Q2 Earnings: Food Is Good

With the market being topsy-turvy as of late, consumer staples stocks are coming back into vogue.

The appeal of these stocks is their more stable business models and lower beta. What should really attract you, however, are the rising earnings estimates - particularly for food companies.

During the past 4 weeks, 47 full-year forecasts have been raised on companies within Food-Miscellaneous/Diversified, while only 8 have been cut.

The positive revisions have come on the heels of 2 good profit reports.

General Mills Sees Good Demand

Last week, General Mills (GIS - Analyst Report) reported adjusted fiscal fourth-quarter profits of 86 cents per share. The results topped expectations by 5 cents and represented year-over-year growth of 18%.

Revenues increased 5%, though the actual growth would have been higher were it not for currency fluctuations. Domestically, the company saw strong demand for many of its brands, including Cheerios, Bisquick, Yoplait and Totino's. Internationally, sales rose, but GIS could not convert those gains into higher profits because of the dollar.

Nonetheless, General Mills thinks it can continue to grow in fiscal 2010, especially if commodity costs don't rise sharply. The company guided for full-year profits of $4.20 to $4.25 per share. All 14 covering brokerage analysts raised their forecasts in response, pushing the consensus estimate 7 cents higher to $4.25 per share.

General Mills is a Zacks #2 Rank ("buy") stock.

Smuckers Gets A Big Boost From Folgers Acquisition

General Mills' bullish report was preceded by good numbers from J.M. Smucker (SJM - Snapshot Report). SJM topped fiscal fourth-quarter expectations by 41 cents with adjusted profits of $1.02 per share. EPS jumped 40% year-over-year.

The results were inflated by the acquisition of Folgers, which accounted for 42% of sales. However, even when Folgers is excluded, SJM performed well. Pillsbury and Hungry Jack both saw volume gains. Higher prices also had an impact on revenue growth.

Peanut butter sales were down, though the segment is recovering. (The FDA's recall of another manufacturer's peanut products damaged sales across the entire industry.) As was the case with GIS, the stronger dollar was a drag on overall revenue and profit growth.

SJM raised its fiscal 2010 adjusted profit guidance to between $3.65 and $3.80 per share. Previously, the company had guided for profits of $3.62 to $3.72 per share. All of the covering analysts raised their forecasts in response, sending the consensus earnings estimate 38 cents higher to $3.75 per share.

SJM is a Zacks #1 Rank ("strong buy") stock.

Other Food Companies That Could Also Beat

Kellogg Co. (K - Analyst Report) and Corn Products International (CPO - Snapshot Report) could surprise to the upside. Both are Zacks #2 Rank stocks.

K has topped expectations during 8 out of the last 9 quarters. Two analysts recently raised their second-quarter forecasts and 3 raised their full-year forecasts. The consensus estimate calls for K to have earned 81 cents per share last quarter. Kellogg is scheduled to report on Jul 30.

Though CPO disappointed investors with its first-quarter earnings, the company had previously topped expectations for 5 consecutive quarters. One analyst recently raised his second-quarter profit projection and 2 raised their full-year forecasts. The consensus second-quarter estimate calls for profits of 32 cents per share, though the most accurate estimate is far more bullish at 39 cents per share. CPO is scheduled to report on Jul 28.

If K and CPO release good results, Nestle S.A. (NSRGY) could rise in response. Though the company is not scheduled to release first-half results until Aug 12, the full-year consensus estimate has been revised upward by 11 cents higher over the past 30 days. NSRGY is a Zacks #1 Rank stock.

The Zacks Industry Rank List can be viewed at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.