Factors Setting the Tone for Norbord (OSB) in Q3 Earnings

Norbord Inc.OSB is scheduled to report third-quarter 2018 results on Nov 1.

The company, which shares space in the Building Products - Wood industry with Trex Company, Inc. TREX and Armstrong Flooring, Inc. AFI , delivered better-than-expected results in each of the last four quarters, the average positive earnings surprise being 9.3%.

Q3 Expectations

The question in investors' minds is whether Norbord will be able to deliver an earnings beat in the quarter to be reported. The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.00, which marks a decline of 28.1% from the year-ago quarter. However, revenues are estimated at $602 million, reflecting a rise of 4.2% from a year ago.

Let's delve into the factors that are expected to have an impact on the company's performance in the soon-to-be-reported quarter.

Factors in Play

Robust demand growth of oriented strand board ("OSB") in key markets and positive housing market fundamentals are expected to drive the top line in the to-be-reported quarter. As housing market continues to recover in the United States, OSB demand increases in turn driving new housing sales volumes.

The company is optimistic about housing market based on ongoing net order strength for homebuilders and strong permit activity. Moreover, single-family housing, which is the most important driver for OSB demand, is expected to continue to display steady improvement.

Moreover, the company is investing in capital projects to increase the production capacity to meet demand. The company tends to expand its capacity of OSB mill in Inverness to support the increasing European demand. Also, the company's Huguley, Alabama mill continues to bump up production, which is likely to be reflected in the to-be-reported quarter results.

Additionally, Norbord's increased focus on growing specialty products (including industrial and export end uses) is likely to drive North American substitution growth. This is likely to enhance the company's performance in the near term.

However, a rise in oil prices could lead to higher resin costs, which forms a chunk of total costs and could hurt profitability.

What Our Model Indicates

Our proven model does not suggest an earnings beat for Norbord in the quarter to be reported. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The Earnings ESP for the company is 0.00% as the Most Accurate Estimate and the Zacks Consensus Estimate is pegged at $1.00. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Owens Corning has a Zacks Rank #5 (Strong Sell), which decreases the predictive power of ESP. Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Norbord Inc. Price and Consensus

Norbord Inc. Price and Consensus | Norbord Inc. Quote

Stocks to Consider

Here are some companies in the construction sector, which according to our model also have the right combination of elements to post earnings beat in their respective quarterly reports:

MasTec, Inc. MTZ has an Earnings ESP of +2.17% and carries a Zacks Rank #2. The company is slated to report quarterly numbers on Nov 1, 2018.

You can see the complete list of today's Zacks #1 Rank stocks here .

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Trex Company, Inc. (TREX): Free Stock Analysis Report

Armstrong Flooring, Inc. (AFI): Free Stock Analysis Report

Norbord Inc. (OSB): Free Stock Analysis Report

MasTec, Inc. (MTZ): Free Stock Analysis Report

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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.

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

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