It has been about a month since the last earnings report for V.F. (VFC - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is V.F. due for a breakout? Before we dive into how investors and analysts have reacted as 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.
V.F. Corp Q2 Earnings & Sales Top Estimates, View Up
V.F. Corporation posted strong second-quarter fiscal 2019 results, wherein both the top and bottom lines beat the Zacks Consensus Estimate. The results were aided by solid trends at its core brands (Vans and The North Face). The company also recorded strong growth in international and direct-to-consumer businesses. This marked the company’s fifth top- and bottom-line beat over the last six quarters.
The company’s adjusted earnings of $1.43 per share improved 19% year over year, beating the Zacks Consensus Estimate of $1.33. Earnings per share included an 8-cent contribution from Williamson-Dickie, Icebreaker and Altra acquisitions. On a constant-dollar basis, adjusted earnings rose 21%.
V.F. Corp generated net revenues of $3,907.4 million, which increased about 15% year over year and surpassed the Zacks Consensus Estimate of $3,863 million. Constant-dollar revenues jumped 16%.
Excluding the impact of acquisitions, sales were up 6% and constant-dollar revenues grew 7%. The revenue growth can be attributed to continued strength in the company’s largest brands, international and direct-to-customer platforms, as well as Active and Work segments.
Adjusted gross margin remained flat year over year to 50.2%, courtesy of the impact from acquisitions. Excluding acquisitions, adjusted gross margin expanded 70 basis points (bps) to 50.9%.
Adjusted operating income rose 19% to $690 million and adjusted operating margin expanded 60 bps to 17.7%. Excluding acquisitions, adjusted operating margin rose 100 bps to 18.1%. Adjusted operating income included a $40-million contribution from acquisitions.
Revenues in the Active segment grew 19% to $1,300 million (up 20% on a constant-dollar basis). Excluding acquisitions, revenues increased 19%. The improvement was driven by a 26% (27% in constant dollars) increase in revenues for the Vans brand.
The Outdoor segment reported revenues of $1,466.5 million, which improved 6% year over year (up 7% in constant dollars). The segment revenues benefited from a 5% rise (up 7% in constant dollars) in The North Face brand sales as well as a 5 percentage point revenue growth contribution from acquisitions.
Revenues in the Work segment rose 125%, both on reported and constant-dollar basis, to roughly $472.8 million. Excluding acquisitions, revenues were up 5%.
Jeans segment reported revenues of $632.9 million, reflecting a decrease of 7% on reported basis and 6% decline on a constant-dollar basis. Excluding acquisitions, the segment revenues slumped 7%.
Other revenues rose 20% to $35.2 million on both reported and constant-dollar basis.
V.F. Corp ended fiscal second quarter with cash and cash equivalents of $352.8 million, long-term debt of $2,150.6 million and shareholders’ equity of $4,179.6 million. In the six months ended Sep 30, 2018, the company generated cash from operating activities of $103 million.
Concurrently, it raised its quarterly dividend by 11% to 51 cents per share, which is payable on Dec 20 to shareholders of record as of Dec 10. As of the quarter-end, the company had $4 billion remaining under its share repurchase authorization.
Following strong fiscal-second quarter results, the company raised its earnings and sales view for fiscal 2019. V.F. Corp now expects revenues of roughly $13.7 billion, reflecting an increase of 11% from prior projections. Earlier, the company anticipated revenues within $13.6-$13.7 billion, up 10-11% from a year ago. The revised guidance includes a negative impact from the sale of Reef brand and the Van Moer business.
On a segmental basis, the company expects revenue growth of 7-8% for Outdoor, 14-15% for Active, more than 35% for Work and a dip in revenues of 1-2% for Jeans. The company continues to anticipate International business to report revenue growth of about 12-13%. Revenues for the direct-to-consumer business are expected to increase 12-14% versus previous growth expectation of 11-13%. The company still estimates digital revenue growth of more than 30%.
Gross margin is still anticipated to be about 51%, while operating margin is now expected to expand 80 bps to 13.5% (versus prior guidance of 70-bps increase to 13.4%). The company envisions adjusted earnings per share of $3.65, representing growth of 16% year over year. Earlier, it projected adjusted earnings per share of $3.52-$3.57, up 12-14% from a year ago.
Further, the company now expects cash flow from operating activities to be approximately $1.8 billion in fiscal 2019 versus previous guidance of more than $1.7 million. Capital expenditure is estimated to be $275 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, V.F. has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, V.F. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.