Natural Disasters & TCJA to Hurt Eaton's (ETN) Q4 Earnings

Eaton Corporation ETN is slated to report fourth-quarter 2017 financial results before the market opens on Feb 1. The power management company delivered a negative earnings surprise of 0.79% in the last quarter. Let’s see how things are shaping up for this earnings season.

Factors to Consider

Eaton expects natural disasters to have an adverse impact of 3 cents on its earnings in the fourth quarter. The company also expects implementation of the Tax Cuts and Jobs Act (TCJA) to result in a one-time tax expense of between $90 million and $110 million and affect fourth-quarter earnings.
 
The Zacks Consensus Estimate for total revenues of $5,090 million in the quarter reflects a 2.3% drop sequentially.  Electric Products segment is a major contributor to Eaton’s total revenues. The Zacks Consensus Estimate of $1,826 million for this segment’s revenues projects a drop of 1.7% sequentially.

Eaton is expected to benefit from its restructuring initiatives. Improvement in economic conditions is likely to result in 3% to 4% increase in organic revenues.

Eaton Corporation, PLC Price and EPS Surprise

Eaton Corporation, PLC Price and EPS Surprise | Eaton Corporation, PLC Quote

Earnings Whispers

Our proven model does not conclusively show that Eaton is likely to beat earnings this quarter as it does not possess the key components. 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. However, that is not the case here as you will see below.

Zacks ESP: The company’s Earnings ESP is +0.47%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Eaton’s Zacks Rank #4 (Sell), when combined with a positive Earnings ESP makes a beat unlikely this quarter.

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

Stocks With Favorable Combination

Eaton does not have the right mix but one can consider a few other companies from the Zacks Industrial Products sector that have the right combination of elements to post an earnings beat this quarter.

Deere & Company DE has an Earnings ESP of +2.65% and a Zacks Rank #2. It is expected to report first-quarter fiscal 2018 earnings on Feb 16. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kennametal KMT has an Earnings ESP of +1.89% and a Zacks Rank #2. It is expected to report second-quarter fiscal 2018 earnings on Feb 2.

Graphic Packaging Holding Company GPK has an Earnings ESP of +0.52% and a Zacks Rank #2. It is expected to report fourth-quarter earnings on Feb 6.

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Graphic Packaging Holding Company (GPK) : Free Stock Analysis Report
 
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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
 
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