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Will Sysco (SYY) Q1 Earnings Surprise Despite Headwinds?
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Sysco Corporation (SYY - Free Report) is set to report first-quarter fiscal 2017 results before the opening bell on Nov 7. Last quarter, this global food products maker and distributor posted a positive earnings surprise of 6.67%.
In the trailing four quarters, the company beat earnings estimates in three quarters and reported in-line earnings in the other, which translated to an average positive surprise of 8.32%.
Let’s see how things are shaping up prior to this announcement.
A strong portfolio of businesses and continued acquisitions have remained the driving factors for the company. Sysco’s expense management initiatives are aiding a reduction in administrative costs, thereby boosting operating profits. It is also encouraging to note that the company has delivered higher gross margins in the past one year, after witnessing a decline in the same since the last two fiscal years. It seems that Sysco’s growth strategy is paying off and its efforts to boost sales and margins are likely to impact results in the to-be-reported quarter.
However, Sysco expects food cost deflation and currency translation to unfavorably impact its first-quarter results. The company experienced continued deflation in the past fiscal year in center-of-the-plate protein categories, such as meat and seafood, along with deflation in dairy, which management believes led to soft earnings growth in fiscal 2016. The deflationary trend is likely to pose a hurdle to sales and gross profits in the first half of fiscal 2017.
Unfavorable currency headwinds are also weighing on sales and earnings, since Canada represents the majority of Sysco’s international sales. The company continues to witness strength in the U.S. 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 #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 59 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: Sysco’s Zacks Rank #2 increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.
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 negative estimate revisions.
Stocks to Consider
Here are some companies in the consumer staples sector, which are worth considering, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Sanderson Farms, Inc. with an Earnings ESP of +1.89% and a Zacks Rank #1.
The Kraft Heinz Company (KHC - Free Report) with an Earnings ESP of +2.63% and a Zacks Rank #1.
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Will Sysco (SYY) Q1 Earnings Surprise Despite Headwinds?
Sysco Corporation (SYY - Free Report) is set to report first-quarter fiscal 2017 results before the opening bell on Nov 7. Last quarter, this global food products maker and distributor posted a positive earnings surprise of 6.67%.
In the trailing four quarters, the company beat earnings estimates in three quarters and reported in-line earnings in the other, which translated to an average positive surprise of 8.32%.
Let’s see how things are shaping up prior to this announcement.
SYSCO CORP Price, Consensus and EPS Surprise
SYSCO CORP Price, Consensus and EPS Surprise | SYSCO CORP Quote
Factors to Consider this Quarter
A strong portfolio of businesses and continued acquisitions have remained the driving factors for the company. Sysco’s expense management initiatives are aiding a reduction in administrative costs, thereby boosting operating profits. It is also encouraging to note that the company has delivered higher gross margins in the past one year, after witnessing a decline in the same since the last two fiscal years. It seems that Sysco’s growth strategy is paying off and its efforts to boost sales and margins are likely to impact results in the to-be-reported quarter.
However, Sysco expects food cost deflation and currency translation to unfavorably impact its first-quarter results. The company experienced continued deflation in the past fiscal year in center-of-the-plate protein categories, such as meat and seafood, along with deflation in dairy, which management believes led to soft earnings growth in fiscal 2016. The deflationary trend is likely to pose a hurdle to sales and gross profits in the first half of fiscal 2017.
Unfavorable currency headwinds are also weighing on sales and earnings, since Canada represents the majority of Sysco’s international sales. The company continues to witness strength in the U.S. 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 #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 59 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: Sysco’s Zacks Rank #2 increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.
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 negative estimate revisions.
Stocks to Consider
Here are some companies in the consumer staples sector, which are worth considering, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Avon Products, Inc. with an Earnings ESP of +33.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sanderson Farms, Inc. with an Earnings ESP of +1.89% and a Zacks Rank #1.
The Kraft Heinz Company (KHC - Free Report) with an Earnings ESP of +2.63% and a Zacks Rank #1.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>