Markets

Hillenbrand (HI) Q1 Earnings: Stock Likely to Disappoint?

Hillenbrand Inc.HI , a leader in the North American death care industry, is set to report first-quarter fiscal 2017 results on Feb 2. Last quarter, this global diversified industrial company posted a positive earnings surprise of 1.75%.

We note that it has posted two positive and two negative surprises in the trailing four quarters with an average negative surprise of 3.80%.

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

Hillenbrand Inc Price, Consensus and EPS Surprise

Hillenbrand Inc Price, Consensus and EPS Surprise | Hillenbrand Inc Quote

Factors to Consider

Hillenbrand's focus on acquisitions, its global presence and margin expansion through operational improvement have been driving earnings since the past few quarters.In Feb 2016, Hillenbrand acquired Red Valve Company, a global leader in highly engineered valves, in a transaction that complements its Nov 2015 buyout of ABEL.

These takeovers expanded Hillenbrand's presence in the flow control market and boosted its margins. The company expects to continue to remain focused on acquisitions as it will drive profits in the core markets.

Over the past year, shares of Hillenbrand increased 40.3% in comparison to the Zacks categorized Funeral Services industry, which showcased growth of 18.8%. Notably, the industry is part of the bottom 4% of the Zacks Classified industries (255 out of the 265). The broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).

However, the year 2016 was also very difficult for Hillenbrand, as the company is facing significant headwinds in key end markets across both segments of its business - Process Equipment Group and Batesville. The company experienced a decline in demand that was more severe than it had anticipated in 2016. Unfavorable currency, deficit environment for capital investments and a slowdown in some key markets, especially China, are the major challenges affecting the company. In terms of the key-end markets, the company expects some of these challenges to persist in 2017. The current political environment has created additional uncertainty globally.

While the company has experienced some stability in those markets over the last couple of quarters, significant growth is however unlikely in the near term. Further, the demand for parts and capital equipment in power and mining and fracking and fertilizer production remains weak. Looking forward, the company expects most of the process equipment businesses to face flat to slightly lower demand over 2017, with some segments experiencing modest decline and others experiencing modest growth.

Earnings Whispers

Our proven model does not conclusively show that Hillenbrand is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP for Hillenbrand is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 40 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Hillenbrand carries a Zacks Rank #5 (Strong Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Stocks in the consumer staple sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Campbell Soup Company CPB , has an Earnings ESP of +1.15% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Coty Inc. COTY , has an Earnings ESP of +5.56% and a Zacks Rank #3.

Sanderson Farms, Inc. SAFM , with an Earnings ESP of +4.48% and a Zacks Rank #3.

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Sanderson Farms, Inc. (SAFM): Free Stock Analysis Report

Campbell Soup Company (CPB): Free Stock Analysis Report

Hillenbrand Inc (HI): Free Stock Analysis Report

Coty Inc. (COTY): 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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