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Federal Signal (FSS) to Post Q3 Earnings: What's in Store?

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Federal Signal Corporation (FSS - Free Report) is scheduled to report third-quarter 2019 results on Oct 31, before market open.

In the trailing four quarters, the company reported average positive earnings surprise of 16.48%. In the second quarter, it posted earnings of 55 cents, which surpassed the Zacks Consensus Estimate of 46 cents by 19.57%.

In the past three months, the stock has gained 20.8% against the industry’s decline of 3.7%.

Factors to Consider

Federal Signal is likely to have benefited from strength in its end markets during the third quarter. Its Environmental Solutions Group’s sales jumped year over year in the second quarter, a trend that most likely continued in the third quarter owing to the increase in orders for vacuum trucks, sewer cleaners, dump truck bodies and refuse trucks, and higher aftermarket demand. Strong demand for industrial signaling equipment, coupled with the company’s optimization of sales channel and focus of expansion into new global markets, is likely to have boosted sales of its Safety and Security Systems Group.

Also, the acquisition of Truck Bodies and Equipment International (completed in June 2017), which has boosted Federal Signal’s growth opportunities in maintenance and infrastructure markets, is likely to have augmented third-quarter revenues. In addition, benefits from the Mark Rite Lines Equipment Company buyout (completed in July 2019), which has been strengthening its position as a specialty vehicle manufacturer serving maintenance and infrastructure markets, is expected to get reflected in the company’s third-quarter results.

Moreover, Federal Signal’s strategic investments in new machinery and equipment and other organic growth initiatives, including expansion of its manufacturing facilities in Streator, IL, and Rugby, North Dakota are likely to have boosted its top line.

However, escalating cost of sales remains a persistent concern for Federal Signal. In the first and second quarter of 2019, the company's cost of sales jumped 8.4% and 11%, respectively, year over year on account of high material cost. We believe high costs are likely to have adversely impacted the company’s margin and profitability in the third quarter as well.

In addition, Federal Signal expects its effective tax rate to remain high in the range of 25-26% for 2019, which is expected to be reflected in its third-quarter results.

Earnings Whispers

According to our quantitative model a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) to increase the odds of an earnings surprise.

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

But that is not the case here.

Earnings ESP: Federal Signal has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 42 cents.

Federal Signal Corporation Price and EPS Surprise

Federal Signal Corporation Price and EPS Surprise

Federal Signal Corporation price-eps-surprise | Federal Signal Corporation Quote

Zacks Rank: Federal Signal carries a Zacks Rank #3.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right mix of elements to beat estimates this earnings season:

Plug Power, Inc. PLUG has an Earnings ESP of +58.33% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

MRC Global Inc. MRC has an Earnings ESP of +31.96% and a Zacks Rank of 3.

Sealed Air Corporation SEE has an Earnings ESP of +2.40% and a Zacks Rank #3.

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