Key Predictions for BLL & SEE Q1 Earnings Slated on May 3

The Q1 earnings season performance so far has been promising and seems on track to deliver the best performance in seven years. Total earnings for the S&P 500 index are expected to be up 22.6% for this earnings season aided by a rise of 8.4% in revenues. If this materializes, it would surpass fourth-quarter 2017 results where the S&P 500 recorded 13.4% earnings growth on 8.6% revenue growth. To date, 267 S&P 500 members have released results, logging year-over-year earnings growth of 25.1% on 10.3% higher revenues. (Read more: Q1 Earnings Season Good, But Not Great)

 

Industrial Sector Poised for Double Digit Growth

 

The Industrial Products sector, currently placed at the top 6% out of the 16 Zacks sectors, is one of the sectors which are expected to record double-digit earnings growth, mainly driven by the U.S. tax reform. According to our latest projections, the sector is anticipated to log an earnings growth of 35.4% in first-quarter 2018 driven by 15.4% rise in revenues.

 

Industrial production is one of the leading economic indicators for industrial stocks. For first-quarter 2018, industrial production — a measure of output at factories, mines and utilities — rose at an annual rate of 4.5%.

 

Further, the U.S Architecture Billings Index (“ABI”), an economic indicator that provides an approximately nine-to-12 month glimpse into the future of non-residential construction spending activity, was 51 in March — increasing for the sixth straight month. Notably, any score more than 50 indicates billings growth and reflects a healthy business environment.

 

Per the latest report of the Institute for Supply Management (“ISM”), Purchasing Managers Index ("PMI”) was pegged at 59.3% in March. This indicates strong growth in manufacturing for the 19th consecutive month, led by continued expansion in new orders, production activity, employment and inventories. A reading above 50% indicates that the manufacturing economy is generally expanding. New orders index is at 61.9, remaining at or above 60 for the 11th straight month.  Of the 18 manufacturing industries, 17 industries reported growth in March. The only exception being Apparel, Leather & Allied Products.

 

We have two industrial stock reporting earnings on May 3, before the opening bell — Ball Corporation BLL and Sealed Air Corporation SEE. Let’s have a close look at the factors that will impact their first-quarter 2018  results. 

 

Ball Corp. supplies metal packaging products to the beverage, food, personal care, and household industries worldwide. It also supplies aerospace and other technologies and services to government and commercial customers. The company’s earnings outpaced estimates in two of the trailing four quarters, with an average positive earnings surprise of 2.51%.

 

Ball Corporation Price and EPS Surprise

 

Ball Corporation Price and EPS Surprise

Ball Corporation price-eps-surprise | Ball Corporation Quote

Prevalent headwinds in domestic beer consumption are expected to dampen first-quarter results. The Zacks Consensus Estimate for net sales of its Beverage packaging North and Central America segment is pegged at $955 million for the quarter, representing year-over-year increase of 0.6%.

Difficult manufacturing performance is expected to impact the food and aerosol business. The Zacks Consensus Estimate indicates that the company’s Food and Aerosol Packaging segment's revenues are likely to reach $287 million in the to-be-reported quarter, reflecting year-over-year growth of about 5.5%.

Ball Corp.’s Aerospace business is anticipated benefit from the company’s focus on world-class technology and proficiency. The Zacks Consensus Estimate for this segment’s net sales is pegged at $252 million for the quarter, reflecting 6.8% year-over-year improvement.

In Brazil, the company’s volume growth is predicted to be slower than the market rate due to competition. We expect net sales for Ball Corp.'s Beverage packaging, South America segment to be around $382 million, reflecting an increase of around 3% year over year.

Furthermore, the company's performance might have been marred by volatile volumes in the Europe, Middle East and Africa (EMEA) beverage-can business. Our consensus estimates indicate that its sales in the Beverage packaging, Europe segment  will reach $551 million in the first quarter, reflecting year-over-year growth of 8.5%.

Though the company continues to make progress on global finance transformation projects and corporate cost-cutting initiatives, Ball Corporation is likely to face tight supply and demand situation.

Our proven model does not conclusively show that Ball Corporation is likely to beat 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 at least 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here. The Earnings ESP for Ball Corp. is -3.59%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. The company currently carries a Zacks Rank #4 (Sell).

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. (Read more: Ball Corp to Report Q1 Earnings: What's in the Offing?)

Sealed Air is a global leader in food safety and security and product protection. Over the past four quarters, it beat the Zacks Consensus Estimate on one occasion, missing two and meeting one, recording an average negative earnings surprise of 1.89%.

Sealed Air Corporation Price and EPS Surprise

Sealed Air Corporation Price and EPS Surprise

Sealed Air Corporation price-eps-surprise | Sealed Air Corporation Quote

We believe Sealed Air’s top-line in the first quarter will also be supported by enhanced demand for its core product portfolio and accelerated growth in the global protein market along with the e-Commerce sector. Currency is anticipated to have a favorable impact. Ongoing focus on innovations and impact of prior acquisitions will also boost the top line. The Zacks Consensus Estimate for revenues for the first-quarter 2018 is pegged at $1.14 million, representing a year-over-year improvement of 10%.

The company continues to drive profitable growth by improving productivity with its Sealed Air Operational Excellence culture. However, the first quarter is likely to be a low point for EBITDA, primarily due to the timing of its contract pass-through and higher input costs. Further, stranded costs following the Diversey sale remains a headwind. Sealed Air continues to invest in R&D, sales and marketing. Even though these investments will drive future growth, it will affect margins in the near term. The Zacks Consensus Estimates for earnings per share is pegged at 50 cents for first-quarter 2018, up 16% year over year.

Sealed Air currently has an Earnings ESP of -0.60%. Though Sealed Air’s Zacks Rank #2 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise. (Read more: Sealed Air to Report Q1 Earnings: What to Expect?)

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