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Natural Disasters & TCJA to Hurt Eaton's (ETN) Q4 Earnings

Eaton CorporationETN is slated to report fourth-quarter 2017 financial results before the market opens on Feb 1. The power management company delivered a negative earnings surprise of 0.79% in the last quarter. Let's see how things are shaping up for this earnings season.

Factors to Consider

Eaton expects natural disasters to have an adverse impact of 3 cents on its earnings in the fourth quarter. The company also expects implementation of the Tax Cuts and Jobs Act (TCJA) to result in a one-time tax expense of between $90 million and $110 million and affect fourth-quarter earnings.

The Zacks Consensus Estimate for total revenues of $5,090 million in the quarter reflects a 2.3% drop sequentially. Electric Products segment is a major contributor to Eaton's total revenues. The Zacks Consensus Estimate of $1,826 million for this segment's revenues projects a drop of 1.7% sequentially.

Eaton is expected to benefit from its restructuring initiatives. Improvement in economic conditions is likely to result in 3% to 4% increase in organic revenues.

Eaton Corporation, PLC Price and EPS Surprise

Eaton Corporation, PLC Price and EPS Surprise | Eaton Corporation, PLC Quote

Earnings Whispers

Our proven model does not conclusively show that Eaton is likely to beat earnings this quarter as it does not possess the key components. 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. However, that is not the case here as you will see below.

Zacks ESP : The company's Earnings ESP is +0.47%.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Eaton's Zacks Rank #4 (Sell), when combined with a positive Earnings ESP makes a beat unlikely this quarter.

Note that 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 With Favorable Combination

Eaton does not have the right mix but one can consider a few other companies from the Zacks Industrial Products sector that have the right combination of elements to post an earnings beat this quarter.

Deere & Company DE has an Earnings ESP of +2.65% and a Zacks Rank #2. It is expected to report first-quarter fiscal 2018 earnings on Feb 16. You can see the complete list of today's Zacks #1 Rank stocks here .

Kennametal KMT has an Earnings ESP of +1.89% and a Zacks Rank #2. It is expected to report second-quarter fiscal 2018 earnings on Feb 2.

Graphic Packaging Holding Company GPK has an Earnings ESP of +0.52% and a Zacks Rank #2. It is expected to report fourth-quarter earnings on Feb 6.

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Graphic Packaging Holding Company (GPK): Free Stock Analysis Report

Kennametal Inc. (KMT): Free Stock Analysis Report

Deere & Company (DE): Free Stock Analysis Report

Eaton Corporation, PLC (ETN): 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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