Will Volatile Steel Prices Hit Leggett's (LEG) Q2 Earnings?

Leggett & Platt, Incorporated (NYSE:LEG) is slated to release second-quarter 2017 results on Jul 27. The question lingering in investors’ minds is whether this engineered products manufacturer will be able to deliver a positive earnings surprise in the quarter to be reported. The company delivered a positive earnings surprise in the last reported quarter and has outperformed the Zacks Consensus Estimate by an average of 2.3% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 65 cents, reflecting year-over-year dip of 1.5%. We note that our earnings estimate has remained stable over the last 30 days. Notably, analysts polled by Zacks expect revenues of roughly $1 billion, up over 4% from the year-ago quarter.

Leggett forms part of the Consumer Discretionary sector. Per the latest Earnings Trends, the Consumer Discretionary sector’s earnings are expected to fall 1.5%, while revenues are expected to grow 7.8%.



Factors at Play

Being in the third phase of its long-term strategic plan, Leggett is working toward achieving top-line growth of 4–5% annually. In 2017, management expects strength in Automotive, Bedding, Adjustable Bed, Work Furniture, and Geo Components businesses to boost volume growth, which remains a driving factor for sales. Further, management expects sales growth to fuel earnings in 2017, which makes us hopeful of the quarter to be reported.

With steel being one of the company’s key raw materials, Leggett remains exposed to volatility in raw material prices. Evidently, Leggett’s bottom line was hurt by steel price inflation in the first quarter. Also, its performance was impacted by fluctuating steel prices throughout 2016. We believe that persistence of inflationary pressure remains a threat to Leggett’s earnings in 2017.

While shares of Leggett have gained 7.7% so far this year, it has underperformed its industry’s 12.1% growth. All said, let’s wait and see if Leggett can put up a good show this quarter.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Leggettis likely to beat earnings 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Leggett currently carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00% as both, the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 65 cents. The combination of Leggett’s Zacks Rank #3 and ESP of 0.00% makes surprise prediction difficult.

Stocks with Favorable Combination

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:

Dollar General Corporation (NYSE:DG) has an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation (NASDAQ:COST) has an Earnings ESP of +0.50% and a Zacks Rank #3.

Nordstrom, Inc. (NYSE:JWN) has an Earnings ESP of +4.92% and a Zacks Rank #3.

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