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Can Lennox (LII) Continue the Earnings Streak?

HON ETN LII GRC

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Building products company, Lennox International, Inc. (LII - Snapshot Report) is set to report fourth-quarter 2013 results on Feb 5, before the opening bell. Last quarter, it posted a 3.17% positive surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider

In the third quarter of 2013, Lennox reported impressive results, with a year-over-year increase in earnings per share as well as revenues. On a constant currency basis, revenues in the quarter grew 8% year over year to $868.0 million, as a result of better volumes and price/mix. Moreover, the company recorded gross margin of 27.4%, up 210 basis points year over year.

Exiting the third quarter, management maintained the revenue guidance while increasing the lower end of expected earnings per share for full-year 2013. Sales in the year 2013 are expected to grow 6% to 8%. Also, adjusted earnings per share for the year are currently expected in the range of $3.50–$3.75 against $3.45–$3.75 expected earlier.

Earnings Whispers?

Our proven model does not conclusively show that Lennox is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESPand a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 73 cents. Hence, the difference is 0.00%.

Zacks Rank: Lennox’s Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Others Stocks to Consider

Here are some other building products companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Eaton Corporation plc (ETN - Analyst Report), Earnings ESP of +1.89% and a Zacks Rank #2

Gorman-Rupp Co. (GRC - Snapshot Report), Earnings ESP of +4.00% and a Zacks Rank #2

Honeywell International Inc. (HON - Analyst Report), Earnings ESP of +0.79% and a Zacks Rank #3 (Hold).

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