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Will Fortune Brands (FBHS) Disappoint This Earnings Season?

Fortune Brands Home & Security, Inc. FBHS is scheduled to report first-quarter 2020 results on Apr 30, after market close.

In the trailing four quarters, the company delivered a positive earnings surprise of 1.95%, on average, beating estimates twice. In the fourth quarter of 2019, it posted earnings of $1.00 per share, which beat the Zacks Consensus Estimate of 97 cents by 3.09%.

In the past three months, the stock has lost 30.4% compared with the industry’s decline of 28.6%.


Factors at Play

Weakness in the construction market in Canada and Mexico is expected to have adversely impacted sales, particularly of cabinetry products in the region. Given the company’s Plumbing and Cabinet segments’ significant operational presence in Canada, the headwind is likely to have affected sales of both. In addition, the U.S. housing starts in the first quarter were not impressive. The metric recorded a decline of 3.6%, 1.5% and 22.3% in January, February and March, respectively. As Fortune Brands is highly dependent on the U.S. housing market, weaker housing starts might have affected the company’s business.

Also, the impacts of the coronavirus outbreak on the demand for the company’s products along with the governmental regulations imposed in response to the crisis might get reflected in the company’s first-quarter results.

Moreover, escalating costs of sales and operating expenses have been concerning for Fortune Brands. In the third and fourth quarters of 2019, the company’s cost of sales jumped 5% and 2%, respectively, on account of commodity inflation, tariffs and logistics. Also, in the third and fourth quarters, its selling, general and administrative expenses increased 2% and 1%, respectively. These issues might have adversely impacted Fortune Brands’ margin and profitability in the to-be-reported quarter as well.

However, the company’s focus on optimizing cost structure through supply chain, manufacturing footprint optimization and other initiatives are likely to have boosted margins and its financial performance in the quarter.

Amid the backdrop, the Zacks Consensus Estimate for the Plumbing segment's revenues is pegged at $488 million, suggesting a decline of 10.9% on a sequential basis. The consensus mark for the Doors & Security segment’s revenues stands at $311 million, implying a 6% decrease. The consensus estimate for the Cabinets segment’s revenues stands at $587 million, suggesting a 0.7% fall from the last quarter’s reported figure.

Earnings Whispers

According to our quantitative model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: Fortune Brands has an Earnings ESP of -6.85% as the Most Accurate Estimate is pegged at 68 cents, lower than the Zacks Consensus Estimate of 73 cents.

Zacks Rank: The company carries a Zacks Rank #4 (Sell).

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right mix of elements to beat estimates this time around:

Intellicheck, Inc. IDN has an Earnings ESP of +66.67% and a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc. AAXN currently has an Earnings ESP of +2.13% and a Zacks Rank #3.

Ball Corporation BLL presently has an Earnings ESP of +1.56% and a Zacks Rank of 3.

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