With the earnings season at its peak, we note that the reporting cycle so far has been quite impressive. Per the Earnings Preview dated Jul 27, 265 S&P 500 members have reported their quarterly numbers. These companies collectively account for 66.2% of the index’s total market capitalization.
Well, 80.8% of these companies have delivered positive earnings surprises, while 72.1% beat top-line expectations. Earnings of these companies have increased 23.6% from the year-ago quarter’s tally, while revenues have risen 10.1%. For the quarter under review, earnings for the S&P 500 companies as a whole are projected to improve 23.6% year over year on revenue growth of 8.8%.
A Glimpse at the Food Industry
The performance of the index is determined by all 16 Zacks sectors, out of which 14 are estimated to witness year-over-year earnings growth this season. The Consumer Staples sector, which also houses major foods stocks, seems to be one of them and is expected to record earnings growth of 8.1% and revenue increase of 3.7%. The sector is currently placed at the bottom 6% (15 out of 16) of all Zacks sectors.
The Food-Miscellaneous industry is also unfavorably ranked and positioned at the bottom 19% (208 out of 256). Notably, consumers’ shift toward healthier and organic offerings has been dragging the performance of several food companies. To top it, increased logistics expenses and input cost inflation have been weighing on the performance. Intense competition has also compelled companies in this space to increase promotional spending. These factors have created significant pricing pressures. Well, such factors have led to a fall of 6.5% in share of the industry, against the S&P 500’s gain of 2.1%.
To combat such headwinds, most food companies have been resorting to innovation and buyouts to introduce products that suit the changing consumer preferences. Companies have also been undertaking buyouts and entering into partnerships to strengthen their portfolio. Additionally, resorting to aggressive cost cutting seems to be the mantra for most companies in this space. Savings generated through such means are being used for financing growth endeavors and also to combat rising expenses.
That said, of the many food companies set to report this week, let’s see what’s in store for the following stocks who are releasing their quarterly results on August 2.
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.
Cost Pressures to Weigh on INGR and POST
Ingredion Incorporated (INGR - Free Report) , a leading global provider of ingredient solutions to diversified industries, is slated to report second-quarter results. The company surpassed estimates in three of the past four quarters, with an average positive surprise of 3%.
Ingredion Incorporated Price, Consensus and EPS Surprise
The company has been executing disciplined cost-management strategies to improve profitability. Further, the company has been investing in regions with adequate growth opportunities. Also, continued growth in specialty sales is expected to be a tailwind in the upcoming quarterly release. Driven by these factors, the consensus mark for net sales for the impeding quarter is pegged at approximately $1,465 million, depicting a rise of almost 0.5% from the prior-year quarter’s tally.
However, Ingredion has been witnessing significant pricing pressures stemming from sharp rises in freight expenses. Higher commodity costs have also been marring results across some regions for the company. Such headwinds are likely to dent the company’s bottom-line performance. Markedly, the Zacks Consensus Estimate for earnings in the to-be-reported quarter is pegged at $1.66, depicting a fall of 12.2% from the year-ago quarter’s figure.
All said, our proven model does not show that Ingredion is likely to beat estimates this quarter as it has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.
Post Holdings (POST - Free Report) , a consumer-packaged goods holding company, is scheduled to report third-quarter fiscal 2018 results. The company has been gaining from strong brand performances, yielding innovations and integration efforts. Further, the company has been on track with saving efforts to eliminate cost-related headwinds. That said, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at $1.13, reflecting a surge of 79.4% year over year. Meanwhile, the consensus estimate for revenues is pegged at $1,571 million, reflecting a 23.5% increase.
However, underlying concerns surrounding increased promotional activities and volatile market conditions are headwinds. These are likely to raise expense burden and dent performance.
Post Holdings, Inc. Price, Consensus and EPS Surprise
We note that the company’s earnings missed estimates in three of the past four quarters, the average negative earnings surprise being 1.4%. Also, our proven model does not show that Post Holdings is likely to beat estimates this quarter. Although the company has an Earnings ESP of +2.66%, it carries a Zacks Rank #4 (Sell), which makes surprise prediction difficult.
PF & K Likely to Gain From Savings & Business Expansion Efforts
Pinnacle Foods Inc has been depicting a sturdy in-market performance for a while. This is mainly attributable to the company’s dedicated endeavors to expand portfolio and customer base. Notably, the Boulder Brands acquisition has been aiding revenue growth for a while. Constant innovations also boost the company’s market share. Additionally, to augment bottom-line performance, the company has an operational excellence program that focuses on generating productivity savings across the supply chain. (Read More: Robust Market Share to Drive Pinnacle Foods' Q2 Earnings)
Such robust initiatives to enhance profits boost optimism for the company’s second-quarter results as well. Notably, the consensus mark for earnings for the quarter under review is pegged at 56 cents, which marks an improvement of 5.6% from the year-ago quarter’s tally. Also, the Zacks Consensus Estimate for overall net sales is currently pegged at $750 million, reflecting a rise of 0.7% from the year-ago quarter’s figure.
Pinnacle Foods Inc. Price, Consensus and EPS Surprise
We note that the company’s earnings have outpaced the Zacks Consensus Estimate by an average of 1.1% in the trailing four quarters, registering a beat in three of them. Further, our proven model shows that Pinnacle Foods is likely to beat estimates this quarter. The company’s Earnings ESP of +4.66%, combined with a Zacks Rank #2, makes us reasonably confident of an earnings beat.
Another company gaining from savings and portfolio-expansion efforts is Kellogg Company (K - Free Report) . The company undertakes frequent acquisitions to strengthen its portfolio. Additionally, it focuses on channeling funds toward product and packaging innovation. It also focuses on improving organic and natural offerings to cater to consumers’ rising preference for such items. (Read More: Kellogg Q2 Earnings: Cost Savings, Growth Efforts to Aid)
These efforts are quite likely to fuel Kellogg’s performance in the upcoming release and also aid the company in mitigating the negative impacts of weak U.S. cereal business. In fact, the Zacks Consensus Estimate for earnings for the second quarter is now pegged at $1.05, depicting a rise of almost 8.3% from the prior-year quarter’s figure. Additionally, the Zacks Consensus Estimate for net revenues is currently pegged at $3,322 million, indicating a rise of roughly 4.2% from the prior-year quarter.
Kellogg Company Price, Consensus and EPS Surprise
Further, our proven model shows that Kellogg is likely to beat earnings estimates this quarter. Kellogg’s Earnings ESP of +0.29%, combined with the company’s Zacks Rank #3, make us reasonably confident of an earnings beat.
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