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Can Castle Brands (ROX) Pull a Surprise in Q1 Earnings?

Zacks

Castle Brands Inc. ROX is expected to report first-quarter fiscal 2018 results on Aug 8. Last quarter, the company reported in-line results.

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

Factors to Consider

In March, Castle Brands made a strategic investment for an additional 20.1% stake in its affiliate Gosling-Castle Partners Inc. or GCP. Castle Brands has now beefed up its ownership in GCP to 80.1% and extended the terms of the agreement through Mar 2030, with 10-year renewal terms from then on. Sales of Goslings Rum and Beer have increased in the U.S. and internationally since the formation of GCP in 2005. Now, with the increase in ownership, Castle Brands’ strong sales and marketing initiatives are expected to boost Goslings Rum and Beer sales. This will help expand Castle Brands consumer base, thus driving profits.

Castle Brands is also poised to benefit from the National Supply Agreement with Walmart to supply Goslings Stormy Ginger Beer and Goslings Stormy Diet Ginger Beer to all Walmart stores in the U.S. This fortifies Castle Brands’ position in the U.S. market.

For fiscal 2017, Castle Brands net sales increased 7% year over year, driven by solid improvement in Jefferson's bourbons and Goslings Stormy Ginger Beer. This solid momentum is expected to continue in the first quarter of 2018. Notably, the Zacks Consensus Estimate for revenues is pegged at $18.18 million, implying an 8.5% increase.

Earnings Whisper

Our proven model does not conclusively show that Castle Brands is likely to beat earnings this quarter. That 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. That is not the case here, as you will see below.

Zacks ESP: Castle Brands has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at a breakeven.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Castle Brands, Inc. Price and EPS Surprise

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

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

Releases in the Sector

General Mills Inc.’s GIS cost-saving initiatives have helped it post better-than-expected results in fourth-quarter fiscal 2017 along with a solid increase in adjusted operating profit margin. Total revenues however declined 3% year over year owing to lower organic sales.

The Hershey Company HSY beat the Zacks Consensus Estimate for earnings and revenues in second-quarter 2017 by 19.8% and 0.7%, respectively.

Dr Pepper Snapple Group Inc. DPS reported second-quarter 2017 results, with earnings missing the Zacks Consensus Estimate by 2.3% and revenues beating the same by 1.7%.

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