Cosmetics Stocks' Earnings Around The Corner: EL, COTY

The second-quarter earnings season (or the quarter ended Jun 30, 2016) is on its last leg. With almost 91.0% of S&P 500 companies already having reported their quarterly results the overall earnings picture is becoming clearer.

Per the latest Zacks Earnings Trends report, almost 71.1% of the companies surpassed earnings estimates, while 52.9% outpaced top-line expectations in the second quarter. The second quarter of 2016 was the fifth quarter in a row to display a declining trend in earnings.

Nevertheless, we note a sequential improvement in earnings. Interestingly, this quarter is witnessing positive revenue growth and is currently reversing the trend displayed in the preceding quarter.

The second-quarter earnings season is critical for investors to ascertain the most attractive picks as the market has somewhat stabilized after Brexit, which shook the global economy in Jun 2016. Post-Brexit, investors became jittery and have been resorting to safe haven stocks.

In this scenario, the consumer sector might be quite reliable. So far, the consumer sector has reported modest results this quarter. In addition, lower gas prices, improved job scenario and increasing consumer confidence have been supporting the improvement in results.

As of Aug 10, 2016, 80.6% companies from the consumer staples sector enlisted in the S&P 500 index have reported second-quarter earnings. Out of these, 72% of the companies have posted an earnings beat, while 52% surpassed revenue estimates.

With the second-quarter earnings cycle nearing its end, the cosmetic industry saw a few bigwigs report earnings this month. Among these were Nu Skin Enterprises Inc. (NYSE:NUS) , Avon Products Inc. (NYSE:AVP) and Elizabeth Arden Inc. (NASDAQ:RDEN) . All these companies reported decent earnings during the quarter.

As we proceed through this week, let’s see how some of the other cosmetic companies like Coty Inc. (NYSE:COTY) and Estee Lauder Inc. (NYSE:EL) are likely to fare when they their quarterly results on Aug 16 and Aug 19, respectively.

Estee Lauder, which has an Earnings ESP of -5.00% and a Zacks Rank #3 (Hold), will be posting fourth quarter fiscal 2016 results on Aug 19. Though stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a higher chance on beating on earnings, the company’s negative Earnings ESP complicates surprise prediction. Last quarter, the company posted a positive surprise 21.67%. The company has surpassed the Zacks Consensus Estimate in all the previous four quarters with an average positive surprise of 17.52%.

Estee Lauder has been posting better-than-expected results over the past several quarters on the back of solid organic sales growth, product innovation and cost-saving measures. We expect these positives to have a favorable impact on the upcoming earnings as well.

However, currency headwinds may impact volumes in the fiscal fourth quarter (Read: Will Q4 Earnings Hold a Surprise for Estee Lauder (EL) Stock?)

Coty Inc. is set to report fourth-quarter fiscal 2016 results on Aug 16. The company carries a Zacks Rank #3 but has an Earnings ESP of 0.00%. In spite of the company’s favorable Zacks Rank, the surprise prediction is complicated by its 0.00% Earnings ESP. Coty reported a negative earnings surprise of 25.00% in the preceding quarter and an average positive surprise of 13.72% for the trailing four quarters. The Zacks Consensus Estimate is currently pegged at 6 cents per share for the quarter.

Don’t miss out on our full earnings release articles for these stocks, as the actual results might hold some surprises!