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Low Cabinets Sales to Hurt Fortune Brands (FBHS) Q3 Earnings?

Protection safety equipment & services provider Fortune Brands Home & Security, Inc.FBHS is slated to report third-quarter 2017 results on Oct 25, after the market closes .

In the last four quarters, the company delivered better-than-expected results, pulling off an average positive earnings surprise of 6.61%. In the last quarter, earnings of 92 cents per share topped the Zacks Consensus Estimate by 5.75%.

In the last three months, the company's shares have yielded 2% return, outperforming roughly 0.7% decline of the industry .

Let us see how things are shaping up for Fortune Brands this quarter.

Factors to Affect Q3 Results

Fortune Brands derives a major portion of its revenues from the Cabinets business segment. This segment deals with manufacturing and selling of custom, semi-custom and stock cabinetry and vanities. In July and August, stock and semi-custom cabinet sales in the industry inched up in low single-digits while declined for custom cabinets. We believe softer cabinet sales trend in the industry might hurt the company.

The company's Cabinets segment failed to meet the Zacks Consensus Estimate in three out of four trailing quarters. The segment's estimated sales for the third quarter are $646 million, below $653 million generated in the second quarter.

Fortune Brands also faces risks associated with sudden inflation in raw materials price or supply shortage. These adverse happenings can impact the company's operational process and margins. Also, if the burden of such expenses is transferred to the buyers, it might lower demand for the company's products and subsequently its business share.

The Zacks Consensus Estimate for Fortune Brands' Cabinet segment's operating income in the third quarter is predicted to be $84 million. This prediction is lower than $89 million recorded in the previous quarter.

In addition, impact of adverse movements in foreign currencies, stiff competition and a highly leveraged balance sheet remain major concerns for Fortune Brands.

Earnings Whispers

Our proven model does not show that Fortune Brands will be able to pull a surprise this quarter. That 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 an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

That is not the case here for as you will see below.

Zacks ESP: Earnings ESP for the stock is currently -0.58%.

Fortune Brands Home & Security, Inc. Price and EPS Surprise

Fortune Brands Home & Security, Inc. Price and EPS Surprise | Fortune Brands Home & Security, Inc. Quote

Zacks Rank: Fortune Brands Home & Security's Zacks Rank #4 (Sell).

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

Stocks to Consider

Here are some companies in the sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Kennametal Inc. KMT , with an Earnings ESP of +1.76% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Lincoln Electric Holdings, Inc. LECO , with an Earnings ESP of +1.21% and a Zacks Rank #2.

Caterpillar, Inc. CAT , with an Earnings ESP of +1.27% and a Zacks Rank #2.

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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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