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Will Harvey Devastation Mar Newell Brands (NWL) Q3 Earnings? (revised)

Newell Brands Inc. NWL is slated to report third-quarter 2017 results tomorrow, November 2nd, before the opening bell. In the previous quarter, the company reported earnings surprise of 1.2%. Notably, in three of the trailing four quarters, the company’s earnings have surpassed the Zacks Consensus Estimate, with an average of 6.3%.

What to Expect?

The big question facing investors is whether this global manufacturer and marketer of consumer and commercial products will be able to deliver a positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is 92 cents, reflecting a year-over-year increase of 17.4%.

We note that the Zacks Consensus Estimate for the quarter has witnessed upward revisions in the past 30 days. Analysts polled by Zacks expect revenues of $370 billion, reflecting a 6.3% decline from the prior-year quarter.

Newell Brands Inc. Price and EPS Surprise

Newell Brands Inc. Price and EPS Surprise | Newell Brands Inc. Quote

However, we note that the stock has underperformed the industry in the past three months. The company’s shares have declined 22.9%, while the industry has dropped 9.6%.

Factors at Play

Newell’s superb earnings history reflects the splendid performance of its brand as well as Growth Game Plan, ongoing Project Renewal Program and solid acquisitions. The company has also made significant progress on its Growth Game Plan that targets accelerating growth by simplifying and strengthening portfolio.

However, the company recently revealed that the third quarter was adversely impacted by the devastating effects of Hurricane Harvey. The effects of Harvey disrupted huge parts of the U.S. resin manufacturing supply chain, significantly raising operating costs. Further, management stated that most of the resin suppliers along with facilities in Texas and Louisiana have declared force majeure, since Harvey’s landfall on Aug 25. In fact, many of these facilities remained closed for more than a week. This caused increased inflationary pressure stemming from lower resin supply.

Moreover, these resin supply issues and higher inflation are likely to persist through the rest of 2017 and in to 2018. Consequently, the company trimmed earnings guidance for 2017. It now envisions normalized earnings in the band of $2.95-$3.05 per share versus $3.00-$3.20 projected earlier.

While Newell Brands is working with its global suppliers to discover other sources of resin, this action exceeds the pre-determined costs targets substantially. Though the company plans to continue investing in strategic capacities and brands to aid market share growth, it is likely to witness temporary margin contractions in comparison with 2017 plan.

Given the impact of Harvey on the company’s operations, we remain a little skeptical of the outcome in the to-be reported quarter.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Newell Brands is likely to beat on earnings estimates 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 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Newell Brands has an Earnings ESP of +1.17% as the Most Accurate Estimate of 93 cents is pegged higher than the Zacks Consensus Estimate of 92 cents. However, this combined with the company’s Zacks Rank #4 (Sell) makes surprise prediction difficult. Note that we caution against Sell-rated stocks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

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

Gildan Activewear Inc. GIL currently has an Earnings ESP of +2.14% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Hain Celestial Group, Inc. HAIN currently has an Earnings ESP of +5.22% and a Zacks Rank #2.

Inter Parfums, Inc. IPAR has an Earnings ESP of +3.56% and a Zacks Rank #2.

(We are reissuing this article to correct a mistake. The original article, issued earlier today, November 1, 2017, should no longer be relied upon.)

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