The earnings season is back in focus and food companies’ prospects appear mixed. While the top line of food players is likely to have benefitted from continued recovery in the foodservice channel and elevated at-home consumption, escalated costs of inputs have been a hurdle.  

Recovery in the foodservice channel, with things opened up and Americans stepping out has been working well for companies in the food space. Traffic has been picking up at restaurants, cafes and other foodservice joints, which again is favoring companies catering to them. As for the retail business – although demand has declined from the year-ago period’s notable spike, it is still above the pre-pandemic levels. This can be attributable to the fact that at-home consumption remains elevated as a number of Americans have cultivated cooking and baking at home as a new habit. These upsides work well for companies offering packaged food and snacks, ready-to-cook meals, meat-based food offerings as well as confectionery and bakery items.

Notably, companies have been making the most of these trends through constant innovation, product upgrades and portfolio refinement via meaningful acquisitions and divestitures. Companies are also focused on making capacity expansions and technology investments to enhance efficiency in their operations. Apart from this, food companies have been undertaking efforts to resonate with consumers’ changing tastes and preferences. To this end, companies have been coming up with organic and nutrient-rich food options as health and wellness have gained further importance amid the pandemic.  A number of companies have been developing their digital capabilities as well, with online shopping gaining prominence.

That being said, escalated input costs remain a concern. Increased raw material, packaging and freight costs have been putting pressure on companies’ margins. Also, companies are incurring the increased cost of labor and transport due to a tough labor market and supply-chain hiccups. Nevertheless, food players have been undertaking prudent saving and pricing measures to combat the cost headwinds. On that note, let’s take a look at a few companies from the food space, which are likely to post an earnings beat this time around.

Making the Right Choice

Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of an earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Per the latest Zacks Earnings Preview, the Consumer Staples sector (which houses food stocks) is likely to witness top-line growth of 9.4%, whereas the bottom line is expected to dip 1.1% this earnings season.

3 Prominent Picks

Mondelez International, Inc. (MDLZ Quick QuoteMDLZ - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +1.57%, is worth a look. The Zacks Consensus Estimate for its fourth-quarter 2021 earnings is pegged at 72 cents. The consensus mark for Mondelez’s earnings has remained stable in the past 30 days. This manufacturer, marketer and seller of snack food and beverage products has a trailing four-quarter earnings surprise of 3.3%, on average.

Mondelez has been benefiting from favorable demand across brands, categories and geographic markets along with gains from buyouts. The company’s focus on pricing also bodes well amid cost headwinds. MDLZ is slated to announce results on Jan 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Hershey Company (HSY Quick QuoteHSY - Free Report) also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +0.90%. The Zacks Consensus Estimate for Hershey’s fourth-quarter 2021 earnings per share has risen by a penny to $1.63. This manufacturer and seller of confectionery products and pantry items has a trailing four-quarter earnings surprise of 4.4%, on average.

The company continues to gain on recovery in away-from-home consumption. Robust at-home consumption has also been contributing to the upside. Apart from this, contributions from acquisitions and pricing have been working well for HSY, which is also battling cost woes. The company is scheduled to release results on Feb 3.

Beyond Meat, Inc. (BYND Quick QuoteBYND - Free Report) is likely to register top-line growth but a bottom-line decline when it reports fourth-quarter 2021 results. The manufacturer, marketer and seller of plant-based meat products has a Zacks Rank #3 and an Earnings ESP of +0.69%. The Zacks Consensus Estimate for Beyond Meat’s bottom line has remained unchanged at a loss of 73 cents in the past 30 days.

BYND has a trailing four-quarter negative earnings surprise of 77.3%, on average. The company has been benefiting from its robust efforts to expand its product base as well as distribution channel. Consumers’ growing inclination toward plant-based meat products, as they are becoming increasingly aware of these products' health benefits, has been working well for Beyond Meat.