The quarterly results of food companies, this earnings season, are likely to reflect benefits from well-chalked pricing initiatives and product innovations. Also, acquisitions and divestitures have enabled many of these companies to refine their portfolio. Such endeavors are likely to have contributed to aggregate revenues in this space.
Players in the industry have also been adhering to prudent cost-saving initiatives, which include moves like streamlining operational structures as well as optimizing manufacturing capacity and supply networks. These are likely to get reflected in margins.
However, companies in the food industry might have faced headwinds like rising input costs. In this context, inflationary trends for supplies like grains, edible oils, vegetables, dairy items, eggs as well as animal feed among others are likely to have been a drag. Moreover, higher logistics, warehouse and packaging expenses are anticipated to have increased cost burden.
Moreover, as these firms operate in a highly competitive arena, they are required to invest heavily in promotional activities. Unfavorable product mix and adverse currency fluctuations are other threats that cannot be counted out.
These aspects make us somewhat apprehensive regarding the performance of food companies. that are housed within the broader Zacks Consumer Staples sector. The sector (which is currently ranked among the bottom 38% out of the 16 Zacks sectors) has lagged the Zacks S&P 500 composite in the past year. The sector gained 6.9% over this period compared with the S&P 500’s rise of 12.4%.
Further, the latest Zacks Earnings Outlook suggests that the consumer staples sector’s third-quarter 2019 earnings are expected to decline 1.4% from the year-ago quarter’s levels. Nevertheless, revenues are likely to rise 5% year on year.
All said, let’s check a few food stocks that are likely to beat estimates this earnings season. 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 a positive 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.
4 Stocks Set to Beat
Investors can count on US Foods Holding Corp. (USFD - Free Report) that markets and distributes fresh, frozen, dry food and non-food products to foodservice customers in the United States. The company is expected to release third-quarter fiscal 2019 earnings on Nov 5. It has an Earnings ESP of +3.33% and a Zacks Rank #1. The Zacks Consensus Estimate for third-quarter earnings has improved by a penny in the past seven days and is currently pegged at 61 cents. The estimate suggests growth of 10.9% from the year-ago quarter’s reported figure. The company has delivered an average positive earnings surprise of 2.1% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
You may also consider Freshpet, Inc. (FRPT - Free Report) . The pet food products manufacturer is expected to release third-quarter 2019 earnings on Nov 12. The stock has a Zacks Rank #2 and an Earnings ESP of +21.74%. The Zacks Consensus Estimate for third-quarter earnings is pegged at 10 cents, suggesting an improvement from break-even earnings in the prior-year quarter.
Tyson Foods, Inc. (TSN - Free Report) also deserves a mention. The company produces, distributes and markets chicken, beef, pork as well as prepared foods products. It is expected to release fourth-quarter fiscal 2019 earnings on Nov 12. It has an Earnings ESP of +1.90% and a Zacks Rank #3. The Zacks Consensus Estimate for fourth-quarter earnings have improved by a penny in the past seven days and is currently pegged at $1.23. The company has delivered an average positive earnings surprise of 7% in the trailing four quarters.
Another worthy mention is Hostess Brands, Inc. (TWNK - Free Report) , a well-known baked food products manufacturer. The company is expected to release third-quarter 2019 earnings on Nov 6. It has a Zacks Rank #3 and an Earnings ESP of +5.41%. The Zacks Consensus Estimate for third-quarter earnings is pegged at 12 cents, indicating a rise of 20% from the year-ago quarter’s reported figure.
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