Fortune Brands Home & Security, Inc. is slated to report first-quarter 2018 results on Apr 26, after the market closes.

The company pulled off an average positive earnings surprise of 5.87% over the preceding four quarters. Notably, Fortune Brands’ adjusted earnings per share in fourth-quarter 2017 came in at 80 cents per share, beating the Zacks Consensus Estimate by a penny.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Inflation in labor cost is expected to have impacted Fortune Brands’ profitability in first-quarter 2018. In the prior quarter too, lack of skilled forces had escalated labor cost, consequently weighing over the bottom-line performance of the company’s cabinet business.

Fortune Brands is making heavy marketing and promotional investments for augmenting brand awareness in the market. However, these expenses might drag down margins in the near term.

We also fear that unfavorable government policies, recently-implemented plywood tariff, or bad weather might dent Fortune Brands’ profitability in the to-be-reported quarter.

Furthermore, prevalent softness in some parts of the cabinet market (especially semi-custom cabinet business) might have continued into the first quarter as well, in turn thwarting the company’s top-line performance.

The Zacks Consensus Estimates for first-quarter revenues of the Fortune Brands Cabinets, Plumbing, Doors and Security segments are currently pegged at $598 million, $416 million, $112 million and $138 million, lower than the respective tallies of $626 million, $469 million, $129 million and $159 million recorded in the prior quarter.

Nevertheless, Fortune Brands believes continued growth in the U.S. home products market, strategic acquisitions and a strong innovation pipeline will help bolster its revenues in the quarter to be reported.

The company is also poised to counter labor inflation with pricing actions and capacity-expansion moves.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release their earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or at least 3 (Hold) for a likely earnings beat.

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

That is not the case here as we will see below.

Zacks ESP: Fortune Brands has an Earnings ESP of -1.46%. This is because the Zacks Consensus Estimate of 59 cents is a penny higher than the Most Accurate estimate.

Zacks Rank: Fortune Brands’ unfavorable Zacks Rank #4 (Sell), when combined with a negative Earnings ESP, makes surprise predictions inconclusive.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks that you may want to consider from the Zacks Industrial Products sector,  as our model shows that these have the right combination of elements to post an earnings beat:

Alarm.com Holdings, Inc. (ALRM Quick QuoteALRM - Free Report) , with an Earnings ESP of +5.44% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Global Brass and Copper Holdings, Inc. , with an Earnings ESP of +2.96% and a Zacks Rank #1.

Caterpillar Inc. (CAT Quick QuoteCAT - Free Report) , with an Earnings ESP of +4.07% and a Zacks Rank #2.

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