Toyota Motor CorporationTM is set to report fourth-quarter and fiscal 2016 (ended Mar 31, 2016) results on May 11. In the last quarter, the company posted a negative earnings surprise of 4.94%. Let's see how things are shaping up for this announcement.
Factors Influencing this Quarter
Toyota's global sales for fiscal 2016 inched up 0.5% to 9.16 million units. This was better than the company's projection of a small decline and will positively affect revenues. The company should also benefit from favorable foreign currency fluctuations.
Last quarter, Toyota had projected fiscal 2016 consolidated revenues to improve 1%, operating income to grow 1.8% and net earnings to rise 4.4% over fiscal 2015. This raises expectations of a year-over-year increase in these metrics for both the fourth quarter and the fiscal year.
However, in Feb 2016, Toyota announced that it will create a $21.9 million fund to compensate borrowers allegedly affected by discretionary dealer compensation practices. This is part of the company's settlement agreement with the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice (DOJ), and will adversely affect the bottom line.
Our proven model does not conclusively show that Toyota is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: The Earnings ESP for Toyota is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at $2.07.
ZacksRank: Toyota carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the company's ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
CarMax Inc. KMX , with an Earnings ESP of +1.08% and a Zacks Rank #3, is a stock in the auto sector that is expected to beat earnings this season. The company will report first-quarter fiscal 2016 (ended May 31, 2016) financial numbers on Jun 21.
Nissan Motor Co. Ltd. NSANY will release fourth-quarter and fiscal 2015 (ended Mar 31, 2016) results on May 12. The company holds a Zacks Rank #2 (Buy).
Volkswagen AG VLKAY will report first-quarter 2016 results on May 31. The company carries a Zacks Rank #2.