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Construction Stocks Q3 Earnings for Oct 30: AWI, SUM & More

The construction sector commenced 2017 on a bright note but the momentum seems to have stalled for the time being. Tepid housing sales data owing to inventory shortage along with two devastating hurricanes (Harvey & Irma) have impacted the industry’s sales pace in recent months. Even before the hurricanes struck, the housing market was affected by shortages of homes available for sale, skilled labor and suitable land for building as well as rising prices for building materials.

However, per the latest figures from the Commerce Department, sales of new U.S. single-family homes unexpectedly surged 18.9% to a seasonally adjusted annual rate of 667,000 units in September – hitting the highest level in a decade. This offers hope that the housing sector is regaining speed after the recent lull.

Notably, the overall vision of the market remains positive. The housing market is expected to gradually recover on the back of solid ongoing job market and economic growth. As the hurricane-ravaged communities are rebuilt, activity could pick up, making way for higher demand.

Again, the U.S. construction market in 2017 is expected to get an additional boost if, the Trump administration invests heavily in infrastructure improvements as promised during campaign days. Particularly, his plans of boosting infrastructure by rebuilding highways and other significant infrastructure like bridges, tunnels, airports, schools and hospitals have put the spotlight squarely on stocks related to the sector.

The third-quarter earnings season is almost halfway through with 229 members of the S&P 500 Index having reported their quarterly numbers, which make up 48.1% of the Index’s total market capitalization. Per the latest status as of Oct 26, these companies have put a 7.7% increase in earnings on the back of 5% higher sales on the scoreboard. Around 75.5% of these companies delivered positive earnings surprises while 65.1% surpassed revenue expectations. (Read more: Can Strong Q3 Earnings Justify Valuations?)

Taking into account all the S&P members that are yet to disclose their numbers, total earnings for the index are expected to be up 4.1% year over year on a 5.2% increase in revenues in the third quarter. While we see a deceleration in growth pace, the overall level of total earnings for the S&P 500 index is on track to reach a new quarterly record, breaking the record achieved in the preceding quarter.

In this write-up, we take a sneak peek into four construction stocks that are slated to report their third-quarter 2017 results on Oct 30.

Armstrong World Industries, Inc. AWI manufactures, and sells ceiling systems for use primarily in the construction and renovation of residential, commercial, and institutional buildings worldwide. The company will report financial results before the market opens. Its earnings have surpassed estimates in two of the trailing four quarters while posting in-line earnings in one. The company has an average positive earnings surprise of 0.73%.

The company has an Earnings ESP of +0.00% as the Most Accurate estimate is 92 cents, in line with the Zacks Consensus Estimate. Armstrong World currently carries a Zacks Rank #3 (Hold), which when combined with a ESP of 0.00%, makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Volume growth will stem from repair and remodel as aftermath of hurricanes and from new construction activity. The Americas should benefit from continued improvement in average unit value (AUV), driven by the mix up trend within the industry along with good pricing realization and volume growth. Further, improving global oil prices will support volume growth in international markets. Key markets like Russia, Middle East, and China are expected to improve. The company’s focus on improving cost structure in these markets will enhance margins in the quarter.

The Zacks Consensus Estimate for earnings is at 92 cents for the third quarter, a 20.6% year-over-year growth. The Zacks Consensus Estimate for revenues is projected at $356 million, a 6.34% increase over the prior-year quarter.

Summit Materials, Inc. SUM  along with its subsidiaries, produces and sells construction materials and related downstream products. It will report quarterly numbers before the opening bell. The company has missed the Zacks Consensus Estimate in three of the trailing four quarters, while posting in-line earnings in one. This resulted in a negative average earnings surprise of 8.99%.

Summit Materials has an ESP of +0.00%, as the Most Accurate estimate of 83 cents is in line with the Zacks Consensus Estimate. The combination of Summit Materials’ Earnings ESP of 0.00% and Zacks Rank #5 (Strong Sell) makes earnings beat unlikely this quarter. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The company will benefit from continued strength in organic volume growth. Per the Zacks Consensus Estimates, volume-aggregates is projected to grow 13% in the third quarter to 12,000 tons. Further, asphalt volumes will rise 12% to 1,950 tons. Ready-mix concrete volumes will increase 15% to $1,250 tons and cement volumes will edge up 3% to 780 tons.

The company will also benefit from recent acquisitions and the rebuilding activity after Hurricane Harvey. Per the Zacks Consensus Estimate, delivery and subcontract revenues is projected to increase 10% year over year to $54 million. The Zacks Consensus Estimate for revenues is pegged at $568 million, up 18.2% increase year over year.

Cost optimization initiatives at each of its operating companies will assist margins. The Zacks Consensus Estimate for earnings is at 83 cents for the third quarter, a 15.3% year-over-year growth.

Trex Company, Inc. TREX manufactures and distributes wood/plastic composite products, and related accessories primarily for the residential and commercial decking, and railing applications in the United States.The company will report quarterly numbers after the market closes.  The company has surpassed the Zacks Consensus Estimate in the trailing four quarters, resulting in a positve average earnings surprise of 7.58%.

Trex Company has an ESP of -4.29%, as the Most Accurate estimate of 52 cents is pegged lower than the Zacks Consensus Estimate of 54 cents. The combination of the company’s Zacks Rank #4 (Sell) and Earnings ESP of -4.29% makes earnings beat unlikely this quarter.

Trex will benefit from the ongoing positive momentum in the market in the third quarter. Also, investments targeted at product innovation, branding, marketing and improving manufacturing processes will prove advantageous. For the third quarter, the company anticipates revenues to be $126 million.

The Zacks Consensus Estimate for earnings is at 54 cents for the third quarter, a 20.7% year-over-year growth. The Zacks Consensus Estimate for revenues is projected at $125 million, a 17.8% increase over the prior-year quarter.

Simpson Manufacturing Co., Inc. SSD through its subsidiaries, designs, engineers, manufactures, and sells building construction products. The company will report results after the closing bell. The company beat the Zacks Consensus Estimate in two of the past four quarters, resulting in a negative average earnings surprise of 2.97% in the last four quarters.

Our proven model shows that Simpson Manufacturing is likely to pull off a surprise this quarter. The company has an ESP of +2.44%, with the Most Accurate estimate of 63 cents pegged higher than the Zacks Consensus Estimate of 62 cents. The company’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s margins will be affected by rising steel costs higher R&D, selling and G&A expenses in the third quarter. The Zacks Consensus Estimate for earnings is at 62 cents for the third quarter, flat year over year. The Zacks Consensus Estimate for revenues is projected at $263 million, a 14% increase over the prior-year quarter.

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Trex Company, Inc. (TREX): Free Stock Analysis Report
 
Simpson Manufacturing Company, Inc. (SSD): Free Stock Analysis Report
 
Armstrong World Industries Inc (AWI): Free Stock Analysis Report
 
Summit Materials, Inc. (SUM): Free Stock Analysis Report
 
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