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Will Estee Lauder (EL) Beat Earnings?

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Estee Lauder Companies Inc. (EL - Free Report) is set to report fourth-quarter and full year fiscal 2013 results on Aug 15, 2013, before the opening bell. Last quarter, it posted a 36.4% positive surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

We are primarily concerned about the foreign exchange volatility going on around the globe. The rising dollar against other currencies like rupee, yen and euro has resulted in declining export volume for Estee Lauder for the past few quarters as international business contributes more than 80% to EL’s revenues.

Moreover, the macroeconomic pressures and weak consumer spending environment in Europe has been hurting sales of EL’s prestige beauty brands. This can affect Estee Lauder’s volume and sales in the coming quarter.

Estee Lauder has undertaken Strategic Modernization Initiative in order to increase its operational efficiency. The rollout of the plan posed some operational difficulties like delay in orders and some products being out of stock during the third quarter of fiscal 2013. The problems are expected to continue in the fourth quarter as well unless management fixes the problem fully which is expected to stretch till the end of calendar 2013.

Meanwhile, we are encouraged by Estee Lauder’s booming travel retail business. The rising air traffic is expected to boost sales in the Travel Retail segment in the quarter. Moreover, the company’s continuous product innovation helps to maintain its market share amid difficult conditions.

Earnings Whispers?

Our proven model does not conclusively show that Estee Lauder is likely to beat earnings this quarter.

Negative Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) of Estee Lauder is -4.55% which represents the difference between the Most Accurate estimate (21 cents) and the Zacks Consensus Estimate (22 cents).

Zacks Rank #3 (Hold): Estee Lauder’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 (Hold) when combined with a negative 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 negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies worth considering as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Pilgrims Pride Corporation (PPC - Free Report) , Earnings ESP of +5.26% and a Zacks Rank #2 (Buy)

Sanderson Farms Inc.(SAFM - Free Report) , Earnings ESP of +5.66% and a Zacks Rank #3 (Hold)

New York & Company Inc. (NWY - Free Report) , Earnings ESP of +33.33% and a Zacks Rank #3 (Hold)

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