The earnings season is back and results of consumer staples companies are likely to reflect mixed impacts of the novel coronavirus this time around as well. Markedly, a number of consumer staple companies have been benefiting from rising demand for essential items, stemming from the pandemic-induced stockpiling and increased at-home consumption. Such trends have been driving revenues of several players, especially food stocks, which have been focused on bolstering business through innovation, buyouts and other brand-building initiatives.
Incidentally, with more Americans staying at home and working remotely, the demand for food-related items, especially packaged foods, has risen sharply. Also, to maintain social distancing, consumers are largely reducing the frequency of their shopping trips, and in turn loading pantries at once. Consequently, food companies are witnessing increased demand from retail, mass merchants, supermarkets and e-tail customers, which is also helping counter weak demand from foodservice customers. In fact, many companies, in their last earnings call, cited that they expect continued sluggishness in the foodservice business due to soft away-from-home demand amid increased social-distancing trends.
Apart from this, several consumer staples companies have been battling disruptions in the supply-chain network due to the continued surge in coronavirus cases. Also, players in the sector are witnessing margin pressure from additional costs associated with operating amid COVID-19, along with heightened promotional activities. That being said, their constant measures to save discretionary costs and efforts to preserve cash flow amid the pandemic are likely to have provided some cushion.
So let’s take a sneak peek into three stocks from the Consumer Staples sector, which are slated to report third-quarter 2020 financial results on Oct 29. Per the latest Earnings Preview, the total earnings of the Zacks Consumer Staples sector are expected to be down 2.1% for the quarter under review, with revenues likely to drop 0.6%. Notably, this indicates a sequential improvement from respective earnings and revenue declines of 7.5% and 6.8% witnessed in the preceding quarter.
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here’s How Kellogg is Placed
Kellogg Company K has been benefiting from increased demand for packaged food products amid the coronavirus-led stockpiling. Demand increase for packaged food owing to the pandemic-led higher at-home consumption has been working well for Kellogg’s retail channel business, helping it counter the declines in food sold in the away-from-home network. In the second-quarter earnings call, management stated that it expects a slowdown in net sales growth in the second half of the year. The company expects the away-from-home business to remain soft and the emerging markets to continue battling pandemic-led disruptions and economic recession in the second half of 2020.
Further, the company expects pressure on the gross margin in the second half due to the absence of divestiture-related benefits, a slowdown in volumes, COVID-19-related costs and lower productivity savings, among other factors. In its last earnings release, Kellogg said that it expects to sustain direct costs associated with sanitization, safety and labor. Also, the company pushed certain investments related to brands, supply chain and commercial plans to the second half of 2020. These are likely to have put pressure on operating profits in the second half, especially in the third quarter. Nonetheless, Kellogg has been on track with its saving efforts.
Our proven model does not conclusively predict an earnings beat for Kellogg this season. The company has a Zacks Rank #3 and an Earnings ESP of -3.94%. (Read More: Here's All You Should Note Before Kellogg's Q3 Earnings)
You can see the complete list of today’s Zacks #1 Rank stocks here.
Kellogg Company Price and EPS Surprise
Kellogg Company price-eps-surprise | Kellogg Company Quote
Is a Beat in Store for Kraft Heinz?
The Kraft Heinz Company KHC is witnessing a spike in demand from retail customers owing to greater at-home consumption trends amid the coronavirus outbreak. For third-quarter 2020, management expects year-over-year organic net sales growth in the mid-single-digit band. Further, the company anticipates high-single-digit adjusted EBITDA growth on a constant-currency basis in the quarter. Apart from this, Kraft Heinz is undertaking efforts to boost the e-commerce channel. However, it is incurring additional costs to keep its business operating amid the coronavirus crisis. Also, the impact of sluggish demand in foodservice channels worldwide amid COVID-19 cannot be ignored. Apart from this, management in its last earnings call stated that during the third quarter it expects to see adverse impacts of the divestiture of the McCafe business.
Our proven model predicts an earnings beat for Kraft Heinz this season. The company has a Zacks Rank #3 and an Earnings ESP of +0.80%. (Read More: Here's How Kraft Heinz Looks Ahead of Q3 Earnings)
The Kraft Heinz Company Price and EPS Surprise
The Kraft Heinz Company price-eps-surprise | The Kraft Heinz Company Quote
What’s in the Offing for Archer-Daniels?
Archer-Daniels-Midland Company ADM is grappling with rising SG&A costs and any deleverage in the same is likely to have negatively impacted the bottom line in the third quarter of 2020. In addition, the company has been witnessing soft adjusted-operating profit across its Carbohydrate Solutions segment for a while. Management, in its second-quarter earnings call on Jul 30, said that it expects the Carbohydrate Solutions segment results in the third quarter to remain drab year over year. However, recovering demand for sweeteners and healthy demand for wheat milling along with positive average industry ethanol margins are likely to have provided some cushion.
Nevertheless, the company’s nutrition segment is likely to have benefited from significant gains in human and animal-nutrition businesses. During its last earnings call, management envisioned year-over-year segmental growth of nearly 20% in the second half of 2020. In fact, continued growth in flavors, plant-based proteins and probiotics has most likely driven the human-nutrition business, while synergies from the Neovia buyout and improvements in amino acids have contributed to animal-nutrition results in the quarter under review.
Our proven model does not conclusively predict an earnings beat for Archer-Daniels this season. The company has a Zacks Rank #3 and an Earnings ESP of -1.56%. (Read More: Factors Likely to Decide Archer-Daniels' Q3 Earnings)
Archer Daniels Midland Company Price and EPS Surprise
Archer Daniels Midland Company price-eps-surprise | Archer Daniels Midland Company Quote
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