Homebuilding companies, under the broader construction sector, seem to be on solid ground. Positives such as an improving economy, modest wage growth, low unemployment levels and positive consumer confidence raise optimism about the homebuilding industry’s performance in 2017.
However, the U.S. housing data has been weak in July/August as inventory shortage has started taking its toll on sales pace and has pushed average home prices higher nationwide. Again, apart from inventory shortage woes and higher land/labor costs, hurricanes Harvey and Irma are expected to have a negative impact to some extent on the companies’ results. That said, the companies anticipate the impact to be temporary and remain confident about the substantial productivity gains in the later part of 2017 and through 2018.
Per our latest Earnings Preview, earnings for the total S&P 500 companies are expected to grow 2.6% from the year-ago period, while revenues will increase 5%. The performance of the index is not restricted to a single sector. Of the 16 Zacks sectors, nine are expected to witness an earnings decline.
Nonetheless, overall, earnings growth for the quarter is on track to mark growth and construction seems to be one of the stand-out sectors. The construction sector’s earnings are expected to increase 8.9% in Q3 compared with 15.5% in the prior quarter. Revenues are also expected to improve 10.6% (8.8% growth in Q2).
Let us take a look at how the following construction companies are placed ahead of their quarterly release on Oct 24.
Masco Corporation (NYSE:MAS) is scheduled to report third-quarter 2017 results on Oct 24, 2017 before the opening bell.
The company managed to surpass/meet the Zacks Consensus Estimate in two of the trailing four quarters, with an average earnings beat of 1.15%.
Masco’s growth in the last few quarters has mostly been driven by steadily growing repair and remodel activity. The trend is expected to contribute in the to-be-reported quarter as well. Notably, over 80% of Masco’s revenues are generated through repair/remodel activity. In the third quarter, the company expects KraftMaid, Masco’s leading repair and remodel brand, to capitalize on its already strong performance with new product launches.
Masco’s Plumbing Products segment, comprising about 46% of the total revenues, is expected to contribute substantially to overall revenue growth in the third quarter. The Zacks Consensus Estimate for Plumbing Products revenues of $953 million reflect a growth of 6% from the year-ago quarter.
The Cabinets segment is expected to return to positive growth trajectory from this quarter, after experiencing year-over-year sales decline for quite some time now. The consensus estimate for segment revenues of $250 million reflects year-over-year growth of 4.6%.
Decorative Architectural Products is expected to grow 5.8% on a year-over-year basis in the third quarter owing to strong pro-paint growth, while the Windows and Other Specialty Products is expected to decline 2.5% in the to-be-reported quarter.
Thus, for the third quarter, the Zacks Consensus Estimate for total revenues is pegged at $1.96 billion, implying 4.3% growth. The Zacks Consensus Estimate for earnings is 53 cents, reflecting a 29% year-over-year increase.
Our proven model hints at an earnings beat for this company this quarter, as Masco has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).,This combination increases the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Currently, the company has an Earnings ESP of +0.19% and carries a Zacks Rank #3.
(Read more: Repair/Remodel Activity to Drive Masco's Q3 Earnings)
PulteGroup Inc. (NYSE:PHM) is scheduled to report third-quarter 2017 results before the market opens.
PulteGroup is well poised to gain traction on the current positive housing scenario. Homebuilding, comprising about 97.5% of the total revenues, is expected to get a boost in the third quarter. The Zacks Consensus Estimate for Homebuilding revenues of $2.3 billion reflect a growth of 17.6% sequentially and 22.5% from the year-ago quarter. On the other hand, consensus estimate for Financial Services revenues of $54 million indicates an increase of 14.2% from the prior quarter and 12.5% year over year.
Overall, for the third quarter, the Zacks Consensus Estimate for total revenues is pegged at $2.33 billion, implying 19.8% growth. The solid improvement in the top line is expected to give a meaningful boost to the company’s earnings. The Zacks Consensus Estimate for earnings stands at 59 cents, reflecting a 37.2% year-over-year increase.
Meanwhile, PulteGroup does not have the right combination of two main ingredients for increasing the odds of an earnings beat. The company carries a Zacks Rank #3 and the Earnings ESP for PulteGroup is -6.22%.
(Read more: Can Higher Home Sales Drive PulteGroup Q3 Earnings?)
The Sherwin-Williams Company (NYSE:SHW) is slated to report third-quarter 2017 results before the market opens.
Recently, the company lowered its profit outlook for the third quarter to reflect the impact of Hurricanes Harvey, Irma and Maria on its operations in Texas, Florida, the Caribbean and neighboring areas as well as disruptions from two earthquakes in Mexico.
Considering the impacts of hurricanes and earthquakes, Sherwin-Williams now expects its core net sales to rise by a low-single digit clip year over year in the third quarter compared with its earlier view of a low to mid-single digit percentage increase.
The company now expects earnings for the third quarter to be in the range of $3.40-$3.70 per share, down from its earlier view of $3.70-$4.10. The revised outlook includes 10 cents per share charge associated with the Valspar acquisition and a 40-60 cents per share increase from Valspar operations.
Thus, total revenues are expected to improve 33.8% from the prior-year quarter as the Zacks Consensus Estimate for sales is $4.4 billion. The Zacks Consensus Estimate for earnings of $4.70 per share reflects a 11% improvement on a year-over-year basis.
Sherwin-Williams is unlikely to beat earnings estimates as it has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
(Read more: Will Hurricanes Hit Sherwin-Williams Q3 Earnings?)
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