Given solid underlying demand, supported by favorable household formation trends and a strengthening macro environment, the building product companies are likely to register solid gains this earnings season.
Meanwhile, construction spending in the United States has increased lately, supported by a steady increase in outlays on private as well as public construction projects. Sustained growth in construction activity drives demand for the companies’ products, thereby helping it to boost profitability. Overall, second-quarter earnings are expected to mark an improvement from the first quarter for the building product companies. First-quarter results were negatively impacted owing to inflation, bad weather and rising rates.
That said, political and economic uncertainties continue to affect the industry. Higher raw material costs, and rising interest and mortgage rates raise concerns. High mortgage rates dilute demand for new homes, as mortgage loans become expensive. This lowers purchasing power of buyers, and in turn hurts volumes, revenues and profits of homebuilders, as well as building products suppliers.
Indeed, there are concerns that are restricting the industry’s growth to some extent for quite some time now. Then again, higher demand, booming economy along with solid job market will keep the momentum alive.
The Q2 earnings cycle is underway, with 87 S&P 500 members having released their quarterly numbers as of Jul 20, 2018. According to the latest Earnings Preview, total Q2 earnings are expected to be up 21% from the same period last year on 8.3% higher revenues compared with 24.6% earnings growth in the first quarter of 2018 on 8.7% rise in revenues.
The construction sector’s earnings, within the S&P 500 cohort, are expected to increase 46.4% in Q2 compared with 49.7% in the preceding quarter. Revenues are also expected to improve 22.7% (20.9% growth in Q1).
Let us take a look at how the following construction companies are placed ahead of second-quarter earnings release on Jul 25.
Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Owens Corning (OC - Free Report) , a Toledo, OH-based world leader in building materials systems and composite solutions, is scheduled to report quarterly results before the opening bell.
Consistent growth in new construction and remodeling markets is expected to trigger demand for the company’s Roofing business, which is a major revenue contributor. Also, owing to strength in the housing markets, Owens Corning’s products continue to experience robust demand. However, material and transportation costs are dampening the company’s performance.
The company managed to surpass the Zacks Consensus Estimate in two of the trailing four quarters, recording an average positive surprise of 0.88%. In the last reported quarter, the company came up with a negative earnings surprise of 16.67%.
Our proven model does not show that Owens Corning is likely to beat earnings estimates in the to-be-reported quarter, as it has an Earnings ESP of -0.15% and a Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Overall, for the second quarter, the Zacks Consensus Estimate for earnings is pegged at $1.44, reflecting 20% year-over-year growth. The consensus estimate for revenues is pegged at $1.87 billion, implying a 17% increase.
Watsco Inc. (WSO - Free Report) is the largest distributor of heating, ventilation and air conditioning equipment, as well as related parts and supplies (HVAC/R) in the United States. Watsco continues to transform its business into the digital age by investing in scalable platforms for mobile apps, e-commerce, business intelligence and supply-chain optimization. Its technology evolution continues to make progress. Watsco is poised to gain from industry-leading technologies, strategic acquisitions and e-commerce sales growth. However, higher input prices are a cause of concern for Watsco, which is slated to release quarterly results before the opening bell.
Watsco’s earnings met the consensus mark in the last reported quarter. It posted a negative earnings surprise in two of the trailing four quarters. The company surpassed estimates once in the past four quarters and has an average negative surprise of 3.43%.
Meanwhile, our proven model does not show that Watsco is likely to beat earnings estimates in the second quarter, as it has an Earnings ESP of 0.00% (Most Accurate Estimate and Zacks Consensus Estimate both stand at 89 cents) and a Zacks Rank #4.
Overall, for the second quarter, the Zacks Consensus Estimate for earnings is pegged at $2.50, reflecting 20.8% year-over-year growth. The consensus estimate for revenues is pegged at $1.34 billion, implying a 4.7% increase.
USG Corporation , an industry-leading manufacturer of building products and innovative solutions, is slated to report quarterly numbers before the opening bell.
In the last reported quarter, the company came up with a negative earnings surprise of 21.95%. In fact, the company missed the consensus mark in two of the trailing four quarters, resulting in an average negative surprise of 1.60%.
Meanwhile, our proven model does not show that USG is likely to beat earnings estimates in the to-be-reported quarter as it has an Earnings ESP of -0.61% and Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Overall, for the second quarter, the Zacks Consensus Estimate for earnings is pegged at 61 cents, reflecting year-over-year growth of 38.6%. The consensus estimate for revenues stands at $867.9 million, indicating a rise of 7% from the year-ago quarter.
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