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Food Stocks to Watch for Q3 Earnings on Oct 26: MDLZ and PPC

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The Q3 earnings season so far has portrayed an improvement from the past quarters. According to the Zacks Earnings Trends report, of the 116 S&P 500 members that have reported Q3 results so far, 80.2% have beaten EPS estimates and 62.9% have surpassed top-line expectations.

Total earnings are likely to be up 0.1% on 1.5% higher revenues. In contrast, the consumer staples sector is likely to register a 2.2% increase in earnings on 1.3% revenue growth.

For consumer staples, we have seen Q3 results from 21.9% of the companies, as of Oct 21. Out of the total, 85.7% recorded an earnings beat, while 57.1% trumped revenue estimates. Reported results reveal 4.7% growth in third-quarter earnings despite a 0.9% drop in revenues.

The consumer staples sector has managed to perform fairly well in the past few months, buoyed by rising consumer confidence and an improving economy. Notably, consumer confidence -- a key determinant of the economy's health -- surged for the second consecutive month in September and is now at its highest level since the Great Recession, indicating that the economy is on the recovery path.

Among the food/beverage companies that have already reported their numbers, PepsiCo, Inc. (PEP - Free Report) has again reported stellar Q3 results late last month and also raised its full-year earnings growth target. Last month, General Mills, Inc. (GIS - Free Report) also reported better-than-expected first-quarter fiscal 2017 earnings.

Generally, the top line of most food companies are challenged by soft global retail and consumer demand amid changing consumer tastes. Moreover, economic slowdown in many emerging countries is hurting international sales and profits. However, the domestic business has done comparatively well supported by an improving economic and consumer spending environment.

The companies have also become more innovative in their product lines – removing artificial flavors and colors and using simpler ingredients – to meet changing consumer preferences. Notably, some of these companies have been acquiring complementary brands and companies to strengthen their portfolio.

These initiatives should cushion these companies against growing international headwinds as well as enable them to cater to widely varying consumer tastes in the remainder of 2016.

Let’s take a look at a couple of food stocks that are scheduled to report third-quarter earnings on Oct 26.

Mondelez International (MDLZ - Free Report) , a Deerfield, IL-based global snacks company will report its financial numbers before the opening bell. Last quarter, the company posted a positive earnings surprise of 10.0%.

The company has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 43 cents per share.

Since 2014, higher pricing and category weakness, thanks to soft consumer demand, have been denting Mondelez’s volumes. Moreover, the company generates around 80% of its sales from international markets, which exposes it to considerable currency-related headwinds. This trend is expected to continue in the soon-to-be reported quarter.

MONDELEZ INTL Price and EPS Surprise

 

MONDELEZ INTL Price and EPS Surprise | MONDELEZ INTL Quote

Pilgrim's Pride Corporation (PPC - Free Report) is scheduled to report results after market close. Last quarter, the company posted a negative earnings surprise of 7.69%.

The company’s Earnings ESP of 0.00% and a Zacks Rank #3 (Hold) do not conclusively predict an earnings beat for this quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors like outbreak of Avian Flu, high volatility in consumers’ brand loyalty, dismal economic performance in emerging markets and a stronger U.S. dollar might continue to hurt the company’s results in the to-be-reported quarter. However, these might be partially offset by the impressive growth initiatives undertaken by the company.

PILGRIMS PRIDE Price and EPS Surprise

 

PILGRIMS PRIDE Price and EPS Surprise | PILGRIMS PRIDE Quote

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

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