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Will Food Cost Deflation Dampen Sysco's (SYY) Q4 Earnings?
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Sysco Corporation (SYY - Free Report) is set to report fiscal fourth-quarter 2016 results before the opening bell on Aug 15. Last quarter, this global food products maker and distributor posted a positive earnings surprise of 9.52%.
The company beat earnings estimates in two quarters and reported in-line earnings in the remaining two, translating to an average positive surprise of 6.65%.
Let’s see how things are shaping up prior to this announcement.
A strong portfolio of businesses and continued acquisitions have been driving the company’s growth. Sysco’s expense management initiatives are reducing administrative costs and thereby boosting operating profits. It is also encouraging that Sysco has delivered higher gross margins in the past one year, after witnessing declining gross margins since the last two fiscal years. It seems that the company’s growth strategy is paying off and its efforts to boost sales and margins are likely to impact the company’s results in the to-be-reported quarter.
However, Sysco expects food cost deflation and currency translation to unfavorably impact fourth quarter results. The company witnessed 0.2% deflation in the first quarter, 1.2% in the second quarter and 0.4% in the third quarter of fiscal 2016. The company believes that deflation headwinds will persist in the fourth quarter as well, which will result into soft earnings growth.
Unfavorable currency headwind is also putting pressure on sales and earnings, since Canada represents the majority of its international sales. The company continues to witness strength in the US dollar versus the Canadian dollar and the euro, which will hinder sales growth.
Earnings Whispers?
Our proven model does not conclusively show that Sysco is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP for Sysco is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 60 cents.
Zacks Rank: Sysco’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a positive surprise.
We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
Sanderson Farms, Inc. with an Earnings ESP of +4.48% and a Zacks Rank #1.
The J. M. Smucker Company, Inc. (SJM - Free Report) with an Earnings ESP of +4.07% and a Zacks Rank #3.
General Mills, Inc. (GIS - Free Report) with an Earnings ESP of +1.30% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
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Will Food Cost Deflation Dampen Sysco's (SYY) Q4 Earnings?
Sysco Corporation (SYY - Free Report) is set to report fiscal fourth-quarter 2016 results before the opening bell on Aug 15. Last quarter, this global food products maker and distributor posted a positive earnings surprise of 9.52%.
The company beat earnings estimates in two quarters and reported in-line earnings in the remaining two, translating to an average positive surprise of 6.65%.
Let’s see how things are shaping up prior to this announcement.
SYSCO CORP Price and EPS Surprise
SYSCO CORP Price and EPS Surprise | SYSCO CORP Quote
Factors to Consider this Quarter
A strong portfolio of businesses and continued acquisitions have been driving the company’s growth. Sysco’s expense management initiatives are reducing administrative costs and thereby boosting operating profits. It is also encouraging that Sysco has delivered higher gross margins in the past one year, after witnessing declining gross margins since the last two fiscal years. It seems that the company’s growth strategy is paying off and its efforts to boost sales and margins are likely to impact the company’s results in the to-be-reported quarter.
However, Sysco expects food cost deflation and currency translation to unfavorably impact fourth quarter results. The company witnessed 0.2% deflation in the first quarter, 1.2% in the second quarter and 0.4% in the third quarter of fiscal 2016. The company believes that deflation headwinds will persist in the fourth quarter as well, which will result into soft earnings growth.
Unfavorable currency headwind is also putting pressure on sales and earnings, since Canada represents the majority of its international sales. The company continues to witness strength in the US dollar versus the Canadian dollar and the euro, which will hinder sales growth.
Earnings Whispers?
Our proven model does not conclusively show that Sysco is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP for Sysco is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 60 cents.
Zacks Rank: Sysco’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a positive surprise.
We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
Sanderson Farms, Inc. with an Earnings ESP of +4.48% and a Zacks Rank #1.
The J. M. Smucker Company, Inc. (SJM - Free Report) with an Earnings ESP of +4.07% and a Zacks Rank #3.
General Mills, Inc. (GIS - Free Report) with an Earnings ESP of +1.30% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>