U.S. Markets close in 5 hrs 44 mins

Food Stocks Lined Up for Earnings: SYY, HRL, SJM & CPB

Zacks Equity Research

Food stocks have so far put up a decent show this earnings season. Players in this space are managing to maintain allure on the back of prudent saving plans, efficient pricing structures and innovations to cater to consumers’ changing preferences. The companies have resorted to acquisitions to expand offerings and achieve greater resource strength. Some companies are also trying to broaden market share through augmenting e-commerce presence.

These aspects make us somewhat hopeful regarding the performance of food companies that are housed within the broader Zacks Consumer Staples sector. The sector (which is currently ranked among top 25% out of the 16 Zacks sectors) has gained 15.9% year to date compared with the S&P 500 composite’s rise of 13.7%. Moreover, the latest Earnings Outlook shows that the consumer staples sector’s second-quarter 2019 earnings and revenues are expected to rise 4.6% and 5.7% respectively, from the year-ago quarter’s levels.

However, we are mindful of some of the headwinds, which might dent performance of food companies. In this context, higher input costs are a significant roadblock. This includes steep pricing for supplies like grains, edible oils, vegetables, dairy items and animal feed among others. Moreover, elevated costs of logistics along with increased warehouse and packaging expenses have raised cost burden.

Moreover, as these firms operate in a highly competitive arena, they are compelled to invest heavily in promotional activities. Unfavorable product mix and adverse currency fluctuations are among other threats that cannot be counted out.

That said, we note that some food players are prepping to release quarterly results in the upcoming weeks. Let’s take a look at what’s in store for some of these companies.

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.

Sysco Corporation SYY, a well-known distributor and marketer of food and related products, is slated to release fourth-quarter fiscal 2019 results on Aug 12. The company surpassed earnings estimates in three of the last four quarters, at an average positive surprise of 4%.  

Sysco Corporation Price, Consensus and EPS Surprise

 

Sysco Corporation Price, Consensus and EPS Surprise

Sysco Corporation price-consensus-eps-surprise-chart | Sysco Corporation Quote

 

The company is likely to gain from a strong U.S. Foodservice unit as well as focus on enhancing assortments, making constant innovations and revitalizing brands. It is also striving to invest in technology and enhancing e-commerce operations. Further, the company is striving to reduce costs. We note that for fiscal fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $1.07, reflecting a rise of 13.8% year over year. Meanwhile, the consensus estimate for revenues is pegged at $15.56 billion, reflecting a 1.6% increase year over year.

However, we note that rising supply chain and labor costs along with headwinds in certain international regions might weigh upon the company’s performance. (Read More: Here’s What You Should Note Ahead of Sysco Q4 Earnings)

Our proven model does not show that Sysco is likely to beat estimates this quarter. Although the company has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hormel Foods Corporation HRL, a meat products company, is slated to release third-quarter fiscal 2019 results on Aug 22. The company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, at an average of 4.5%.

Steady growth in the refrigerated food segment along with focus on boosting brand capabilities are tailwinds for the company. However, an unstable tariff environment is likely to weigh upon Hormel Foods’ pork unit in the impending quarter. Also, challenges related to the turkey market and high input costs are concerns.

Hormel Foods Corporation Price, Consensus and EPS Surprise

 

Hormel Foods Corporation Price, Consensus and EPS Surprise

Hormel Foods Corporation price-consensus-eps-surprise-chart | Hormel Foods Corporation Quote

 

The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at 36 cents, which suggests a decline of 7.7% year over year. The consensus estimate for revenues is currently pegged at $2.32 billion, which indicates a slip of 1.6% year over year. Moreover, our proven model doesn’t show that Hormel Foods is likely to beat bottom-line estimates this quarter. It currently carries a Zacks Rank #3 and has an Earnings ESP of 0.00%.

The J. M. Smucker Company SJM is scheduled to release first-quarter fiscal 2020 results on Aug 27. The company has a mixed history of earnings surprises in the trailing four quarters. Smucker has been struggling with lower net price realization across some of its segments. This combined with the divestiture of the U.S. baking business as well as rising operating costs is likely to exert pressure on the to-be-reported quarter’s performance. Nevertheless, we expect gains from savings measures and buyouts to provide some cushion from these headwinds.

The J. M. Smucker Company Price, Consensus and EPS Surprise

 

The J. M. Smucker Company Price, Consensus and EPS Surprise

The J. M. Smucker Company price-consensus-eps-surprise-chart | The J. M. Smucker Company Quote

 

The consensus mark for earnings for the quarter under review is pegged at $1.76, which calls for a drop of 1.1% from the year-ago quarter’s tally. Also, the Zacks Consensus Estimate for net sales is currently pegged at $1.89 billion, which suggests a decline of 0.8% from the year-ago quarter’s figure. Further, our proven model doesn’t show a beat for Smucker in the first quarter. It carries a Zacks Rank #3 but has an Earnings ESP of -0.33%, which makes surprise prediction difficult.

Campbell Soup Company CPB is another food company, which is grappling with weak segments. The company is expected to announce fourth-quarter fiscal 2019 results. Notably, it has been witnessing sluggishness in U.S. soup business for a while. Moreover, headwinds in the Campbell Fresh segment led management to undertake divestitures of Bolthouse Farms, U.S. refrigerated soup and Garden Fresh Gourmet businesses. Such headwinds are likely to put pressure on the company’s performance in the to-be-reported quarter. Nevertheless, gains from acquisitions, innovations in the snack’s category and cost-saving plans are likely to be tailwinds.

Campbell Soup Company Price, Consensus and EPS Surprise

 

Campbell Soup Company Price, Consensus and EPS Surprise

Campbell Soup Company price-consensus-eps-surprise-chart | Campbell Soup Company Quote

 

We note that the Zacks Consensus Estimate for earnings for the impending quarter is pegged at 41 cents, which suggests a rise of almost 64% from the prior-year quarter’s figure. However, the Zacks Consensus Estimate for net revenues is currently pegged at $2 billion, which indicates a decline of nearly 9.8% from the prior-year quarter’s level.

Moreover, our proven model doesn’t show a beat for Campbell this earnings season. It carries a Zacks Rank #3 (Hold), which along with an Earnings ESP of 0.00% makes us less confident of an earnings beat.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Sysco Corporation (SYY) : Free Stock Analysis Report
 
Hormel Foods Corporation (HRL) : Free Stock Analysis Report
 
The J. M. Smucker Company (SJM) : Free Stock Analysis Report
 
Campbell Soup Company (CPB) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research