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Skullcandy, Inc. (SKUL - Snapshot Report) is scheduled to report its second-quarter results on Jul 31 after the market closes. The Zacks Consensus Estimate for the quarter is pegged at one cent per share.

In the preceding quarter, the company reported better-than-expected results with a positive earnings surprise of 29.41%. Having recorded an average earnings surprise of 89.85% in the last four quarters, can Skullcandy keep the earnings streak alive in the second quarter as well? Let us see how things are shaping up prior to this announcement.

Factors to Influence Q2 Results

Innovation and diversified product offerings remain the keys to Skullcandy’s success. The company’s product portfolio includes audio and gaming headphones, earbuds, speakers and other accessories. In Apr 2014, the company launched headphones and earbuds especially designed for women. This product line is expected to capitalize on growing demand for trendy audio and gaming products.

Further, Skullcandy’s contractual relations with some electronic companies will aid its business expansion through product awareness and better marketing. The contract with Toshiba Corporation , signed in Jan 2014, requires Skullcandy to enhance the audio quality of the former’s products. Also, the company will gain the license to market consumer laptops worldwide (excluding China).

However, risks associated with negative foreign currency translations and stiff competition in all the businesses limit the company’s growth prospects in the near term. Also, rising costs represent a major headwind. In the last five years, cost of sales has soared 92%.

Earnings Whispers?

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

Zacks ESP: Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently 0.00%. This indicates in-line earnings for Skullcandy.

Zacks Rank: Skullcandy’s Zacks Rank #2 (Buy), when combined with a 0.00% ESP, makes surprise predictions 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.

Other Stocks to Consider

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

Newell Rubbermaid Inc. (NWL - Analyst Report), with Earnings ESP of +1.85% and a Zacks Rank #2.

Harman International Industries, Incorporated (HAR - Snapshot Report), with Earnings ESP of +0.82% and a Zacks Rank #3 (Hold).
 

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