Geopolitical Risks in Emerging Markets Create Added Uncertainty For Multinational

Executive Summary

• Geopolitical risks in emerging markets create added uncertainty for multinational companies amid a strong U.S. earnings season

• We spotlight a U.S.-based consumer staples stock that has underperformed partly due to rising input prices

• An industrials mid-cap at a 52-week high is featured ahead of its later-than-usual earnings report

• A small communications stock with exposure to the Middle East moved its earnings date—find out why

Earnings Outliers

Two earnings outliers are featured this week. By using the Z-score, clients can gauge how statistically unusual a company’s earnings date is relative to normal. We analyze five years of earnings trends to develop a normal earnings date. Wall Street Horizon clients are alerted when a firm has an earnings date Z-score greater than 3.0.

Hormel Foods (NYSE:HRL) is a U.S. large-cap food products company in the consumer staples sector. The $25-billion market cap firm based out of Austin, Minnesota, boasts household brands found in the supermarket. The company has struggled with soaring wholesale prices this year, and that is reflected in its stock price that has sharply underperformed the S&P 500. Companies like Hormel must execute on passing through higher wholesale costs to consumers lest its bottom line suffer. Pork inflation specifically will be a key metric to analyze in HRL’s upcoming earnings report.

Acquisition Update And Global Risks

Earlier this summer, Hormel completed its Planters acquisition. The $3.35-billion purchase was announced Feb. 11, but the stock price did not react well in the following days. Also a risk for HRL is its exposure to emerging markets. Bank of America notes that a significant portion of pork production is sourced from China. Overseas production and transport (shipping) constraints to the U.S. are a risk to its global business. On a positive note, wholesale pork prices have retreated in recent months according to BofA.

Rising Costs

Inflation is on the minds of consumers around the world. Labor shortages, elevated raw materials prices and transportation bottlenecks are all being felt. HRL’s quarterly report and conference call on Thursday morning will shed light on all these areas. Wall Street will be watching closely.

Figure 1: HRL Stock Price History (1-Year)

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Outlier Analysis

HRL has a history of reporting Q3 results between Aug. 22 and Aug. 25 before the opening of the market with a Thursday trend.

• May 21 - Wall Street Horizon set a projected earnings date of Aug. 19 based on reporting trends.
• Aug. 9 - HRL issued a press release confirming its Q3 earnings release would come on Sept. 2.

The later-than-usual earnings date results in a high Z-score of 3.89. A conference call is scheduled for 9 a.m. following the announcement. Included in our client alert was a link to the conference call .

Next up is Nordson Corp (NASDAQ:NDSN), a $14-billion market cap industrials company headquartered in Ohio. NDSN engineers and manufactures adhesive products, coatings and sealants among other industrial products. Nordson has been a market leader in recent months as its stock price surged from near $180 in late January to a 52-week high above $230 recently. It has outperformed the industrial sector since the spring. While strong U.S. economic growth this year is certainly a boon to its operations, the company has been active with a recent acquisition and a dividend hike.

Acquisition and Dividend Increase

On Aug. 24, Nordson announced an agreement to acquire NDC Technologies. The $180-million purchase bolsters the firm’s test and inspection platform according to EVP Jeffrey Pembroke. Another important corporate event that investors were pleased to see was a 31% dividend increase announced on Aug. 11. NDSN boasts 58 consecutive years of raising its dividend. With a P/E multiple north of 40x, much of this good news is likely priced into the stock, so investors will want to pay close attention to what is reported on its Q3 earnings release which jumps out as an outlier.

Figure 2: NDSN Stock Price History (1-Year)

Outlier Analysis

NDSN has a history of reporting Q3 results between Aug. 18 and Aug.21.

• May 25 - Wall Street Horizon set an unconfirmed Q2 2021 earnings date of Aug. 2, after the market close, based on reporting trends.
• July 19 - NDSN confirmed via correspondence with Wall Street Horizon that its quarterly results would post on Aug. 30.
• Aug. 4 - NDSN released a press release on Aug. 4 confirming the Aug. 30, after the market close, earnings date, a conference call takes place the following morning.

The much-later-than-usual earnings date results in a very high Z-score of 7.7. Traders should flag this earnings report for potential elevated volatility in shares of NDSN.

Earnings Revision

One company with an earnings revision is profiled this week. Wall Street Horizon gathers and tracks firms from around the world that publicly declare an earnings date, but then publicly change it. By moving a reporting date, a firm indicates there might soon be unusual news that could draw stock price volatility.

VEON Ltd. (NASDAQ:VEON) is a $3-billion market cap holding company based in the Netherlands and listed on the U.S. Nasdaq market along with the Euronext Amsterdam exchange. This small-cap telecom firm in the communications services sector has a sideways stock price this year amid management changes and geopolitical issues facing the company. While the firm is a major provider of connectivity and internet services, its exposure to volatile emerging markets and even some smaller frontier markets can lead to volatility in operations. Its 210 million customers are in Russia and several countries in the Middle East.

Management Changes

VEON’s management team has changed recently (always a warning sign for investors to consider). On July 15, the company announced that Stephen Pusey would be stepping down from his seat on the board. Earlier this month, the firm announced a new Chief People Officer.

Figure 3: VEON Stock Price History (1-Year)

Revision Analysis

VEON has historically reported Q3 results between Aug. 1 and Aug. 6.

• April 30 - Wall Street Horizon set an Unconfirmed Q2 2021 earnings date of July 29, before the market opens, based on reporting trends.
• July 9 - VEON stated via correspondence that it would release results on Sept. 2.
• Aug. 10 - Wall Street Horizon found on VEON's website that they stated they would be reporting Q2 results on 8/30.

As mentioned previously, emerging markets can disrupt its business. That is evident in this much later than normal earnings report due to Russian reporting requirement according to the firm. The earnings date revision resulted in a sky-high Z-score of 11.0.

Conclusion

Global supply constraints, transportation troubles and emerging market jitters are risks for global companies. Investors must stay ahead of important news by closely monitoring corporate events that shed light on a shifting macro landscape. While earnings in the U.S. are on the rise, so too are risks for multinationals with significant emerging market operations.

Written By: Christine Short