Leggett (LEG) Q1 Earnings: What's In Store For The Stock?

Leggett & Platt, Incorporated (NYSE:LEG) is scheduled to release first-quarter 2017 results on Apr 27. The big question facing investors is whether this leading producer of engineered products will be able to deliver a positive earnings surprise in the quarter to be reported.

Though Leggett posted a negative earnings surprise of 8.6% in the last reported quarter, it has outperformed our estimate by an average of 3.2% in the trailing four quarters. However, the Zacks Consensus Estimate for the first-quarter and 2017 has trended downwards over the last 30 days. Also, the current Zacks Consensus Estimate of 59 cents per share for the first quarter reflects a year-over-year decline of 5.8%. Nonetheless, analysts polled by Zacks expect revenues of $966.8 million, up 3% from the year-ago quarter.

Factors Influencing this Quarter

Leggett’s overall 2016 performance remained strong, as the company witnessed record EPS, superb EBIT margin, healthy cash flows and its 45th dividend hike this year. In fact, ever since 1999, Leggett posted its highest ever EBIT margin in 2016. The company remains focused on sustaining the solid momentum in 2017. Leggett aims to achieve volume growth via content gains, new products, enhanced market share and overall market advancement. Backed by these factors, the company also expects robust profit margins and increased EPS for 2017, while it expects sales to grow 5–8%.

However, Leggett’s 2016 performance was impacted by the fluctuating steel prices. While most of the year witnessed raw material deflation, steel prices suddenly began to inflate toward the end of 2016, which had an adverse impact on the fourth-quarter earnings. Management also expects the inflationary pressure to persist in 2017, which may hurt earnings. Additionally, Leggett’s significant global presence exposes it to foreign currency headwinds, which remains a concern.

Leggett’s shares rallied 14.2% in the last six months, underperforming the Zacks categorized Furniture industry’s growth of 19.2%. Given the mixed factors, we prefer to wait and see what’s in store for Leggett this earnings season.

Earnings Whispers

Our proven model does not conclusively show that Leggett is likely to 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. This is not the case here, as you will see below:

Zacks ESP: Leggett currently has an Earnings ESP of +3.39%. This is because the Most Accurate estimate of 61 cents is pegged higher than the Zacks Consensus Estimate of 59 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Stocks Poised to Beat Earnings Estimates

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:

McDonald's Corporation (NYSE:MCD) , expected to report earnings on Apr 28, currently has an Earnings ESP of +3.79% and a Zacks Rank #3.

Sprouts Farmers Market, Inc. (NASDAQ:SFM) , scheduled to release earnings on May 4, currently has an Earnings ESP of +3.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) , expected to release earnings on May 16, currently has an Earnings ESP of +40.35% and a Zacks Rank #3.

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