A number of food stocks are lined up to report earnings this month. Companies in the food space have been benefiting from the recovery in the foodservice channel, with things opening up and Americans stepping out. With curbs lifted, traffic has been picking up at restaurants, cafes and other foodservice joints, which is working out well for companies catering to them.

While retail demand has declined from the year-ago period’s major 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 bakery items.

We note that companies have been making the most of these trends through concerted efforts such as innovation, product upgrades and portfolio refinement via prudent buyouts and divestitures. Some companies have also been focused on making capacity expansions and automation 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. Speaking of which, these 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 capacity as well, with online shopping gaining prominence.

While the abovementioned factors raise optimism about the upcoming results, 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 – stemming from a tight labor market as well as supply-chain bottlenecks. To top it, costs associated with COVID-19 cannot be ignored. Nonetheless, food players have been undertaking prudent saving and pricing measures to battle the cost headwinds.

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 anticipated to witness top-line growth of 10.6% and a bottom-line increase of 1.7% this earnings season.

3 Prominent Picks

Tyson Foods, Inc. (TSN Quick QuoteTSN - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +2.51%, is a solid bet. The Zacks Consensus Estimate for its fourth-quarter fiscal 2021 earnings is pegged at $2.20. The consensus mark for earnings has moved up 4.3% in the past 30 days. This meat products company has a trailing four-quarter earnings surprise of 38.4%, on average. Tyson Foods has been benefiting from strength in the retail channel as well as recovery in the foodservice business. The company’s focus on enhancing operational efficiencies has also been yielding favorably. The company is slated to announce results on Nov 15. You can see the complete list of today’s Zacks #1 Rank stocks here.
 

Hormel Foods Corporation (HRL Quick QuoteHRL - Free Report) also deserves mention. The stock has a Zacks Rank #3 and an Earnings ESP of +1.59%. The Zacks Consensus Estimate for its fourth-quarter fiscal 2021 earnings is pegged at 50 cents. The consensus estimate for earnings has remained stable in the past 30 days. The company has a trailing four-quarter earnings surprise of 0.7%, on average. Acceleration in the foodservice business as well as sustained demand for retail and deli products is an upside for Hormel Foods. Strength in the international business and strategic pricing actions across the portfolio are also contributing to its growth. Apart from this, the producer and marketer of various meat and food products is benefiting from its efforts to boost production.
 

US Foods Holding Corp. (USFD Quick QuoteUSFD - Free Report) is slated to report third-quarter fiscal 2021 earnings on Nov 8. The marketer and distributer of fresh, frozen, and dry food and non-food products has a Zacks Rank #3 and an Earnings ESP of +5.26%. The Zacks Consensus Estimate for earnings has remained unchanged at 52 cents in the past 30 days. The company has a trailing four-quarter earnings surprise of 12.1%, on average. The company has been seeing solid demand for its products and services, with restrictions being relaxed. Focus on utilizing scale and alternate sourcing options has also been aiding.