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Based in Greensboro, North Carolina, V. F. Corporation (VFC - Analyst Report) – one of the world’s largest apparel companies – is scheduled to release its third-quarter 2012 financial results on Monday, October 22, 2012. The current Zacks Consensus Estimate for the quarter stands at $3.49 per share, an increase of 21.5% from earnings of $2.87 reported in the year-ago quarter.

We believe that the higher earnings expectations are due to the company’s aggressive approach toward the expansion of its international business, particularly in the Asia Pacific and European regions. Moreover, V.F Corp.’s policy to acquire businesses that provide strategic opportunities and exiting businesses having lower potential has helped it drive growth and improve profitability.

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% – 18.09%, with an average of 8.68%.

For fiscal 2012, the Zacks Consensus Estimate stands at $9.53 per share, which is higher than the earnings of $8.04 in 2011.

Second-Quarter 2012 Recap

V.F. Corp. reported second-quarter 2012 adjusted earnings of $1.11 per share, speeding ahead of the Zacks Consensus Estimate of 94 cents. However, the result dipped 5% from adjusted earnings of $1.17 per share earned in the comparable prior-year quarter.

The year-over-year decline was mainly due to a loss of 12 cents at the Timberland operations as well as a combined 11 cents per share impact from foreign currency translation and higher pension expense.

V.F. Corp.'s second-quarter revenue of $2,141.8 million fell short of the Zacks Consensus Estimate of $2,173 million. Revenues grew 16% compared with the year-ago period, on the back of robust growth in Outdoor & Action Sports and international revenues.

Given the solid second-quarter results, the company raised its earnings forecast for fiscal 2012 by 5 cents per share to $9.50 per share, while it had earlier forecasted earnings of $9.45 per share.  However, the company retained the expected earnings contribution from Timberland at $1.10 per share.

(For full report on earnings study: V.F. Corp's 2Q Beats, Rev Misses)

Agreement of Estimate Revisions

For the to-be-reported quarter, 2 out of 18 analysts raised their earnings estimates while only one lowered over the past 30 days. During the last 7 days earnings estimates have remained almost unchanged with only one analyst lowering estimate for the quarter.

Moreover, for fiscal 2012, over the last 30 days, only one estimate has been revised in the upward direction while one estimate was adjusted in the opposite direction. A similar trend was also seen in the past 7 days.

Magnitude of Estimate Revisions

Due to more positive estimate revisions during the last 30 days, the consensus estimate for the third quarter has been increased by a penny to $3.49 per share. Further, for fiscal 2012, the consensus estimates have been moved up by a penny to $9.53 per share, over the last 7 days.

V. F. Corp Stays Neutral

We remain impressed with the company’s consistent 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 the 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 remains since 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) and The Gap Inc. (GPS - Analyst Report), carries a Zacks #2 Rank, implying a short-term Buy rating. However, we retain our long-term Neutral recommendation on the stock.

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