Fortune Brands Home & Security Inc. FBHS is slated to report fourth-quarter 2015 results on Feb 3, after the closing bell. In the last quarter, the company delivered a negative earnings surprise of 6.2%. Let’s see how things are shaping up for this announcement.
Factors Influencing This Quarter
With constant focus on product portfolio and future growth opportunities, Fortune Brands has been making investments in designing, planning and implementing additional capacity. While these efforts are expected to facilitate substantial growth, they are likely to take time owing to the soft consumer discretionary spending environment. Also, in the trailing four quarters, the company delivered an average negative earnings surprise of 7.9%, which makes us cautious of its performance in the quarter to be reported.
Nonetheless, Fortune Brands’ healthy financial status, coupled with the Norcraft acquisition, positions the company well to drive growth and boost shareholder value. Consequently, management updated its guidance for 2015.
The company now envisions sales to grow in a range of 14–15% for the year, compared with the earlier projection of 13–15%. Adjusted earnings for 2015 are now anticipated in the band of $2.05–$2.07 per share, compared with $2.03–$2.10 per share expected previously.
Earnings Whispers
Our proven model does not conclusively show that Fortune Brands 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: Fortune Brands has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 54 cents.
Zacks Rank: Fortune Brands carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.
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 (Buy).
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.
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