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Can International Unit Aid Hanesbrands (HBI) in Q3 Earnings?


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Hanesbrands Inc . HBI is slated to release third-quarter 2018 results on Nov 1, before the opening bell. The designer and manufacturer of apparel for men, women and children has a mixed earnings surprise record in the trailing four quarters. Let's see what's in store for the company this time around.

Factors Likely to Aid the Top Line

Hanesbrands has been gaining from solid performance in the international segment, which contributed nearly 32% to the company's net sales in the second quarter of 2018. Sales in the segment improved 14.9% to $545.9 million, backed by favorable currency movements, acquisition synergies and organic growth. Management is focused on making investments and innovations internationally to boost growth further. We note that the Zacks Consensus Estimate for sales in the segment is currently pegged at $602 million, reflecting a rise of almost 8% from the year-ago quarter's tally.

Moving on, the company has been posting organic sales growth for four straight quarters now. In the last reported quarter, organic sales growth was mainly fueled by better-than-expected Champion sales. For third-quarter 2018, organic sales growth is envisioned to be roughly 2% on a constant-currency basis.

Strategic buyouts have been another vital strategy favoring Hanesbrands' top-line and portfolio growth. To this end, acquisitions of Bras N Things and Alternative Apparel played a significant role in augmenting Hanesbrands' second-quarter sales. Apart from this, the company has been gaining from Champion Europe and Hanes Australasia contributions that were acquired in 2016. Management is committed toward driving double-digit growth for global Champion sales.

Further, Hanesbrands is focused on developing online sales, which have been growing at a solid rate and surged 20% year over year in the second quarter of 2018. Hanesbrands, which is a global partner with Amazon AMZN , is making additional investments in its online business to keep pace with consumers' evolving shopping patterns.

Such well-chalked efforts are expected to continue aiding solid brand performances, thus bolstering the company's top-line in the upcoming quarterly release. In fact, we expect these upsides to help counter weaknesses from sluggish Innerwear sales. Incidentally, the Zacks Consensus Estimate for Hanesbrands' revenues for the impending quarter is currently pegged at $1,872 million, depicting a rise of roughly 4% from $1,799 million delivered in the year-ago quarter.

Hanesbrands Inc. Price, Consensus and EPS Surprise

Hanesbrands Inc. Price, Consensus and EPS Surprise | Hanesbrands Inc. Quote



High Costs Likely to Dent Bottom Line

Though we are encouraged about Hanesbrands' sales drivers, we cannot ignore the cost-related headwinds looming over the company. The company has been battling raw-material inflation, which hurt margins in the second quarter of 2018. Incidentally, adjusted gross margin contracted 40 basis points (bps) to 39.1% in the quarter. This along with escalated SG&A expenses weighed on adjusted operating margin that fell 150 bps to 14.3%. Unfortunately, management expects input cost inflation of approximately $35 million in 2018. Such high costs are likely to eclipse profitability in the third quarter as well.

Although Hanesbrands has been focusing on enhancing savings through the Project Booster program, it is less likely to completely offset the aforementioned hurdles. In fact, management predicts adjusted earnings in the band of 54-57 cents per share for the third quarter, reflecting a considerable decline from 60 cents in the year-ago quarter. The Zacks Consensus Estimate for the quarter is currently pegged at 55 cents, which has gone down by a notch in the past 30 days.

What Does the Zacks Model Unveil?

Our proven model doesn't show that Hanesbrands can beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive  Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

Though Hanesbrands carries a Zacks Rank #3, the company's Earnings ESP of -0.30% makes surprise prediction difficult.

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 earnings beat:

PVH Corp PVH has an Earnings ESP of +0.46% and a Zacks Rank of 2. You can see  the complete list of today's Zacks #1 Rank stocks here .

Ralph Lauren Corporation RL , a Zacks #2 Ranked company, has an Earnings ESP of +0.23%. 

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: AMZN , HBI , PVH , RL



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