Factors Likely to Impact Leggett (LEG) This Earnings Season

Leggett & Platt, Incorporated LEG is slated to release fourth-quarter 2017 results on Feb 5. The question lingering in investors’ minds is whether this furniture producer will be able to deliver a positive earnings surprise in the quarter to be reported. While Leggett reported in-line earnings in the last quarter, it has a mixed record of earnings surprise in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 61 cents, which represents a 15% growth from the year-ago period figure of 53 cents. However, the earnings estimate has been stable over the last 30 days. Further, analysts polled by Zacks expect revenues of $999.3 million, up 10.6% from the year-ago quarter.

Factors at Play

Leggett is poised on strategies to enhance business portfolio, disciplined capital allocation, and progress on goals for 2019. Further, the company’s long-term strategy focused on bolstering business portfolio by increasing investment in areas that provide a competitive edge and simultaneously exiting underperforming operations, bode well. The company remains on track to achieve its top-third TSR target by 2019 through revenue growth, margin enhancement and shareholder-friendly moves. Moreover, we believe the company’s strong liquidity position will continue to drive growth.

However, it remains exposed to major volatility in raw material prices, with steel being one of the company’s key raw materials and the market for the same being cyclical in nature. Notably, the company’s gains from higher sales continue to be offset by increased raw material expenses, which is hurting stock price. Additionally, the company’s strained margins and lowered guidance remains concerns.

The company anticipates sales for 2017 to grow by 5-7% to $3.95-$4 billion, reflecting the raising of the lower-end of the guidance range from the old sales guidance of 4-7% growth to $3.9-$4 billion. Adjusted EBIT margin is anticipated to be nearly 12%. Moreover, management narrowed reported EPS range to a band of $2.49-$2.54 from the previous range of $2.55-$2.65. Adjusted EPS is envisioned in the range of $2.45-$2.50, compared with the previous range of $2.40-$2.50.

Battered by these factors, Leggett’s shares grew only 0.9% in the last three months, underperforming the industry’s growth of 9.1%.

While the company’s strategies and initiatives bode well for the long run, we believe that Leggett’s bottom-line remains prone to steel price inflation which may hurt results in the fourth quarter.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Leggett is likely to beat earnings estimates 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Leggett has an Earnings ESP of 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 61 cents. While the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks with Favorable Combination

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

Michael Kors Holdings Limited KORS has an Earnings ESP of +1.92% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, LTD. GIII has an Earnings ESP of +14.29% and a Zacks Rank #2.

Ralph Lauren Corp. RL has an Earnings ESP of +0.98% and a Zacks Rank #3.

Don’t Even Think About Buying Bitcoin Until You Read This

The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.

Zacks has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.

See 4 crypto-related stocks now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research