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What to Expect from Fortune Brands (FBHS) in Q2 Earnings?

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Protection safety equipment & services provider Fortune Brands Home & Security, Inc. (FBHS - Free Report) is slated to report second-quarter 2017 results on Aug 2, after the market closes.

The company’s financial performance in the last four quarters was impressive, with better-than-expected results in each. Average earnings surprise was a positive 8.25%. Notably, in the last quarter, the company’s earnings of 53 cents per share topped the Zacks Consensus Estimate by 15.22%. We believe that a decent financial performance and growth prospects lifted investor sentiments for the company. In the last three months, the company’s shares have yielded 3.70% return, outperforming roughly 1.85% decline of the industry.

Let us see how things are shaping up for Fortune Brands Home & Security this quarter.

Factors to Affect Q2 Results

Fortune Brands Home & Security anticipates leveraging benefits from its attractive product portfolio, focus on innovation and development, operational excellence and strong capital structure. Notably, the Global Plumbing Group, a strategic platform formed in 2016, will help in accelerating growth opportunities in its plumbing business. Also, new products launched by the company’s premium brands, including MasterBrand Cabinets, Moen and Master Lock, in 2016 will enable it to expand market share.

Also, a recovering housing market in the U.S. will drive the company’s profitability in the quarters of 2017, since its operations are highly dependent on the home improvement, repair and remodel, and new home construction activity levels. For 2017, the company anticipates the U.S. home products market to grow 6–7% while the global market is expected to rise 5–6%. Management predicts sales growth to be within 6–8% in the year.

Per its capital allocation policy, Fortune Brands Home & Security remains committed toward returning value to its shareholders through dividends and share buybacks. A large sum is allocated for making strategic acquisitions, keeping the best interests of its shareholders in mind. In 2016, the company acquired Canada-based premium showroom brand, Riobel and California-based luxury brand, ROHL. We believe that these assets will be strong sales drivers and will influence results in the second quarter.

Despite such positives, Fortune Brands Home & Security’s exposure to risks arising from international operations, stiff competition, uncertain economic conditions in some foreign nations and a highly leveraged balance sheet remain major concerns. Also, risks associated with sudden inflation in raw materials price or supply shortage can impact the company’s operational process and margins in the quarter.

Earnings Whispers

Our proven model does not conclusively show that Fortune Brands Home & Security will be able to pull a surprise this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for an 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 for as you will see below.

Zacks ESP: Earnings ESP for the stock is currently 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 87 cents.    

Zacks Rank: Fortune Brands Home & Security’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

AGCO Corporation (AGCO - Free Report) , with an Earnings ESP of +6.94% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion Corporation (AIMC - Free Report) , with an Earnings ESP of +2.17% and a Zacks Rank #1.

MSA Safety Incorporated (MSA - Free Report) , with an Earnings ESP of +5.75% and a Zacks Rank #2.

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