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Will Emerson (EMR) Let Down Investors in Q3 Earnings?

Emerson Electric Co.EMR is slated to report third-quarter fiscal 2016 results before the opening bell on Aug 2.

Last quarter, the company posted a positive earnings surprise of 4.8%. Also, Emerson has managed to beat earnings estimates thrice in the trailing four quarters, resulting in an average positive surprise of 2.9%.

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

Factors to Consider

We believe volatility in the oil and gas market, which has been impacting Emerson's business throughout fiscal 2015 and in the first half of fiscal 2016, will prove to be a major drag on third-quarter profits. Meanwhile, an oversupplied market is hampering prices and spending levels of customers, thereby marring Emerson's prospects. Further, activity in the upstream oil and gas space is affecting the company's orders.

In addition, negative growth across all regions, except Europe, may weigh on the company's financials in the quarter to be reported. Particularly, constrained capital spending in North America and sluggishness in China continue to be an overhang. Apart from this, decreased demand from telecommunication customers, especially in China, is affecting the company's Telecommunications Power business. Additionally, Emerson's Data Center business is posting weak sales due to lower infrastructure investments.

Also, Emerson's operational results have been affected by currency fluctuations over the past few quarters. In particular, weak Euro and Yen as compared to strong dollar continues to be a major concern. We believe adverse market conditions and currency headwinds will prove to be major dampeners for third-quarter results.

Despite these negatives, a competent management team coupled with high-profile franchisees are major positives for Emerson. Of late, an uptick in manufacturing demand in the U.S. and enhanced housing activity are proving conducive to growth.

Also, over the past few quarters, Emerson has been methodically divesting underperforming assets to invest in core business and achieve a leaner and more flexible organizational structure. It has prioritized cost structure alignment and strategic portfolio repositioning as its fundamental strategies. The company has raked in about $100 million from its restructuring actions in the second quarter. We believe sizable cost savings during the third quarter will also boost the company's key financials.

In addition, the string of product launches by Emerson Process Management, an operating arm of Emerson, is likely to boost sales in the quarter to be reported. Some of the noteworthy products introduced during the quarter include wirelessly-monitored Enardo 2000 emergency pressure relief vents, the Paine 310-38-0050 Series Transducer, Rosemount CT5100 continuous gas analyzer and Micro Motion Advanced Phase Measurement software. Furthermore, environmental regulations are driving the demand for new products, adding to the company's strength.

EMERSON ELEC CO Price and EPS Surprise

EMERSON ELEC CO Price and EPS Surprise | EMERSON ELEC CO Quote

Earnings Whispers

Our proven model does not conclusively show that Emerson will beat earnings this quarter. That 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. That is not the case here as you will see below.

Zacks ESP : Earnings ESP for the company is currently 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 84 cents.

Zacks Rank : Emerson carries a Zacks Rank #4 (Sell). As it is, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

Harsco Corporation HSC has an earnings ESP of +38.46% and a Zacks Rank #1. The company is slated to release earnings on Aug 4.

Sun Communities Inc. SUI has an Earnings ESP of +1.22% and a Zacks Rank #2. The company will report results on Aug 2.

Regency Centers Corporation REG has an Earnings ESP of +1.25% and a Zacks Rank #3. The company will release results on Aug 2.

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EMERSON ELEC CO (EMR): Free Stock Analysis Report

REGENCY CTRS CP (REG): Free Stock Analysis Report

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HARSCO CORP (HSC): 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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