What's in the Offing for Spectrum Brands' (SPB) Q4 Earnings?

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Spectrum Brands Holdings, Inc. SPB is set to report fourth-quarter fiscal 2018 results on Nov 19, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 12.1%.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.13, mirroring a significant growth from 31 cents in the year-ago quarter. Notably, the consensus mark was revised downward in the last 30 days.

Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise

Spectrum Brands Holdings Inc. Price, Consensus and EPS Surprise | Spectrum Brands Holdings Inc. Quote

Let's see how things are shaping up for this announcement.

Factors at Play

Spectrum Brands' strategic efforts to manage its business portfolio via acquisitions and divestitures are likely to be favorable. The company has merged with HRG Group, Inc. - its largest shareholder with a 60% controlling stake. Following the deal, Spectrum Brands has become an independent company, thereby enhancing its shareholder base and governance structure besides providing a boost to business growth.

Furthermore, the company is on track to sell the Global Batteries & Appliances businesses. This will help Spectrum Brands to make prudent investments in more profitable projects. In fact, management plans to redirect the capital invested in these businesses toward development of its remaining four businesses, including Hardware & Home Improvement, Global Auto Care, Global Pet Supplies, and Home & Garden. Spectrum Brands will use the divestiture proceeds for debt reduction, reinvestment in core businesses and share buybacks. These strategic moves are likely to strengthen the company's operating structure and boost profitability.

For fiscal 2018, net sales from continuing operations are projected to increase more than category rates for most categories and modest gains from expected foreign exchange rates. Spectrum Brands envisions adjusted EBITDA from continuing operations to be in the range of $600-$617 million. Meanwhile, adjusted free cash flow for the fiscal year is expected to be roughly in the $485-$505 million band. Capital expenditures are anticipated between $100 million and $110 million.

The Zacks Consensus Estimate for fourth-quarter sales stands at $807.5 million, reflecting nearly 38.9% decline year over year.

However, Spectrum Brands anticipates adverse impacts from rising commodity and freight costs as well as higher operating costs, which might hurt its adjusted EBITDA in fiscal 2018. Apparently, adjusted EBITDA margin contracted significantly due to increased operating and distribution costs as well as input cost inflation in the last reported quarter. Also, Spectrum Brands' high debt levels pose concerns.

Zacks Model

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Spectrum Brands has an Earnings ESP of -7.08% and a Zacks Rank #4 (Sell).

Stocks With Favorable Combination

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:

Ross Stores, Inc. ROST has an Earnings ESP of +2.70% and a Zacks Rank #2. You can see the the complete list of today's Zacks #1 Rank stocks here .

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +2.95% and a Zacks Rank #2.

PVH Corp. PVH has an Earnings ESP of +0.46% and a Zacks Rank #3.

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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: SPB , AEO , ROST , PVH

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