Earnings Scorecard: V.F. Corp.

On October 21, 2010, V.F. Corporation (VFC) reported third-quarter fiscal 2010 earnings per share of $2.22, and handily surpassed the Zacks Consensus Estimate of $2.11. The stronger-than-expected results prompted management to raise its guidance. The company now expects fiscal 2010 earnings in the range of $6.25 to $6.30 per share, up from the previous guidance of $6.10.

Quarterly Review

V.F. Corp.’s 7.0% increase in sales to $2,232.4 million, compared with $2,093.8 million in the prior-year quarter, was aided by strong performance in almost all its businesses. Total revenue surpassed the Zacks Consensus Estimate of $2,210 million.

Low product costs coupled with better gross margins at retail stores and lower inventories supported the gross margin expansion of 200 basis points to 46.5% in the quarter. Operating margin came in at 15.9% compared with 15.2% reported in the prior-year quarter.

The company expects topline growth of 5.0% grossing $7.6 billion in fiscal 2010, compared with the previous guidance of 4–5%.

For full coverage on third quarter earnings, read: V.F. Corporation Beats Estimate.

Agreement of Analysts

Estimate revision trends depict a positive sentiment among analysts for the upcoming fourth quarter of fiscal 2010 and fiscal year 2010. Over the last 30 days, all 14 analysts covering the stock revisited their estimates, positively adjusting it in the upward direction for fiscal 2010.

A similar trend has also been noticed for the fourth quarter of fiscal 2010, where 11 of the 16 analysts covering the stock have lifted their estimates with no downside movement by any analyst in the last 30 days.

Analysts believe that the company continues to deliver strong topline growth augmented by better-than-expected gross margins. Strong results have led to an increase in the guidance for the year. Analysts are of the opinion that the company will continue to retain its topline growth momentum for the rest of the year emanating from its growth prospects in North Face and Vans.

For the first quarter of fiscal 2011 and fiscal year 2011, analysts’ expectations remains somewhat modest. Management commented that the rising cotton prices may hinder expansion of gross margin in fiscal 2011. However, the higher product cost may be mitigated if the company is able to implement price increases coupled with a shift in mix to higher-margin products.

In the last 30 days, 2 analysts out of 6 have revised their estimates downward for the first quarter of fiscal 2011 while 2 analysts revised it in the opposite direction. For fiscal year 2011, 12 analysts out of 17 moved their estimates upward and 2 analysts decreased their estimates.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for V.F. Corp depicts an optimistic analyst outlook for the fourth quarter and fiscal year 2010. Over the last 30 days, estimates for both the fourth quarter of fiscal 2010 and fiscal year 2010 have been increased by 2 and 13 cents, respectively. The estimates for V.F. Corp’s first quarter of fiscal 2011 and fiscal year 2011 have improved by a respective 1 and 11 cents.

Our Recommendation

VF Corp. represents a global growth story with strong financial and operational fundamentals. The company is focused on expanding its specialty retail business in order to showcase its brands profitably and to gain market share. Additionally, the company’s diverse portfolio of brands and strong balance sheet should enable it to capture future growth opportunities.

VF’s products are distributed globally through local retailers, wholesalers, and independent distributors and in international markets. The international business exposes the company to risks such as foreign laws and regulations that could negatively affect operations, foreign consumer preferences, political unrest, disruptions or delays in shipments, and changes in economic conditions in countries where VF manufactures or sells its products.

VF’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. Our long-term recommendation for the stock remains ‘Neutral’.

V F CORP (VFC): Free Stock Analysis Report

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