Estee Lauder Companies Inc. (EL) is set to report second-quarter fiscal 2015 results on Feb 5, before the opening bell. Last quarter, it posted a 60.0% positive earnings surprise. Let’s see how things are shaping up for this announcement.
Factors to Consider
Estee Lauder has been posting better-than-expected results over the past several quarters backed by organic sales growth, product innovation and cost savings measures. Although these positive trends are expected to continue, currency headwind may impact volume of the U.K.-based cosmetics giant during the fourth quarter. The rising dollar against other currencies like rupee, yen and euro has resulted in declining export volume for the cosmetics company over the past few quarters as international business accounts for more than 80% of its revenues.
Meanwhile, the macroeconomic pressures and weak consumer spending environment in the U.S. have been hurting sales of Estee Lauder’s prestige beauty brands. This, coupled with macroeconomic issues in key emerging markets like Hong Kong and Russia, is likely to be reflected in the company’s second-quarter sales results.
Moreover, the travel retail business is expected to be under pressure due to reduced inter state travel following the Ebola scare around the world.
Earnings Whispers
Our proven model does not conclusively show that Estee Lauder is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:
Zacks ESP: ESP for Estee Lauder is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.05 per share.
Zacks Rank: Estee Lauder’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Bebe Stores Inc. (BEBE), with an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).
Reynolds American Inc. (RAI), with an Earnings ESP of +1.15% and a Zacks Rank #2 (Buy).
Dr Pepper Snapple Inc. (DPS), with an Earnings ESP of +5.75% and a Zacks Rank #3.
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