Emerson Electric Co. EMR is slated to report second-quarter fiscal 2016 results before the opening bell on May 3.
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Last quarter, the company posted a decent positive earnings surprise of 9.8%. Emerson has had a bumpy earnings history, having missed the earnings estimates twice in the trailing four quarters, resulting in a negative average earnings surprise of 1.9%.
Despite this, we expect the company to beat estimates in the to-be reported quarter.
Why a Likely Positive Surprise?
Our proven model shows that Emerson is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.18%. This is a very meaningful and leading indicator of a likely earnings surprise.
Zacks Rank: Emerson carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), #2 or #3 (Hold) have a significantly higher chance of beating earnings. Meanwhile, Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
The combination of Emerson’s Zacks Rank #2 and ESP of +3.18% makes us confident of an earnings beat in the upcoming report.
Growth Factors This Past Quarter
Emerson’s fiscal second-quarter 2016 results are expected to benefit from positive developments at the company’s Commercial & Residential Solutions segment. Favorable trends in the U.S. construction market are expected to manifest in Emerson’s profits in the to-be-reported quarter. In addition to this, the company’s cost cutting and restructuring initiatives also look promising. Previously, during the first quarter of 2016, effective restructuring initiatives helped the company reap benefits of about $80 million while margins increased 90 basis points to 8%.
Given the company has prioritized cost structure alignment and strategic portfolio repositioning as its fundamental strategies we believe such actions will supplement key financials during the quarter to be reported. This apart, the persistent product launch drive of Emerson Process Management, an operating arm of Emerson, is also expected to bolster top-line quarterly performance.
Some of the noteworthy products introduced during the quarter include wirelessly-monitored pressure vacuum relief valves (PVRVs) Enardo 850/950 series, a surface sensing temperature measurement solution – Rosemount X-well Technology – and the addition of HART 7 to the vortex flowmeter product line. Steady market traction of these products is expected to boost Emerson’s second-quarter sales.
Also, the company has managed to clinch a few noteworthy contracts in the quarter that are expected to drive growth. The contracts entail automation of the Maersk Oil Culzean gas field, selection by Mexican oil and gas company Pemex and ENGIE to upgrade the gas pipeline infrastructure in the nation, deal with British Petroleum and Carbon Holdings’ Tahrir Petrochemicals Project to provide process automation technologies and services in Northwest Indiana and Egypt, respectively.
Furthermore, Emerson’s alliance with GE Healthcare Life Sciences, a business unit of General Electric Company, is expected to help the company benefit from the thriving pharmaceutical markets. Also, during the second quarter of 2016, Emerson teamed up with Industrial Automation solutions company Xyntek, Inc. to integrate “biometrics” with “operations management software.” Extensive use of this technology in a gamut of industries including government, military & defense, healthcare, consumer electronics and security is expected to propel growth.
Stocks to Consider
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
SPX FLOW, Inc. FLOW has an Earnings ESP of +50.0% and a Zacks Rank #2. The company is expected to report first-quarter 2016 results on May 4, before the market opens.
Spectra Energy Partners, LP SEP has an Earnings ESP of +2.27% and a Zacks Rank #2. The company is slated to release first-quarter 2016 results on May 4, before the market opens.
Taubman Centers, Inc. TCO has an Earnings ESP of +3.53% and a Zacks Rank #3. The company is scheduled to release first-quarter 2016 results on May 2.
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