Emerson Electric Co. EMR is slated to report third-quarter fiscal 2015 results on Aug 4, before the opening gong.
Last quarter, the company posted a negative surprise of 14.5%. Let's see how things are shaping up for this announcement.
Factors to Consider
The highlight of the to-be-reported third-quarter fiscal 2015 was Emerson’s announced restructuring Initiative. The company, in particular, disclosed the tax-free spin-off of its Network Power business, following the completion of which it will operate as a standalone publicly traded company.
With the divestiture of this segment, the company will now particularly explore strategic opportunities for the growth of its Motors and Drives, Power Generation and rest of the Storage Businesses. Emerson intends to use the deal proceeds for enhancement of its shareholders’ wealth. All these transactions, collectively, are expected to be complete by Sep 30, 2016.
Moreover, the company’s Process Management business unit continued with its product innovation spree. Some of the notable launches include the CSI 3000 Machinery Health Monitor and Fisher Z500 ball valves. Apart from these, this chief operational arm of Emerson bought Energy Solutions International Holdings, Inc. to boost its oil and gas transmission operations business.
However, Emerson has been suffering from low revenues over the last few quarters due to currency fluctuations. In second quarter fiscal 2015, around 5% of Emerson’s underlying sales declined due to this. Strengthening of the U.S. dollar continues to be a major concern, which is projected to weigh on quarterly earnings in the coming quarters as well.
Moreover, Emerson has been suffering from sluggishness in the industrial market mainly in U.S. and China. Apart from this, several businesses of Emerson have being hit by macroeconomic uncertainties. Decreased global demand by telecommunication customers is impacting the company’s Telecommunications Power business. Also, the Climate Technologies business has been experiencing low order rates due to the U.S. residential air conditioning pre-built in the last few quarters. Additionally, Emerson’s Data Center business is posting a weak sales figure due to the slowdown in infrastructure investments. Emerson expects such headwinds to weigh on the underlying sales growth in the third quarter of fiscal 2015 too.
Earnings Whispers?
Our proven model does not conclusively show that Emerson will beat earnings this season. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) 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: The difference between the Most Accurate estimate and the Zacks Consensus Estimate is 0.00%.
Zacks Rank: Emerson's Zacks Rank #4 (Sell) when combined with 0.00% Earnings ESP makes an earnings beat unlikely. Note that stocks with a Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings.
Notably, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
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:
Ashford Hospitality Trust, Inc. AHT has an Earnings ESP of +4.35% and a Zacks Rank #1.
Myriad Genetics Inc. MYGN has an Earnings ESP of +2.44% and a Zacks Rank #3.
American Capital, Ltd. ACAS has an Earnings ESP of +17.39% and a Zacks Rank #2.
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