Will Steel Cost Inflation Hurt Leggett's (LEG) Q1 Earnings?

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Leggett & Platt, Incorporated LEG is slated to release first-quarter 2018 results on Apr 26. The company has a mixed earnings record in the trailing four quarters. Last quarter, it delivered a negative surprise of 3.3%.

The Zacks Consensus Estimate for the impending quarter is pegged at 61 cents, which moved south by a penny in the last seven days. Also, the estimate reflects a decline of 1.6% from the year-ago period.

Leggett & Platt, Incorporated Price, Consensus and EPS Surprise

Leggett & Platt, Incorporated Price, Consensus and EPS Surprise | Leggett & Platt, Incorporated Quote

Let's see how things are shaping up prior to this earnings announcement.

Factors Likely to Influence 1Q18

Leggett remains highly susceptible to volatility in raw material prices. This is because steel is considered one of the key raw materials and the steel market is cyclical in nature. In fact, this has been hurting the company's performance since last few quarters. Evidently, the company's top line lagged estimates in five of the last six quarters, including the previous quarter. Higher steel costs and the pricing lag, which occurs in case of commodity cost inflation, also impacted results in the previous quarter.

Further, margins remained under pressure mainly due to recent steel costs inflation, which is likely to continue hurting margins in first-quarter 2018.

Notably, analysts polled by Zacks expect revenues of $1.04 billion for the quarter under review, up 8.7% from the year-ago quarter.

Although the company is likely to witness a soft quarter, management provided a bullish outlook for 2018. It expects to generate strong earnings and improve margins, mainly backed by solid sales growth. Meanwhile, Leggett's strategies to enhance business portfolio, disciplined capital allocation and progress on goals for 2019 look encouraging. Additionally, the company remains on track to achieve its top-third TSR target by 2020 through revenue growth, margin enhancement and shareholder-friendly moves.

While Leggett's strategies look promising for the long run, its bottom line remains prone to steel price inflation that might hurt results in the upcoming quarter.

Zacks Model

To deliver an earnings beat, a stock needs to have the right combination of two key ingredients, a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). However, that is not the case here as you will see.

Leggett has an Earnings ESP of -6.17% and a Zacks Rank #4 (Sell), which makes earnings beat unlikely. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

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 earnings beat:

Guess?, Inc. GES has an Earnings ESP of +16.18% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Ralph Lauren Corporation RL has an Earnings ESP of +2.92% and a Zacks Rank of 2.

Deckers Outdoor Corporation DECK has an Earnings ESP of +0.94% 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: LEG , DECK , RL , GES

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