The global leader of sports equipment and apparel maker, Nike Inc. (NKE) is expected to report its first quarter 2011 earnings on Thursday, September 23, 2010. The Zacks Consensus Estimate for the first quarter is $1.01 per share.
Fourth Quarter and Fiscal 2010 Recap
Nike’s fourth quarter 2010 earnings per share came in at $1.06 per share, compared with 99 cents per share in the year-ago quarter and were in line with the Zacks Consensus Estimate. The company reported fiscal year 2010 diluted earnings of $3.86 per share, up 27% year over year.
Total revenue in the quarter jumped 8% to $5.1 billion from $4.7 billion in the prior-year quarter. The company continued to benefit from its strategy of consistently focusing on innovative products that provide a competitive edge over its rivals.
However, total revenue in fiscal year 2010 decreased 1% year over year to $19.0 billion.
Nike ended the quarter with cash and equivalents of $3.1 billion, and a healthy long-term debt-to-capitalization ratio of 4.4%. The company repurchased 2.9 million shares for about $216 million as part of its four-year $5 billion program, approved in September 2008.
Agreement of Analysts
In the last 30 days, out of the 17 analysts covering the stock, 3 analysts have raised their estimates for the first quarter of 2011, while 3 analysts slashed their estimates for the same quarter. In the last 7 days, 3 analysts have revised their estimates upwardly, while 2 analysts have moved in the opposite direction.
The analysts expect impressive results for Nike in the upcoming quarter, aided by the recently ended soccer World Cup and the World Basketball Festival in New York. The company’s strong product line-up and the flexibility to operate with the changing environment make the analysts confident about the quarter’s performance.
Magnitude of Estimate Revisions
With no effect from the earnings revisions by the analysts in the last 30 days, the Zacks Consensus Estimate for the first quarter of 2011 remains unchanged at $1.01 per share.
Taking into effect the analysts’ earnings revision, the Zacks Consensus Estimate for the first quarter of 2011 increased slightly to $1.01 per share from the earnings estimate of $1.00 per share over the last 7 days.
Surprise History
With respect to earnings surprise, Nike shows a favorable trend in the last 4 quarters. The company has recorded mostly positive surprises in the trailing 4 quarters with the stagnant surprise of 0.0% in the fourth quarter of 2010 to the maximum of 13.48% in the third quarter of 2010. On an average basis, the earnings surprise was a positive 9.20%. Based on the current flow, we expect the company to come up with healthy results in the upcoming quarter.
Our Recommendation
Taking into account Nike’s dominance in the athletic industry, we believe that the company has the ability to drive growth consistently. The company’s long-term strategy of aggressively expanding operations in the emerging markets and focus on direct-to-consumer business and other brands add to our positive sentiment.
The unique amalgamation of solid balance sheet strength, free cash flow generation capability and an efficient managerial team will enhance Nike’s top-line performance in the coming quarter.
However, considering the apprehensions about stringent consumer spending and strong competitors across the globe, such as Adidas and Puma, we are compelled to hold on to the Neutral recommendation in the long run.
With an expectation that the stock will perform in line with the broader U.S. equity market over the next one-to-three months, Nike currently has a Zacks #3 Rank (Hold) rating.
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