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Will Food Stocks KHC & K Dish Out Q1 Earnings Beat Tomorrow?

Zacks Equity Research

The first-quarter earnings season is in focus again and pretty crucial this time owing to the coronavirus-led jitters. However, looking at the food stocks, quite a few of them are likely to have benefited from increased demand from consumers who have been hoarding stocks as they are unable to gauge the duration and severity of the pandemic. However, costs associated with additional efforts to support growth amid the crisis remains a limiting factor.

Apart from this, rising input costs, escalated logistics and packaging expenses, and higher advertising costs have been hurdles for several food stocks. Nonetheless, food players have been focused on undertaking cost-saving and efficient pricing actions to overcome cost-related challenges. Also, they have been benefiting from innovation, buyouts and other brand-building efforts.

That said, we are hopeful about the performance of food stocks even amid the COVID-19 outbreak. In fact, the burgeoning demand for essentials works well for several players in the broader Zacks Consumer Staples sector. Notably, the sector is currently ranked among the top 44% out of the 16 Zacks sectors. The latest Zacks Earnings Preview suggests that the Consumer Staples sector’s first-quarter 2020 earnings are expected to grow 5.6% year over year, with revenues advancing 7.5%.

That said, let’s take a look at these two food stocks, which are scheduled to report first-quarter 2020 results on Apr 30. 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.

Factors Shaping Kraft Heinz’s Fate

The Kraft Heinz Company KHC recently notified that it has been witnessing higher consumer demand. This can be attributed to the panic-induced stockpiling amid the coronavirus outbreak. Impressively, for first-quarter 2020, management expects a net sales increase of nearly 3% year over year. Further, the company anticipates organic net sales growth of approximately 6% in the quarter to be reported. The company had earlier envisioned a low-single-digit decline in organic net sales for the first quarter.

The Kraft Heinz Company Price and EPS Surprise

The Kraft Heinz Company Price and EPS Surprise

The Kraft Heinz Company price-eps-surprise | The Kraft Heinz Company Quote

However, the company informed that it does not expect benefits from increased sales to have had any effect on net income/(loss) from continuing operations, adjusted EBITDA and earnings per share in the first quarter. This is due to additional expenses incurred to support growth. Also, key commodity cost inflation and an increase in manufacturing expenses are concerns.

Our proven model does not conclusively predict an earnings beat for Kraft Heinz this season. The company has a Zacks Rank #2 and an Earnings ESP of -0.13%. (Read More: Factors to Know Ahead of Kraft Heinz Q1 Earnings)

You can see the complete list of today’s Zacks #1 Rank stocks here.

Here’s How Kellogg is Placed

 

Kellogg Company Price and EPS Surprise

Kellogg Company Price and EPS Surprise

Kellogg Company price-eps-surprise | Kellogg Company Quote

Kellogg Company K has been undertaking efforts to restructure its portfolio. In this regard, the company completed the sale of its cookies, fruit snacks, pie crust and ice-cream cones businesses in July 2019. However, the divestiture has been hurting the company’s top line. During the last earnings call, management stated that it expects high seasonality in its business during the first quarter. Apart from these, the company has been struggling with higher input costs.

Nevertheless, Kellogg’s buyouts have been aiding its top line. In this regard, investment in Nigeria-based food distributor — Multipro — is yielding results. Also, the top line has been benefiting from the acquisition of renowned nutrition bar brand, RXBAR (completed in 2017). Further, Kellogg’s focus on augmenting its portfolio through product launches, innovation and marketing initiatives bodes well.

Our proven model predicts an earnings beat for Kellogg this time around. Kellogg carries a Zacks Rank #3 and an Earnings ESP of +3.23%. (Read More: Factors Setting the Stage for Kellogg's Q1 Earnings)

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Kellogg Company (K) : Free Stock Analysis Report
 
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