Sony (SNE) Gears Up for Q2 Earnings: What's in the Cards?

Sony CorporationSNE is set to report second-quarter fiscal 2018 results on Oct 30.

In the last reported quarter, the company beat the Zacks Consensus Estimate by 37.9%. Notably, Sony has exceeded estimates thrice in the trailing four quarters, delivering an average positive surprise of 56.3%.

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

Factors to Consider

Sony expects the Game & Network Services segment to gain from higher sales of PS4 software and hardware units in the fiscal second quarter. The company has witnessed solid traction from its first-party title 'God of War', while other third-party titles are receiving strong feedback. The Music segment is likely to gain from healthy streaming revenues and continued strong performance of mobile gaming applications such as Fate/Grand Order. Sony is still awaiting the European Commission clearance for its $2.3 billion takeover bid for EMI Music Publishing. The successful buyout would almost double the number of songs the company controls from 2.2 to 4.2 million compositions, making it one of the world's largest music publishers.

The Pictures segment is expected to face continued pressure from lower licensing revenues from U.S. television series, and decline in advertising revenues in the Media Networks business. The Home Entertainment & Sound segment is likely to benefit from incremental sales of televisions and audio products, mostly headphones. The new 4K BRAVIA TVs, including OLED TVs, are anticipated to garner higher market share in the premium segment with Sony's proprietary, high-performance image enhancement engine that renders real-life images.

The Imaging Products & Solutions segment is anticipated to record higher sales of interchangeable lens mirrorless cameras and lenses. Sony further expects to leverage the G master lens that feature the world's lightest, large aperture super-telephoto lens with a 400-millimeter focal length and maximum large aperture of F2.8. In addition to high quality images, it offers easy maneuverability for professional photographers. The Mobile Communications segment is expected to generate lower unit sales of smartphones with increasing competition and cheap alternatives from rivals.

The company has a strong international presence with majority of revenues coming from emerging markets. Of late, it has been suffering from negative impact of foreign currency fluctuations. Fluctuations in foreign exchange rates, particularly yen, the U.S. dollar and euro, impact Sony's financials as it has significant exposure in these currencies, both in terms of sales and production costs. As many segments of the company have concentrated operations in specific regions, the currency impact differs from segment to segment. We believe that currency headwinds will remain a major drag on its financials.

Earnings Whispers

Our proven model does not conclusively show that Sony 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. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%, with both pegged at 78 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Sony Corporation Price and EPS Surprise

Sony Corporation Price and EPS Surprise | Sony Corporation Quote

Zacks Rank: Sony has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to make us reasonably confident of an earnings beat.

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 seeing a negative estimate revisions momentum.

Stocks to Consider

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

Windstream Holdings, Inc. WIN is slated to release quarterly numbers on Nov 8. It has an Earnings ESP of +10.79% and a Zacks Rank #3.

United States Cellular Corporation USM is likely to release results around Nov 14. The company has an Earnings ESP of +57.45% and sports a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here .

The Earnings ESP for CenturyLink, Inc. CTL is +10.29% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Nov 8.

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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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