What's In Store For Shutterfly (SFLY) This Earnings Season?

Shutterfly, Inc. (NASDAQ:SFLY) is set to report second-quarter 2016 results on Jul 27, after the market closes. Last quarter, the online photo-printing service provider posted a positive earnings surprise of 12.37%.

In fact, Shutterfly has surpassed earnings estimates in two of the trailing four quarters with an average positive surprise of 10.73%.

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

Factors to Consider

Shutterfly generally incurs loss in the first three quarters and makes profit in the final quarter of every year because of the seasonal nature of its business. For the second quarter of 2016, the company expects loss per share in a range of 62 cents to 69 cents.

Moreover, the costs related to Shutterfly’s expansion plans could have a negative impact on profits as depreciation and equipment costs for expansion and acquisition of manufacturing facilities will increase expenses. Moreover, the company faces stiff competition from major players such as Alphabet (NASDAQ:GOOGL) Inc. and Facebook, Inc. (NASDAQ:FB) that have been pursuing strategic acquisitions in the technology and Internet space. These companies, with better and effective resources to leverage the buyouts, are eating into Shutterfly’s market share.

Nevertheless, the company’s strategic acquisitions, improved manufacturing facilities, offerings in the growing mobile e-Commerce segment, aggressive promotions, affordable prices and easy-to-use products are its strong points and should boost results in the second quarter.

Further, it is encouraging that the company has posted year-over-year net revenue growth for 61 quarters, consecutively. For the second quarter, net revenue is expected to be in a range of $195 million to $202 million, a year-over-year increase of 6% to 9.9%.

Gross profit margin is expected within 44.8% to 45.3% of net revenue. Adjusted EBITDA is expected in a range of $10 million to $13 million.

Earnings Whispers

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

Zacks ESP: Shutterfly’s ESP is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 66 cents per share.

Zacks Rank: Shutterfly’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a positive surprise.

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

Stocks in the computer and technology sector that has both a positive Earnings ESP and a favorable Zacks Rank are:

Bruker Corporation (NASDAQ:BRKR) with an Earnings ESP of +5.26% and a Zacks Rank #1 (Strong Buy).

Open Text Corporation (NASDAQ:OTEX) , with an Earnings ESP of +1.1% and a Zacks Rank #1.