It has been about a month since the last earnings report for V.F. Corporation VFC. Shares have added about 7.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
V.F. Corp. Posts In-Line Q4 Earnings, Guides for 2017V.F. Corporation released fourth-quarter 2016 results, wherein the company’s quarterly adjusted earnings came in at $0.97 a share, in line with the Zacks Consensus Estimate and up 3% year over year. Including one-time items, earnings declined 33% to $0.63 per share. On a currency neutral basis, the adjusted earnings per share grew 8%.Net sales of $3,290.9 million were almost flat with prior-year quarter sales of $3,294.7 million. However, sales lagged the Zacks Consensus Estimate of $3,463 million. Revenues in the quarter gained from strength in international and direct-to-customer platforms, and the Vans business. Total revenue, including royalty income came in at $3,320.6 million, down by a marginal 0.2% year over year. On a currency neutral basis, revenues inched up 1%.The company’s adjusted gross margin improved 160 basis points (bps) to 49.8%, as gains from better pricing, reduced product costs and mix shift toward high margin businesses were somewhat offset by foreign currency headwinds and restructuring charges. Foreign currency hurt adjusted gross margin by 90 bps.Adjusted operating income fell 5% to $509 million, while adjusted operating margin contracted 90 bps to 15.3%. Currency headwinds affected operating margin by 60 bps.Segment DetailsRevenues at Outdoor & Action Sports inched up 2% to $2,133.2 million (on a currency neutral basis as well). The upside was driven by 14% growth in the Vans brand and 4% increase in Timberland revenues, partly neutralized by 8% decline in the North Face brand.Jeanswear revenues of $696.5 million declined 5% year over year (down 4% on a currency neutral basis), due to 13% decline in Lee and 1% fall at the Wrangler brand.Imagewear revenues jumped 15% (up 15% on a currency neutral basis) to $297.9 million, driven by more than 20% rise in Licensed Sports Group operations and a high single-digit improvement in the workwear business.Revenues at Sportswear plunged 17% (on a currency neutral basis as well) to $195.5 million, owing to a sharp decline of 20% in Nautica, along with a 2% fall in the Kipling brand’s revenues in North America.The company’s International revenues rose 5% year over year and grew 7% on a currency neutral basis. On a reported basis, international revenues accounted for 34% of the company’s total revenue, compared with the 33% figure in the year-ago period. Revenues in Europe increased 7% on a currency neutral basis (up 6% on a reported basis) and revenues in the Asia-Pacific region improved 8% on a currency neutral basis (up 6% on a reported basis). Revenues in the Americas (non-U.S.) region advanced 6% on a currency neutral basis (down 1% on a reported basis).Direct-to-Consumer revenues escalated 11% year over year (up 12% on a currency neutral basis) backed by mid-teens growth in both Outdoor & Sports and international businesses. The company’s eCommerce revenues grew 21% in the quarter, exhibiting continued strength. As of the end of the fourth quarter, V.F. Corp. owned 1,507 retail outlets. Overall, direct-to-consumer revenues contributed 37% to V.F. Corp.’s fourth-quarter revenues, compared with 33% in the prior-year quarter.Financial DetailsV.F. Corp. ended 2016 with cash and equivalents of $1,227.9 million, long-term debt of $2,039.2 million and shareholders’ equity of $4,940.9 million. In 2016, the company generated nearly $1,477.9 million in cash flow from operating activities.Further, the company returned over $1.6 billion to stockholders in the form of share buybacks and dividends.OutlookFollowing a decent close to 2016, the company initiated guidance for 2017. Management anticipates 2017 revenues to grow at a low-single digit percentage rate. Foreign currency headwinds are likely to hurt revenues for 2017 by about two percentage points.Further, the company expects revenues for the Outdoor & Action Sports business to rise in the low-single digit percentage range (up mid-single-digit rate on a currency neutral basis). Additionally, Jeanwear revenues are likely to be flat with 2016 level, Imagewear revenues are expected to grow in the low-single digit percentage rate and Sportswear revenues are anticipated to decline in the high-single digit percentage range.Moreover, the company is expected to witness international revenue growth of low-single digit percentage rate (up high-single digit percentage rate on a currency neutral basis), while direct-to-customer revenue is projected to grow in the high-single digit percentage range.V.F. Corp. anticipates gross margin to be flat with 2016 levels at 48.6%, including negative currency impact of roughly 70 bps. Operating margin is expected at about 14%, including 70 bps impacts from currency headwinds.Further, the company envisions earnings per share to decline at a low-single digit percentage rate compared with 2016 adjusted earnings per share of $3.11. On a currency neutral basis, earnings per share is likely to rise in the mid-single digit percentage range.The company expects cash flow from operations of approximately $1.5 billion for 2017, flat with 2016 levels. Capital expenditures are anticipated to be nearly $225 million. Further, the company anticipates returning $1.6 billion to shareholders in the form of dividends and share repurchases.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been 12 revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been 13 downward revisions in the last two months. In the past month, the consensus estimate has shifted lower by 3.2% due to these changes.
V.F. Corporation Price and Consensus
Currently, V.F. Corp's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.
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