It has been about a month since the last earnings report for HanesBrands (HBI - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is HanesBrands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Hanesbrands Q3 Earnings Decline, Outlook Trimmed
Hanesbrands released third-quarter 2018 results. The company posted adjusted earnings of 52 cents a share, while adjusted earnings on a proforma basis (excluding bankruptcy charge related to Sears Holdings) came in at 55 cents. The Zacks Consensus Estimate stands at 55 cents. We note that quarterly earnings declined year over year from adjusted earnings of 60 cents recorded in the year-ago period.
Nevertheless, net sales during the period rose 2.7% to $1,848.7 million, though it fell short of the Zacks Consensus Estimate of $1,872 million. On a constant currency (cc) basis, organic sales rose more than 1%, marking the company’s fifth straight quarter of increase. The upside was driven by increased sales from Activewear and International units, mainly fueled by strength in Champion. Innerwear continued to deliver soft performance.
Notably, Global Champion sales surged 30% on a currency-neutral basis, backed by double-digit increases in Asia, Europe and the United States. Champion sales soared 40% at cc, excluding mass channel. Further, the company’s Global consumer-directed sales (including retail and online networks) increased 15% year over year and represented 21% of overall sales.
Moving on, adjusted operating profit rose close to 1% to $278 million. On a proforma basis, adjusted operating profit rose 6% to roughly $292 million. Further, proforma adjusted operating margin expanded 50 basis points (bps) to 15.8% on the back of organic growth, efficient pricing, contributions from buyouts and synergies from integration, partly offset by greater brand and growth investments.
Innerwear: Sales fell 6.9% in the quarter to $599.7 million, due to softness across both Innerwear Basics and Innerwear Intimates. Operating profit fell 13.6% to $132.2 million, on account of raw-material inflation and sluggish replenishment orders compared with solid point-of-sale trends.
Activewear: Sales advanced 6.8% to almost $555 million, thanks to contribution from Alternative Apparel’s buyout ($16 million) and organic sales growth of 4%. Champion sales remained robust, driven by broad-based growth across channels, including solid store and online sales. Further, operating profits increased 7% to $93.6 million.
International: Sales in the segment improved 11.3% (up 15% at cc) to $619.4 million. Organic sales rose 10% on a currency-neutral basis, on the back of strong Champion sales across Europe and Asia. Contributions from the acquisition of Bras N Things ($32 million) also fueled International sales. Operating profit in this segment rallied 27.1% (up 31% at cc) to $99.6 million in the quarter, thanks to organic growth, contribution from Bras N Things and integration synergies.
Other: Sales declined 5.6% to roughly $74.6 million. The segment posted an operating profit of $8.4 million, declining 30.6% year over year.
Other Financial Details
Hanesbrands ended the quarter with cash and cash equivalents of $398.5 million, long-term debt of $3,863.6 million and equity of $870.6 million. Also, the company generated $141.3 million in net cash from operations during the first three quarters of 2018.
Management is pleased with its proforma results. Further, the company continued with organic sales growth trend, improved margins and curtailed debt leverage. Results were largely backed by Champion sales. While Innerwear sales remained soft, management is on track with innovations and product launches in this segment.
However, the company tightened its outlook, considering the year-to-date performance, impacts from Sears Holdings’ bankruptcy and foreign currency headwinds, among other factors. Notably, management now expects currency to have a greater negative impact on net sales compared to what was projected earlier.
For 2018, management now projects net sales of $6.74-$6.78 billion compared with the previously guided range of $6.72-$6.82 billion.
Adjusted operating profit is expected to be $940-$955 million now, down from $950-$985 million guided earlier. Effective tax-rate for 2018 is projected at roughly 15% compared with 16% expected earlier.
Further, management now envisions adjusted earnings of $1.69-$1.73 per share, lower than the previous guidance of $1.72-$1.80. This includes negative impact of nearly 5 cents from Sears Holding bankruptcy and currency woes.
Net cash from operations is now anticipated to be $625-$675 million compared with the earlier projection of $675-750 million.
For the fourth quarter, management projects total net sales of $1.70-$1.74 billion. The mid-point of this range reflects year-over-year growth of nearly 5%. On a constant-currency basis, organic sales are projected to improve 3.5% in the quarter (at the mid-point of the projected sales outlook). Markedly, management expects currency headwinds to mar fourth-quarter sales by roughly $29 million from the year-ago period.
Innerwear sales are likely to remain flat year over year, backed by solid fundamentals, early bookings and more. Management expects Champion sales growth to remain sturdy and continue driving Hanesbrands’ Activewear and International units’ performances in the fourth quarter. In fact, management anticipates Champion sales to jump at a significant double-digit rate, courtesy of solid order bookings through the first half of fiscal 2019.
Adjusted operating profit is anticipated to be $251-$266 million. Finally, adjusted earnings per share are envisioned to be 46-50 cents.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
Currently, HanesBrands has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
HanesBrands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.