreover, increasing sophistication in automotive and industrial manufacturing is boosting the demand for Snap-on’s tools which diagnose maintenance and faults. This should contribute to the company’s top line in the quarter under review.
The company has been really successful at expanding margins and improving profitability through various strategies, and we expect its upcoming earnings to reflect that.
However, strengthening of the U.S. dollar and macroeconomic turbulences continue to bother the company’s financials. Around one-third of the company’s revenues are derived from its European businesses, which continue to be impacted by weakness in Eastern Europe, Greece and Russia, thereby providing limited visibility regarding the company’s future performance. Also, the military has been a key customer of the company, and the current sequestration has hampered Snap-on’s military sales.
Earnings Whispers
Our proven model does not conclusively show that Snap-on will beat earnings estimates in this 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. This is not the case here as you will see below.
Zacks ESP: Earnings ESP for the stock currently stands at 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate are pegged at 56 cents.
Zacks Rank: Although Snap-on has a Zacks Rank #3, its 0.00% ESP makes surprise prediction difficult.
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.
Stocks That Warrant a Look
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:
The Madison Square Garden Company MSG has an Earnings ESP of +6.86% and a Zacks Rank #2. The company will report quarterly results on Feb 5.
Paramount Group, Inc. PGRE has an Earnings ESP of +16.67% and a Zacks Rank #1. The company will report on Feb 4.
Resolute Forest Products Inc. RFP has an Earnings ESP of +23.08% and a Zacks Rank #2. The company is expected to release results on Feb 4.
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