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Food & Beverage Stock Q2 Earnings Slated for Jul 26: HSY, KO

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The Q2 earnings season has picked up pace, with 97 companies in the S&P 500 cohort having released their quarterly numbers. According to the latest Earnings Preview, total earnings for these companies are up 8.4% from the same period last year on 5.1% higher revenues, with 78.4% beating earnings estimates and 72.2% surpassing revenue estimates.

Total Q2 earnings are expected to be up +8.6% from the same period last year on a 4.7% revenue improvement. Coming to the Consumer Staples sector, earnings are expected to increase 3.1% in Q2 compared with 4.7% in the previous quarter. Revenues are expected to rise 1.2%, lower than 3% recorded in the last quarter.

The Food industry, within the Consumer Staples sector, has been performing dismally for quite some time now. Major U.S. food companies are striving to retain market share as easy-to-prepare and ready-to-eat convenience food items are gradually losing ground. A shift in consumer preference toward healthier options and a higher level of price consciousness is hurting the industry, making it hard for legacy brands like General Mills Inc. (GIS - Free Report) to boost sales. Nonetheless, effective promotional strategies, introduction of nutritious products, cost-saving and restructuring initiatives might prove beneficial for the food industry at large.

Coming to the Beverage (soft drinks) industry within the Consumer Staples sector, persistent decline in carbonated soft drinks or CSDs and impressive growth in noncarbonated beverages are raising concerns for established players like PepsiCo Inc. (PEP - Free Report) .  Cola companies are gradually reshuffling their portfolio toward healthier options to counter the tepid sales and volumes environment.

Given this backdrop, let’s try to determine how these players – The Hershey Company (HSY - Free Report) and The Coca-Cola Company (KO - Free Report) – are placed ahead of their second-quarter earnings releases before the opening bell on Jul 26.

Hershey, the largest North American manufacturer of quality chocolate and confectionery products, reported a positive 3.97% earnings surprise in the last quarter. Also, the company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 7.65%.

Currently, the company has an Earnings ESP of -3.30% as the Most Accurate estimate is 88 cents, while the Zacks Consensus Estimate is pegged higher at 91 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Hershey Company (The) Price and EPS Surprise

 

Also, Hershey carries a Zacks Rank #3 (Hold). Our proven model does not show an earnings beat for this company this quarter as a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, Hershey has been delivering weak performance in international markets since 2015, primarily due to soft results in China. In fact, China chocolate category sales in the first quarter was flat and also below the market level. The company had earlier expressed that considering the timing of Easter and the projected decline in China sales, second-quarter net sales growth is expected to lag the full-year growth rate (read more: Hershey Q2 Earnings: Disappointment in the Cards?)

For the second quarter, the Zacks Consensus Estimate for earnings is pegged at 91 cents, reflecting an increase of 6.5% year over year, while the consensus for revenues is at $1.65 billion, implying 0.9% year-over-year growth.

Soft drink giant, Coca-Cola posted a negative earnings surprise of 2.27% in the last quarter. However, the company managed to surpass earnings estimates in three of the last four quarters, with an average surprise of 1.51%. Per our model, the company is likely to disappoint this earnings season as it has an Earnings ESP of -1.72% and a Zacks #3.

Coca-Cola Company (The) Price and EPS Surprise

 

The company’s net revenue is also expected to face a 17–18% negative impact from acquisitions, divestitures and other structural items. Coca-Cola also expects currency headwinds to hurt quarterly net revenue by 1–2%

For the second quarter, the Zacks Consensus Estimate for earnings is pegged at 58 cents, showing a 4.1% year-over-year decrease. Meanwhile, the projected sales growth for the current year is $9.75 billion, implying a 15.5% decrease (read more: Coca-Cola Q2 Earnings: Will it Lose Fizz This Season?)
 
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