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Scripps Networks (SNI) Q1 Earnings: Stock Set to Disappoint?

Scripps Networks Interactive, Inc. SNI is scheduled to release first-quarter 2016 financial numbers before the opening bell on May 5.

In the fourth quarter of 2015, Scripps Networks had posted a positive earnings surprise of 33.66%. In fact, the company boasts an impressive history with respect to earnings, having outshined the Zacks Consensus Estimate in each of the last four quarters. The average earnings beat is 17.93%.

However, things don’t look rosy this time round and the stock may be in for a rude shock in the first quarter. In fact our quantitative model too does not hint at an earnings beat. Here’s why

Scripps Networks does not have the right combination of two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – necessary for increasing the odds of an earnings surprise.

Zacks ESP: The Earnings ESP for Scripps Networks is -5.94% with the Most Accurate estimate lagging the Zacks Consensus Estimate of $1.01 by 6 cents.

Zacks Rank: Scripps Networks carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, that alone is not sufficient to secure an earnings beat.

As a caution, we advise investors not to consider Sell-rated (Zacks Rank #4 or 5) stocks going into an earnings announcement.

Factors Likely at Play

We expect Scripps Networks’ first-quarter revenues to be hurt by foreign exchange related headwinds. Moreover, the company’s bottom line is likely to face the brunt of elevated programming expenses.

During the first quarter, the Knoxville, TN-based company completed the remaining 35% stake buy in Travel Channel Media from Cox Communications Inc. Moreover, Scripps Networks bought a 52.7% stake in Poland’s popular multi-platform media company, TVN, last year. Even though positive on the company’s growth-by acquisition strategy, we cannot ignore the integration risks attached to it. Moreover, this could exert further pressure on the company’s cash position.

However, we are impressed with the company’s efforts to reward shareholders through dividend payments/buybacks. During the quarter, the company raised its quarterly dividend per share by 8.7% to 25 cents. We expect a detailed commentary on these shareholder friendly activities during the conference call.

Stocks to Consider

With Scripps Networks likely to disappoint, we present below some other companies in the broader Consumer Discretionary sector you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

Discovery Communications, Inc. DISCA, with an earnings ESP of +2.22% and a Zacks Rank #3. The company is scheduled to report first-quarter 2016 earnings on May 5.

Time Warner Inc. TWX, with an earnings ESP of +1.55% and a Zacks Rank #2. The company is slated to report first-quarter 2016 results on May 4.

Twenty-First Century Fox, Inc. FOXA has an Earnings ESP of +2.17% and a Zacks Rank #3. The company is scheduled to report third-quarter fiscal 2016 results on May 4.

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