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Will Dismal Residential Sales Hurt Lennox (LII) Q3 Earnings?

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Lennox International, Inc. (LII - Free Report) is slated to release third-quarter 2017 results on Oct 23, before the market opens.

The company engages in designing, manufacturing and marketing of climate-control solutions. Its technologically advanced products are primarily used in the heating, ventilation, air conditioning and refrigeration end markets. Over the last month, Lennox International’s shares yielded a return of 4.5%, outperforming 2.9% growth recorded by the industry.

In fact, the company pulled off an average positive earnings surprise of 7.53% over the trailing four quarters.

Let’s see how things are shaping up prior to this announcement.

Factors to Play

Lennox International believes its ongoing research and development projects and new marketing programs will likely bolster the top-line performance of the company’s Commercial Heating & Cooling and Refrigeration segments in the second half of 2017. Notably, we notice that Zacks Consensus Estimates for the company’s Commercial Heating & Cooling and Refrigeration segments’ revenues are currently pegged at $262 million and $191 million respectively for third-quarter 2017, higher than the corresponding tallies of $259 million and $190 million recorded in the preceding quarter.

The company also believes sourcing and engineering-led cost reductions, favorable price and mix, higher volumes as well as advantageous product costs and warranty will enhance the profitability of the aforementioned segments in the upcoming quarters.

Lennox International also anticipates that solid revenues generated from the latest construction and replacement businesses will bolster its Residential Heating & Cooling segment’s revenues going ahead.

However, the Zacks Consensus Revenue Estimate for the segment is currently pegged at $589 million, lower than $654 million revenues reported in the prior quarter. We fear that headwinds such as unfavorable foreign currency translation impact or unexpected decline in market share might hurt the segment’s top-line results in the near future.

Earnings Whispers

Our proven model does not conclusively show that Lennox International will likely beat on earnings this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here as we will see below.  

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Lennox International has an Earnings ESP of -1.85%. This is because the Most Accurate estimate is pegged at $2.40 per share, while the Zacks Consensus Estimate is pegged higher at $2.45.

Zacks Rank: Lennox International carries a Zacks Rank #3, which when combined with a negative ESP, makes surprise prediction difficult.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some stocks within the industry that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Jacobs Engineering Group Inc. (JEC - Free Report) currently sports a Zacks Rank of 1 and has an earnings ESP of +0.52%. You can see the complete list of today’s Zacks Rank #1 Rank stocks here.

Owens Corning Inc (OC - Free Report) also flaunts a Zacks Rank of 1 and has an earnings ESP of +0.55%.

Beazer Homes USA, Inc. (BZH - Free Report) carries a Zacks Rank of 2 and has an earnings ESP of +1.89%.

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