It has been about a month since the last earnings report for Hanesbrands Inc. (HBI - Free Report) . Shares have added about 5.3% in that time, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Hanesbrands Posts In Line Q2 Earnings, Sales Up Y/Y
Hanesbrands reported second-quarter 2017 results wherein earnings and sales came in line with the Zacks Consensus Estimate. The company posted adjusted earnings of $0.53, depicting a 4% improvement from the prior-year quarter. Value driven from acquisitions favorably impacted the bottom line.
Including pretax acquisition and integration charges, earnings came in at $0.47, depicting an increase of 38% from the year-ago period.
Net sales of $1.65 million grew 12% from the year-ago period and came in line with the Zacks Consensus Estimate. The year-over-year increase was driven by acquisition related synergies that contributed approximately $220 million in net sales. The benefits from acquisitions were mainly related to Champion Europe and Hanes Australasia that had been completed in 2016. Sales from online channel globally increased 25%. Online sales mainly benefitted from an increase of 7% in Global Champion Activewear.
However, the quarter witnessed a decline of 3% in organic sales owing to lower sales in Innerwear, domestic manage-for-cash businesses and the timing shift of sports apparel sales to the third quarter. Although organic sales had decreased, it was narrower than the decline of 4% and 5% during the first quarter of 2017 and the fourth quarter of 2016, respectively.
Hanesbrands' adjusted gross profit improved 16% to $646 million on the back of higher sales. Adjusted gross margin expanded 140 basis points (bps) to 39.2%.
Adjusted operating profit increased 3.57% to $255 million in the reported quarter. However, operating margin contracted 120 bps to 15.5%.
Hanesbrands’ U.S. retail Internet operations are reported in the respective Innerwear and Activewear divisions. The Other category comprises of the U.S. businesses for outlet stores, hosiery and legacy catalog business.
Further, management informed that expenses of nearly $8 million were incurred in relation to the Project Booster program during the quarter. This includes the funding of an employee separation program. The segment operating results includes the expenses related to the program.
Innerwear: Sales declined 2.5% in the second quarter to $719 million, although it was narrower than the prior two quarters in both intimates and basics business. Sales for the segment had declined 6% and 8% during the first quarter of 2017 and fourth quarter of 2016, respectively. Operating profit declined 7.6% to $164.3 million owing to higher Project Booster expenses and lower sales.
Activewear: Sales rose 1% to $379.6 million owing to acquisition related benefits, growth from Hanes retail and online channels. These were partially offset by retail bankruptcies and the impacts arising out of the later-than-expected licensed sports apparel shipments. Operating profits declined 10% to $49.7 million due to higher Project Booster expense and retailer bankruptcies.
International: Impressively, the second-quarter sales for the segment improved 76% to $475.2 million. The growth was primarily driven by acquisitions and strong results in Asia. European acquisition synergies led to a 152% increase in the operating profit of the segment.
Other: Sales declined 19.9% to $72.6 million in the quarter. The segment incurred an operating loss of $26 million, 6.6% wider than the prior year loss.
Project Booster Initiative
Hanesbrands continues with its multiyear Project Booster program in order to reduce costs, increase cash flow and generate investments for sales growth. Project Booster is anticipated to be cost-neutral for 2017 and cost savings would mainly be realized in the second half of the year. By 2019, the project is expected to yield $150 million in annualized cost savings out of which roughly $50 million will be reinvested in targeted growth opportunities.
Other Financial Details
Net cash from operations during the quarter amounted $34 million. This marked an improvement of $163 million owing to working capital improvement initiatives. Hanesbrands ended the quarter with cash and cash equivalents of $449.4 million, long-term debt of $3,797.2 million and equity of $1078.3 million.
During the quarter, the company paid $110.5 million as cash dividends and bought back shares worth $299.9 million. In 2017, management continues to anticipate capital expenditures of roughly $90–$100 million.
For the third quarter, management projects total net sales to be roughly $1.80 billion, depicting an increase of 2.5% from the year-ago sales. However, the Zacks Consensus Estimate sales for the third quarter are pegged higher at $1.81 million. More back-to-school shipments are anticipated to fall in the third quarter versus a year ago, which will in result in higher sales.
While GAAP earnings per share are projected in the band of $0.54–$0.57, adjusted earnings per share is expected in the range of $0.59–$0.61.
Hanesbrands reiterated its guidance for 2017. The company continues to project net sales in the band of $6.45–$6.55 billion and GAAP operating profit in the $845–$895 million range. Further, its adjusted operating profit is expected in the band of $935–$975 million.
The company’s GAAP EPS for continuing operations is projected in the band of $1.70–$1.82 and adjusted EPS is estimated in the $1.93–$2.03 range. Moreover, its net cash from operations is anticipated in the band of $625–$725 million.
Compared with 2016 results, the midpoint of 2017 outlook reflects growth of 8% in the net sales, 12% in GAAP operating profit, 5% in adjusted operating profit, 26% in GAAP EPS from continuing operations, 7% in adjusted EPS and 11% in the operating cash flow.
Further, net sales guidance for 2017 includes anticipated additional sales from acquisitions of approximately $440 million. Organic sales are projected to be flat to up 2% while Innerwear segment sales are expected to be comparable to 2016. Moreover, management expects nearly $15 million as synergy cost benefits in 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter
At this time, Hanesbrands' stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and growth investors.
While estimates have been moving upward, the magnitude of the revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.