Honda (HMC) Q2 Earnings: Is A Disappointment In Store?

Honda Motor Co., Ltd. (NYSE:HMC) is set to report second-quarter (ended Sep 30, 2016) fiscal 2017 results on Oct 31. In the last quarter, the company posted a positive earnings surprise of 32.39%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Honda is concentrating on infrastructural development in North and South America to boost production. The automaker is also focused on introducing new products and expanding its business in Asia to attract more customers. The company’s product launches help boost sales volume. Driven by these, Honda reported a 3.3% rise in U.S. sales to 1.23 million units in the first nine months of 2016. The company also has an impressive line-up of motorcycles.

However, Honda is witnessing declining sales volume in its domestic market, Japan. Sales in the Japanese market fell 6.9% year over year to 466,851 units in the first nine months of 2016.

Moreover, higher research and development expenses are affecting the company’s operating income. It rose 4.3% year over year in first-quarter fiscal 2017 and is expected to increase for the fiscal. Further, Honda is being affected by frequent recalls to fix faulty Takata airbags. The Japanese automaker is the largest customer of the airbags that have been found to occasionally explode and shoot out metal fragments in a crashed vehicle.

Earnings Whispers

Our proven model does not conclusively show that Honda is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Honda’s Earnings ESP is 0.00% because the Most Accurate estimate and the Zacks Consensus Estimate both stand at 59 cents.Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

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

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

Standard Motor Products Inc. (NYSE:SMP) , which is expected to report third-quarter 2016 results on Oct 27, has an Earnings ESP of +4.44% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fox Factory Holding Corp (NASDAQ:FOXF) has an Earnings ESP of +2.56% and a Zacks Rank #1. The company will report third-quarter 2016 financial numbers on Nov 2.

Magna International Inc. (NYSE:MGA) has an Earnings ESP of +1.67% and a Zacks Rank #2 (Buy). The company is expected to release third-quarter 2016 results on Nov 3.

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