Allegion (ALLE) To Report Q1 Earnings: Will It Surprise?

Allegion PLC (NYSE:ALLE) , a provider of safety and security products, is scheduled to release first-quarter 2017 financial numbers, before the opening bell on Apr 27.

In the last reported quarter, the company had posted a negative 6.90% earnings surprise. Notably, the company surpassed the Zacks Consensus Estimate in only one of the last four quarters, resulting in an average earnings miss of 0.62%.

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

Factors at Play

Allegion generates a major portion of its revenues from the U.S. residential sector, especially in the commercial and residential construction and remodeling markets. Its revenues are expected to increase with the gradual recovery in the housing market and strength in consumer spending patterns.

Also, Allegion's acquisitions and focus on innovation are encouraging. Allegion’s continued focus on innovation and investments in new product development drove the vitality index (an overall measure of innovativeness) from single digits in 2014 to high teens in 2016. We expect the improvement to have continued in the first quarter.

Allegion projects double-digit earnings growth given improving free cash flow generation. The company’s performance in 2016 was impressive, courtesy of higher margins and revenues from acquisitions and organic growth. We expect this trend to continue in the to-be-reported quarter.d

However, we are concerned about economic slowdown in certain pockets of the world where Allegion has considerable presence. Moreover, owing to the company’s substantial international presence, volatile currency translations could prove to be a significant headwind.

For the first quarter, the Zacks Consensus Estimate for earnings is pegged at 69 cents a share, reflecting an increase of 13.1% year over year. The consensus estimate for revenues is $536.9 million, pointing at 6.9% year-over-year growth.

Earnings Whispers

Our proven model does not conclusively show that Allegion is likely to beat on 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: Allegion has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 69 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allegion has a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies in the broader industrial products sector that have the right combination of elements to post an earnings beat this quarter:

Deere & Company (NYSE:DE) , with an Earnings ESP of +0.62% and a Zacks Rank #2, is slated to release its quarterly numbers on May 19. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eaton Corporation, PLC (NYSE:ETN) , with an Earnings ESP of +2.30% and a Zacks Rank #2, is scheduled to report its results on May 2.

Parker-Hannifin Corporation (NYSE:PH) , with an Earnings ESP of +0.54% and a Zacks Rank #1, is slated to report its results on Apr 27.

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