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Key Predictions for Earnings Reports of CLX, EL and KHC

We have crossed the halfway mark of the third-quarter earnings season, which has turned out to be pretty good. Of the notable factors influencing this season, rising momentum on the revenue front remain impressive. Moreover, the above-average proportion of positive earnings surprises has been maintained in the quarter while the estimate revision trend for the December quarter remains favorable.

In fact, the overall third-quarter earnings for the S&P 500 index remains on track to reach a new all-time quarterly record by beating the previous earnings season’s record.

Per the Earnings Preview dated Oct 27, nearly 272 S&P 500 members have already reported their results. Of these, approximately 75.7% delivered positive earnings surprises, while 66.2% beat top-line expectations. Notably, earnings for these companies have advanced 8.7% from the same period last year, with revenues up 6.7%.

For the third quarter as a whole, total earnings for the S&P 500 index are projected to improve 5.4% year over year on 5.5% growth in revenues.

A Look at Consumer Staples Sector

Cosmetics, soap & cleaning materials and food stocks form part of the Consumer Staples sector. Markedly, the sector is on growth trajectory since the beginning of 2017, supported by buoyant economy and improving consumer confidence despite a competitive landscape and geopolitical turmoil.

In fact, we note that the performance of the index depends upon all 16 Zacks sectors, out of which nine sectors are expected to witness an earnings decline in the third quarter. However, the Consumer Staples sector is likely to witness 2.6% and 1.9% growth in earnings and revenues, respectively. Also, a Zacks Sector Rank of #6 (out of 16), places it at the top 38% of the Zacks classified sectors. Evidently, the sector has gained 7.1% year to date, lower than the S&P 500’s growth of 15%.  

Furthermore, our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter .

That said, let’s see what awaits these stocks that are slated to report their quarterly results on Nov 1.

The Clorox Company CLX, the manufacturer and marketer of consumer and professional products, remains keen on the smooth execution of its 2020 Strategy through investment in brands, development of e-commerce and technological advancements.

Despite a competitive retail environment, analysts anticipate higher volumes, better pricing and benefits from RenewLife (acquired in May 2016) to augment sales performance. Also, management has earlier pointed that competition has intensified — especially across core categories like litter and trash bags — which remains a threat to margins. (Read: Will Clorox's 2020 Strategy Help Improve Q1 Earnings?)

Clorox Company (The) Price, Consensus and EPS Surprise

Clorox Company (The) Price, Consensus and EPS Surprise | Clorox Company (The) Quote

Our model does not show that Clorox is likely to beat earnings estimates in the first quarter of fiscal 2018. This is because the company has an Earnings ESP of -0.29% with a Zacks Rank #4 (Sell), consequently making the surprise prediction difficult.

Further, revenues are expected to be $1,478 million in the quarter, up 2.4% from the year-ago quarter. Per the analysts polled by Zacks, sales at the Cleaning segment are expected to come in at $542 million (up 1.5% year-over-year) while for Household the same is projected to be $436 million (up 3.3%). Sales at the Lifestyle segment are envisioned to be $245 million (up 1.2%) while for the International segment sales are forecasted to be $254 million (up 3.8%).

Next, let’s see what’s in store for The Estee Lauder Companies Inc. EL, the leading manufacturer and marketer of skin care, makeup, fragrance and hair care products. Markedly, the company’s first-quarter fiscal 2018 results are likely to benefit from rising consumer spending on beauty and personal grooming products, owing to improvements in consumer confidence. Moreover, the rise of e-commerce has been boosting the beauty space, which bodes well for the company. (Read: Estee Lauder Q1 Earnings Likely to Grow Y/Y: Here's Why)

However, slower retail growth in Hong Kong owing to political issues and higher store operating costs has been major concerns for the company.

Further, Estee Lauder has an Earnings ESP of -0.10%. Though the company’s Zacks Rank #2 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise. You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, Estee Lauder has been impressing investors with better-than-expected earnings for 12 straight quarters now. The trend is likely to continue in the fiscal first quarter as well. In fact, management provided a positive earnings view on the back of sustained growth across most product categories. The company expects earnings to be in the range of 94-97 cents, which marks an increase of 12-15% from the prior-year earnings of 84 cents. The Zacks Consensus Estimate for the fiscal first quarter is currently pegged at 98 cents.

Analysts polled by Zacks expect net sales of $3,164 million during the quarter, up 10.8% from the prior-year period. Also, management predicts sales growth of 9-10%. Furthermore, the Zacks Consensus Estimate for sales in the fragrance, skin care and hair care categories are expected to be $470 million, $1,171 million and $138 million, respectively. These sales estimates indicate an improvement of 6.3% for both fragrance and skin care categories from the prior-year figure while the hair care segment is expected to increase 1.5%.

The Kraft Heinz Company KHC is a leading food and beverage company in the world. We note that the company has been witnessing top-line weakness over the past several quarters due to soft global retail and consumer demand. In fact, the food industry has been performing dismally for quite some time now. Also, consumption trends in a number of the company’s key categories remain challenged.
Nevertheless, Kraft Heinz expects organic sales growth to ramp up in the third and fourth quarter of 2017. This is likely to be driven by strong marketing, go-to-market and product quality initiatives. Also, it has implemented several cost-saving initiatives including the integration of Kraft Foods and Heinz. (Read: Will Cost Cuts Drive Kraft Heinz's Earnings in Q3?)

The Kraft Heinz Company Price, Consensus and EPS Surprise

The Kraft Heinz Company Price, Consensus and EPS Surprise | The Kraft Heinz Company Quote

Moreover, Kraft Heinz has an Earnings ESP of +0.56% with a Zacks Rank #3, which makes us confident of earnings beat in the third quarter of 2017. The Zacks Consensus Estimate for third-quarter earnings is pegged at 83 cents, reflecting a 0.3% year-over-year increase. The same for revenues is $6.3 billion, implying a mere 0.9% increase.

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