Credit: Shutterstock photoWe expect the provider of paper and packaging solutions to consumer and corrugated markets, WestRock CompanyWRK to beat expectations when it reports second-quarter fiscal 2016 numbers on Apr 29, before the market opens.
Why a Likely Positive Surprise?
Our proven model shows that WestRock is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP: The Earnings ESP for WestRock stands at +5.77% because the Most Accurate estimate of 55 cents is higher than the Zacks Consensus Estimate of 52 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: WestRock currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of WestRock's Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat this season.
Surprise History
Last quarter, WestRock recorded a 1.72% positive earnings surprise. The above chart indicates that the company outpaced the Zacks Consensus Estimate in two of the last four quarters and met it in two. The average positive surprise was 3.34%.
Let's see how things are shaping up for this announcement.
What is Driving the Better-than-Expected Earnings?
WestRock came into existence on Jul 1, 2015, after the merger of MeadWestvaco and Rock-Tenn. The company is making excellent progress on its goal of building a premier global packaging company. WestRock has already achieved an annual run rate of over $250 million in synergies and performance improvements.
The company stands to benefit from its investments in capacity, growth initiatives, spin-off of the non-core Specialty business and a shareholder-friendly capital allocation strategy. Also, its acquisition of SP Fiber Holdings, Inc. and 48% interest in Green Power Solutions of Georgia, LLC is expected to generate significant synergies and be accretive to earnings in the second half of fiscal 2016. Recently, WestRock agreed to take over the packaging business of Cenveo, Inc. for $105 million. Given the attractive and complementary customer bases, markets and facilities, Cenveo Packaging will be a strategic fit for WestRock's consumer packaging business. It is expected to generate significant synergies and be immediately accretive to earnings.
Further, WestRock is separating its specialty chemicals business, Ingevity, as it is not in line with the company's business. The spin-off will better position both businesses to pursue their respective operating priorities and strategies. It will also help them focus on long-term growth and profitability opportunities.
Other Stocks to Consider
WestRock is not the only company looking up this earnings season. Here are some other companies to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:
Regal Beloit Corporation RBC has an Earnings ESP of +0.92% and a Zacks Rank #2.
Emerson Electric Co. EMR has an Earnings ESP of +3.17% and Zacks Rank #2.
SPX FLOW, Inc. FLOW has an Earnings ESP of +100.00% and a Zacks Rank #1.
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SPX FLOW INC (FLOW): Free Stock Analysis Report
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WESTROCK CO (WRK): 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.
