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Will Macroeconomic Woes Hurt Emerson (EMR) Q1 Earnings?

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

Last quarter, the company posted a negative earnings surprise of 4.1%. Emerson has had a bumpy earnings history, having missed the earnings estimates twice in the trailing four quarters, resulting in a negative average earnings surprise of 3.7%.

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

Factors to Consider

Over the past few quarters, Emerson has been seeing low revenues, hit by negative effect of currency fluctuations, which adversely impacted its overall performance. During its fourth-quarter fiscal 2015 earnings release, the company had revealed its anticipation of difficult market conditions and currency headwinds through a major portion of fiscal 2016. Management predicted a reduction in underlying sales across its segments, wherein net sales will likely decline in a range of 6-8% in fiscal 2016. We believe fiscal first-quarter 2016 earnings will continue to take a beating from macroeconomic woes.

Additionally, volatility in the oil and gas market has been harmful for Emerson's business, with oversupply continuing to strain prices and spending levels. Specifically, activity in upstream oil & gas is facing the heat due to reduction in industry capital budgets, which in turn, is adding to Emerson's troubles. Lower order rates in power generating alternators and electrical distribution businesses may also prove to be a drag on the company's first-quarter fiscal 2016 earnings.

Furthermore, weak underlying global fundamentals do not signal any turnaround in Emerson's industrial markets, which are underperforming significantly in the U.S. and China. All these factors have led to the weak performance of the company's Telecommunications Power, Climate Technologies and Data Center businesses in the past few quarters and we believe it will likely continue through the first-quarter of fiscal 2016.

However, on the positive side, Emerson Process Management, an operating arm of Emerson, launched some innovative products during the quarter. Named as Project Certainty, CSI 6500 ATG protection system and Smart Commissioning, these are expected to support top-line growth to some extent. Moreover, the alliance with GE Healthcare Life Sciences, a business unit of General Electric Company, is anticipated to unlock fresh sources of revenues for the company in the biopharmaceutical markets.

In addition, favorable trends in the U.S. construction markets are expected to bolster top-line performance of Commercial & Residential Solutions segments, thereby driving growth in the to-be reported quarter. Moreover, the company's commitment toward restructuring its portfolio, which included divestiture of InterMetro business to Ali Group for an undisclosed amount, and certain cost-cutting strategies are likely to act as tailwinds during the quarter.

Earnings Whispers?

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

Zacks ESP : Emerson currently has an ESP of -1.96% for the quarter. This is because the Most Accurate estimate of 50 cents per share stands below the Zacks Consensus Estimate of 51 cents.

Zacks Rank : Emerson carries a Zacks Rank #4 (Sell).

We caution investors against the stock going into the earnings announcement, as an Earnings ESP of -1.96%, combined with a Zacks Rank #4, lowers the possibility of an earnings surprise.

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:

The Earnings ESP for Old National Bancorp ONB is +17.86%. The company carries a Zacks Rank #2, and is slated to report on Feb 1.

Autoliv, Inc. ALV has an Earnings ESP of +5.85% and a Zacks Rank #2 (Buy). The company is expected to release fourth-quarter and full-year 2015 earnings results on Jan 29.

Tenneco Inc. TEN has an Earnings ESP of +4.39% and a Zacks Rank #3. The company is expected to release fourth-quarter and full-year 2015 results on Feb 9.

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EMERSON ELEC CO (EMR): 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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