Kellogg Company (K - Analyst Report) is set to report its second-quarter 2013 results on Aug 1, before the market opens. Last quarter, it reported in-line results. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Overall, the second quarter is expected to be somewhat similar to the first quarter. The first-quarter results were hurt by sluggishness in the U.S. snacks business, higher commodity costs and larger-than-expected currency headwinds. Accordingly, profits declined and the company delivered lower-than-expected top line.
During the second quarter, the softness in the U.S. snacks business is expected to continue. Thus, adjusted operating profit is expected to be relatively flat year over year in the quarter due to higher cost inflation, increased brand building investments to support innovation and softness in snacks.
Our proven model does not conclusively show that Kellogg is likely to beat earnings this quarter. That is because a stock needs to have both a positive earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Positive Zacks ESP: The Earnings ESP is 1.03%.
Zacks #4 Rank (Sell): Kellogg’s Zacks #4 Rank (Sell) lowers the predictive power of ESP because the Zacks #4 Rank, when combined with a positive ESP, makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Sanderson Farms, Inc. (SAFM - Snapshot Report), Earnings ESP of +5.66% and a Zacks Rank #2 (Buy).
Tyson Foods, Inc. (TSN - Analyst Report), Earnings ESP of +8.62% and a Zacks Rank #2 (Buy).
Pilgrim's Pride Corp. (PPC - Snapshot Report), Earnings ESP of +3.57% and a Zacks Rank #2 (Buy)