Sony (SNE) Q1 Earnings: What's In The Offing For The Stock?

Sony Corporation (NYSE:SNE) is set to report first-quarter fiscal 2017 results on Aug 1.

Last quarter, the company reported a whopping positive surprise of 171.4%. Sony scored three colossal earnings beats over the trailing four quarters, the average positive surprise being 105.0%.

Let's see how things are shaping up for this announcement.

Factors to Consider

The PlayStation4 console, which is arguably Sony’s biggest growth driver, is going strong even after three years of release, as evidenced by the company’s latest released numbers. The consumer electronics giant announced that it has sold over 60.4 million units of the console to date. PS4 Pro, the upgraded version of PS4 gaming console, and virtual reality (VR) system are likely to act as major profit churners for the gaming business this quarter.

Also, the array of gaming applications for mobile products launched over the past two quarters through ForwardWorks Corporation is likely to boost gaming division revenues in the soon-to-be-reported quarter. Barring the Gaming business, positive industry trends including an uptick in smartphone and image sensor sales for mobile products are likely to drive sales at the Mobile Communications and Semiconductor businesses.

In addition, Sony’s focus on cost-saving initiatives, lower exposure in low-profit geographic regions and reduction in advertising & promotion expenses are expected to boost fiscal first-quarter results. Over the past few quarters, major restructuring efforts and internal shuffles have helped Sony optimize its business structure. This is expected to prove conducive to operating profit growth in the upcoming quarters.

Despite these positives, Sony has been grappling with a host of issues, some driven by market forces, others self-inflicted, impeding top-line growth. High costs in relation to transfer of the battery business, stiff competition in multiple product lines and negative foreign currency translation impact pose headwinds for the future. During the fourth quarter of fiscal 2016, currency headwinds dented profits at multiple segments.

Volatility in panel prices and foreign exchange rates, especially in emerging market currencies, add to Sony’s conerns. This apart, lingering effects of the Kumamoto earthquakes, one of Japan’s most formidable natural disasters in recent times, may prove to be an overhang. Moreover, costs associated with the ongoing restructuring efforts are likely to escalate operating expenses, thus restricting earnings and margin expansion in the quarter under review.

Earnings Whisper

Our proven model does not conclusively show an earnings beat for Sony 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. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 48 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Sony has a Zacks Rank #3, which increases the predictive power of the ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

Cedar Fair, L.P. (NYSE:FUN) has an Earnings ESP of +7.84% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Norwegian Cruise Line Holdings Ltd. (NASDAQ:NCLH) has an Earnings ESP of +1.03% and a Zacks Rank #2.

Time Warner Inc. (NYSE:TWX) has an Earnings ESP of +1.68% and a Zacks Rank #2.

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