Emerson (EMR) To Report Q3 Earnings: Is A Beat In Store?

Emerson Electric Co. (NYSE:EMR) is slated to report third-quarter fiscal 2017 results before the opening bell on Aug 1.

In the last reported quarter, the company’s earnings were in line with the Zacks Consensus Estimate. Emerson has an average positive surprise of 4.3% over the trailing four quarters, with two beats, one miss and one in-line earnings.

We expect Emerson to score an earnings beat in the about-to-be-reported quarter.

Why a Likely Positive Surprise?

Our proven model shows an earnings beat for Emerson as it possesses the key components.

Zacks ESP: Earnings ESP for Emerson is +2.94% as the Most Accurate estimate is pegged at 70 cents, higher than the Zacks Consensus Estimate of 68 cents. A positive Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Emerson has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, 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.

The favorable combination of Emerson's Zacks Rank #3 and +2.94% ESP makes us reasonably confident of a positive earnings beat.

Growth Factors this Past Factor

Emerson continues to benefit from global infrastructure growth. Its core businesses hold dominant positions in markets tied to energy efficiency and infrastructure spending. Particularly, the Commercial & Residential Solutions segment is expected to act as a major catalyst for the soon-to-be-reported quarter, fueled by improving trends in the U.S. and Asian construction markets.

Favorable trends in power, life sciences and improving MRO spending by oil and gas are expected to raise the top line for the quarter under review. Also, Emerson’s restructuring efforts, undertaken over the past few quarters, are likely to boost upcoming results. During the fiscal year, Emerson has offloaded three of its businesses – Network Power, Leroy-Somer and Control Techniques – and generated $5.2 billion in proceeds.

These restructuring actions better equips Emerson to cross-leverage its remaining portfolio and navigate between businesses. We believe the streamlined business structure will be conducive to earnings and margin expansion during the fiscal third quarter. During the previous quarter, Emerson’s total segment and EBIT margin increased 40 basis points (bps) and 30 bps, respectively, on a year-over-year basis, on the back of restructuring actions.

This apart, the company is likely to see inorganic growth on the recent Pentair Valves & Controls buyout. Other acquisitions including Locus Traxx, PakSense and Blending & Transfer Systems business of FMC Technologies (NYSE:FTI) are expected to drive third-quarter fiscal sales as well.

Other Stocks to Consider

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

Deere & Company (NYSE:DE) has an Earnings ESP of +5.32% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Barnes Group Inc. (NYSE:B) has an Earnings ESP of +1.45% and a Zacks Rank #2.

Eaton Corporation plc (NYSE:ETN) has an Earnings ESP of +1.72% and a Zacks Rank #2.

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