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Home Furnishing Stocks Q2 Earnings Roster for Jul 27: LEG, MHK

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The earnings reporting cycle is moving ahead in full steam, with numerous companies posting their quarterly numbers this week. Per the Earnings Preview dated Jul 25, 36.1% of the S&P 500 members have reported results. While results announced so far showcases year-over-year growth in both top and bottom lines, the pace of the same has decelerated sequentially. Nevertheless, the fraction of companies that have topped earnings and revenue estimates have increased from the last quarter.  

Coming to numbers, we note that out of the 128 S&P 500 companies that have reported their quarterly numbers, approximately 77.3% posted positive earnings surprises, while 70.3% beat top-line expectations. Further, earnings for these companies that have reported so far have advanced 7% from the same period last year, while revenues have jumped 4.2%.

Further, as per the Earnings Trends dated Jul 21, earnings for the total S&P 500 companies are projected to improve 8.6% from the year-ago period with total revenue climbing 1.2%. As of now, the overall picture looks favorable for this reporting season.

A Look at the Consumer Discretionary Sector

The performance of the index is determined by all 16 Zacks sectors, out of which five are expected to witness an earnings decline in the second quarter, with Autos being major drag. The Consumer Discretionary sector, which also houses major home furnishing stocks, is poised to suffer a 1.5% drop in earnings this quarter, while revenues are expected to rise a notable 7.8%.

This sector, which is ranked among the Bottom 44% of all Zacks sectors, has been reeling under several challenges like volatile commodity prices, ever changing consumer spending patterns and adverse currency fluctuations. Nevertheless, rising consumer confidence, on the back of an improving labor market and housing segment recovery, gives out positive signals. Driven by such factors, the sector has grown 13.6% so far this year, surpassing the S&P 500 market’s jump of 10.6%.

All said, let’s see what awaits the following Home – Furnishing stocks that are queued up for second-quarter 2017 earnings releases on Jul 27.

Can LEG & MHK Spring a Surprise?

Manufacturer of engineered products – Leggett & Platt, Incorporated (LEG - Free Report) currently carries a Zacks Rank #3 (Hold).  The company is unlikely to beat earnings because it has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Leggett is working toward achieving its top-line growth target of 4–5% annually. In 2017, management expects strength in Automotive, Bedding, Adjustable Bed, Work Furniture, and Geo Components businesses. This in turn is expected to boost volume and driving sales. Further, management expects sales growth to fuel earnings in 2017, which makes us hopeful of the quarter to be reported. However, Leggett remains exposed to volatility in raw material prices. Evidently, Leggett’s bottom line was hurt by steel price inflation in the first quarter and persistence of inflationary pressure remains a threat to Leggett’s earnings in 2017. (Read more: Will Volatile Steel Prices Hit Leggett's Q2 Earnings?)

Moving to Mohawk Industries, Inc. MHK, this global manufacturer of flooring products’ Earnings ESP of 0.00% makes surprise prediction difficult, though its solid Zacks Rank #2 (Buy) bodes well. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mohawk is likely to benefit from its strategy of achieving growth via acquisitions. The company’s EPS guidance for the second quarter (including acquisitions) represents a 1.7% to 4.3% increase year over year. Moreover, Mohawk Industries is well poised to gain traction on the current positive housing scenario, as it has heavy exposure to the U.S. residential sector. Steady job and wage growth, a recovering economy, affordable interest/mortgage rates, rapidly increasing household formation hint at strong demand in 2017. However, we are apprehensive about the persistent pressure from adverse foreign currency movement, since Mohawk Industries generates a significant amount of its revenues from outside the U.S.  Also, the company expects high raw materials cost to outweigh pricing in the second quarter, which remains a concern. (Read more: Can Mohawk Industries Pull a Surprise in Q2 Earnings?)

Check later on our full write-up on earnings releases of these stocks.

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