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TSN vs. K: Which Stock Will Fare Better This Earnings Season?

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The earnings season is in full swing and the picture this quarter has been exceptionally good — with more than usual number of companies delivering better-than-expected performance. Moreover, companies are witnessing significant uptrend in estimates for the current as well as the subsequent quarter.

Per the latest Earnings Trend 251 S&P 500 companies have already put up their quarterly show. Earnings of these companies advanced 16% year over year on the back of 10.5% jump in revenues. Further, 80.5% of these companies topped bottom-line estimates, while 78.1% posted positive revenue surprise.

For the quarter under review, earnings for the total S&P 500 companies are envisioned to rise 13%, with revenues anticipated to grow 7.7%. This fares better than the previous quarter, wherein total earnings rose 6.7% on revenue growth of 5.9%. Encouragingly, out of the 16 Zacks sectors, 14 are estimated to witness year-over-year earnings growth. The Consumer Staples sector, which also houses major foods stocks, seems to be one of them.

How is Consumer Staples Placed?

Well, we are yet to see the main show from this space, with many players scheduled to release earnings this week itself. The Consumer Staples sector seems to be well placed for the season, given favorable economic indicators like improved labor market and healthy consumer spending. To top it, President Trump’s recent tax overhaul is likely to cushion many consumer companies.

Further, we note that growth efforts such as focus on innovations, strategic buyouts as well as product launches, are likely to keep driving the players in this space — including food stocks. However, heightened competition, price wars and input cost inflation remain threats for the sector that is currently ranked among the bottom 44% out of all Zacks sectors. Nevertheless, aggressive cost-saving initiatives and attempts to keep pace with changing consumer patterns are likely to provide cushion.

This is evident from the overall expectations for the sector that gained 6.3% in a year, while the S&P 500 rallied 18.3%. For this earnings season, the bottom line of the Consumer Staples space is envisioned to climb 7.3% year over year with the top line is anticipated to advance 1.9%. While earnings forecast is higher than 3.9% growth witnessed in the preceding quarter, the revenue projection on par with the previous quarter growth. That said, let’s see what awaits the following food stocks that are queued up for earnings releases on Feb 8.

Well our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Tyson Foods or Kellogg?

Tyson Foods, Inc. (TSN - Free Report) is slated to report first-quarter fiscal 2018 results on Feb 8, before the opening bell. We expect Tyson Foods to continue gaining from rise in demand at the chicken and the beef segments. Also, the company’s prepared foods category has been depicting solid growth owing to rising demand for protein-packed brands and synergies from the AdvancePierre’s buyout.

Notably, Tyson Foods has been benefiting from its strategic buyouts, focus on protein-packed brands and nutritious products as well as significant geographical foothold. Impressively, the company witnessed major sales from the markets of Canada, Central America, China, the European Union, Japan, Mexico, Middle East, South Korea and Taiwan.  However, the company’s earnings estimate of $1.51 for the fiscal first quarter depicts a year-over-year decline of roughly 5% from the year-ago period figure. This might be due to the company’s exposure to the risk of raw material price volatility. Also, stiff competition and intense promotions remain headwinds. Rising wage costs also pose threats to Tyson Foods’ operating results.

 

Tyson Foods, Inc. Price and EPS Surprise

 

Tyson Foods, Inc. Price and EPS Surprise | Tyson Foods, Inc. Quote

 

Tyson Foods has an Earnings ESP of -0.17%. Although, the company’s Zacks Rank #3 increases the predictive power of ESP but a negative ESP makes our surprise prediction difficult. Nevertheless, management announced a Financial Fitness Program last quarter, that is expected to enhance operating efficiency in the forthcoming periods. All these initiatives are likely to drive the company in the first quarter. (Read More: Factors You Must Know Ahead of Tyson Foods Q1 Earnings)

Kellogg Company (K - Free Report) is set to report fourth-quarter 2017 results on Feb 8 before the opening bell. Last quarter, the company delivered a positive earnings surprise of 12.9%. The company also surpassed expectations in each of the trailing four quarters, the average beat being 7.88%. However, the company has been witnessing top-line weakness for the last two years, primarily due to lower demand. Particularly, weak performance of its cereal products in developed markets as well as soft U.S. snacks business has been negatively impacting the company.

Further, Kellogg has been struggling due to the shift in consumer preference toward natural and organic ingredients over packaged and processed food. This trend is unlikely to change in the to-be-reported quarter and Kellogg expects its top line to remain subdued in 2017, decreasing 3% from 2016 level on a currency-neutral comparable basis. Nonetheless, given the tepid sales growth, the company is making aggressive efforts toward improving its food offerings. The company is investing in brand building, in-store capabilities along with product and packaging innovation. Further, the company’s sales in Brazil are likely to benefit from the Parati acquisition. The company’s sales are also expected to somewhat benefit from Pringles’ improved performance in Europe.

Cost-savings initiatives like Project K and zero-based budgeting program are also somewhat compensating for the weakness in sales. Although the top line has been weak, Kellogg’s margin growth has been impressive. Pricing and mix improvement is anticipated to give support to its bottom-line growth. Currency headwinds are also expected to diminish, thereby further supporting EPS growth. Overall, for the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 96 cents, reflecting a 4.4% year-over-year increase. However, this Zacks Rank #3 company has an Earnings ESP of -0.26%, which makes surprise prediction difficult. (Read More: Kellogg Q4 Earnings: What's in Store for the Stock?)

 

Kellogg Company Price and EPS Surprise
 

Kellogg Company Price and EPS Surprise | Kellogg Company Quote

 

Thus, it looks like Kellogg’s earnings growth prospects are better than that of Tyson Foods. However, we prefer to wait and see how things actually shape up for these food stocks this earnings season.

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