Earnings Preview: V. F. Corp

Based in Greensboro, North Carolina, V. F. Corporation ( VFC - Analyst Report ) , one of the world’s largest apparel companies, is scheduled to release its second-quarter 2012 financial results on Thursday, July 19, 2012.

The current Zacks Consensus Estimate for the quarter stands at 95 cents per share, indicating an estimated year-over-year decrease of 15.2%. Revenue, as per the Zacks Consensus Estimate, is $2,177 million.

First-Quarter 2012 Recap

V.F. Corp. reported first-quarter 2012 adjusted earnings of $1.94 per share, striding ahead of the Zacks Consensus Estimate of $1.88 as well as the adjusted earnings of $1.82 per share in the prior-year quarter. The earnings beat was primarily attributable to strong top-line growth and a contribution of 12 cents per share from the Timberland acquisition.

V.F. Corp.'s first-quarter revenue of $2,556 million also exceeded the Zacks Consensus Estimate of $2,448 million. Revenues eclipsed the year-ago figure by 31%, with Timberland contributing significantly to the total revenue.

(For full report on earnings study: V.F. Corp. Beats Yet Again)

Guidance

Bolstered by the better-than-expected March quarter results, the company now expects earnings of approximately $9.45 per share in fiscal 2012, up from $9.30 per share guided earlier. However, V.F. Corp. retained the expected earnings contribution from Timberland at $1.10 per share.

The company expects revenues to increase approximately 15% year over year to $10.9 billion in fiscal 2012, of which Timberland is expected to contribute about $1 billion.

However, V.F. Corp. expects earnings per share comparisons for the second quarter of 2012 to be challenging, due to the seasonal nature of Timberland business (which has historically posted losses in the second quarter), a negative impact from foreign currency translation and higher pension expense, partly offset by gains from facility closures.

Agreement of Estimate Revision

For the to-be-reported quarter, the earnings estimates have remained almost unchanged with only one out of 17 analysts raising and lowering the estimate over the past 7 and 30 days, respectively. Moreover, for fiscal 2012, the estimates witnessed minimal revision, as only one analyst (out of 17) moved upwards in the last 30 days.

Magnitude of Estimate Revisions

Due to the lack of catalysts impacting the estimates directly or indirectly, most of the analysts maintained their view. Consequently, the Zacks Consensus Estimate remains unchanged for the second-quarter of 2012 over the last 7 or 30 days.

Surprise History

With respect to earnings surprises, V. F. Corp has topped the Zacks Consensus Estimate over the last four quarters in the range of 0.87% to 12.55%, with the average at 6.6%.

V. F. Corp Stays Neutral

We remain impressed by the company’s consecutive positive earnings surprise trend, strong organic revenue growth, as well as the raised management guidance. However, stiff competition from private label brands and currency fluctuation still remain causes of concern, thus keeping us on the sidelines.

As one of the world’s largest apparel companies with over 30 brands, V. F. Corp is well positioned to generate above average industry growth and sustain itself in the current challenging environment.

However, skepticism still remain as the company derives about 34% of its sales from international business, which exposes it to risks of foreign laws and regulations that could negatively affect operations, foreign consumer preferences, disruptions or delays in shipments, and currency fluctuations.

V. F. Corp, which faces stiff competition from well established apparel industry players like Polo Ralph Lauren Corp. ( RL - Analyst Report ) ,Sears Holdings Corp. ( SHLD - Analyst Report ) ,The Gap Inc. ( GPS - Analyst Report ) , carries a Zacks #3 Rank implying a short-term Hold rating. This correlates with our long-term Neutral recommendation.