Sony (SNE) to Report Fiscal Q3 Earnings: What's in Store?

Sony CorporationSNE is set to report third-quarter fiscal 2016 results on Feb 2.

The company had pleasantly surprised investors by posting earnings against loss estimates in the last two quarters. However, this was preceded by a miss, when it reported wider-than-expected losses.

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

Key Factors Influencing Q3

We believe that the appreciating Yen and weakness in the semiconductors end markets, as well as costs from the sale of its battery business are likely to hurt Sony's upcoming financial results. Concurrent with its fiscal second-quarter 2016 earnings release, the company had estimated that appreciation of the Yen will likely have an impact of ¥63 billion on operating income this fiscal year compared to the previous one.

In addition, softness in multiple business lines, including mobile, sensor and devices, are expected to thwart Sony's top line for the fiscal third quarter. Escpecially, sluggish smartphone sales have been a pressing concern for the company. Sony had revised its sales forecast for fiscal 2016 by ¥60 billion, due to an anticipated 2-million units reduction in annual smartphone sales to 17 million units. Also, transfer of Sony's battery business, though beneficial for the long run, is proving to be a major drag on its key financials.

Moreover, losses due to the Kumamoto earthquakes continue to impact Sony, especially its Semiconductor and the Imaging Products & Solutions business. In fact, the present market scenario has led the company to revise the fiscal 2016 forecast for consolidated operating income downward by ¥30 billion compared with the Jul 2016 forecast. Additionally, a loss of approximately ¥37.5 billion is projected to be recorded in the its net income.

Despite these challenges, Sony has braved most headwinds leveraging on the strength of its flagship gaming product, PlayStation (PS). Sales of the latest PS4 hardware and software have surpassed those of all the previous versions, significantly bolstering Sony's revenues. In Dec 2016, the company had announced it has sold 6.2 million units of PS4 over the holiday season. Further, its Home Entertainment & Sound segment is anticipated to supplement the fiscal third-quarter revenues as it has been witnessing an uptick in the LCD television sales.

This apart, Sony's strategic restructuring actions since fourth-quarter fiscal 2015 are likely to enhance profitability. The company has been diligently incorporating changes in its internal administration, to attain a leaner organizational structure, in a bid to augment growth. It has reaped benefits from these actions and we believe that these can slash operating expenses for the soon-to-be-reported quarter, thus supplementing growth.

Earnings Whispers

Our proven model does not conclusively show that Sony will beat earnings in its fiscal third 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. But that is not the case here as you will see below.

Zacks ESP : Earnings ESP for the company is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 38 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Ericsson's Zacks Rank #4, when combined with 0.00% ESP, makes surprise prediction difficult.

Sony Corp Ord Price and EPS Surprise

Sony Corp Ord Price and EPS Surprise | Sony Corp Ord Quote

We caution against stocks with a Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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:

MGM Resorts International MGM has an Earnings ESP of +50.0% and a Zacks Rank #2.

Marriott International, Inc. MAR has an Earnings ESP of +1.2% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Extended Stay America, Inc. STAY has an Earnings ESP of +14.3% and a Zacks Rank #2.

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MGM Resorts International (MGM): Free Stock Analysis Report

Sony Corp Ord (SNE): Free Stock Analysis Report

Marriott International (MAR): Free Stock Analysis Report

Extended Stay America, Inc. (STAY): 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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