Will Clorox (CLX) Impress Investors with its Q2 Earnings?

The Clorox Company CLX is slated to report second-quarter fiscal 2016 results on Feb 4, before the opening bell. In the last quarter, the company had delivered a positive earnings surprise of 11.9%. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

Clorox has outperformed the Zacks Consensus Estimate by an average of 5.9% over the past four quarters, mainly benefiting from product innovations and improved pricing. Further, management remains impressed with its cost savings, brand investments and demand-creation strategies, which enabled the company to achieve sales growth. These factors, which also helped Clorox achieve better productivity and improved margins, bode well.

While the company remains confident of its core business strategies, adverse currency fluctuations, greater competition and sluggish global economies keep us somewhat cautious of the upcoming results.

Earnings Whispers

Our proven model does not conclusively show that Clorox is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Clorox has an Earnings ESP of -1.91%. This is because the Most Accurate estimate of $1.03 stands below the Zacks Consensus Estimate of $1.05.

Zacks Rank: Clorox’s Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

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

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements:

L Brands Inc. LB has an Earnings ESP of +0.50% and a Zacks Rank #2.

Lowe's Companies Inc. LOW has an Earnings ESP of +6.78% and a Zacks Rank #2.

The Home Depot Inc. HD has an Earnings ESP of +0.91% and a Zacks Rank #3 (Hold).

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