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Food Stocks to Watch for Q2 Earnings on Aug 3: K, KHC &THS

The Q2 earnings season has so far seen releases from 41.9% of the consumer staples companies in the S&P 500 cohort. According to the latest Earnings Preview, 53.8% of the companies in the Consumer Staples sector have surpassed earnings and 61.5% have beat revenue expectations. Total earnings for these consumer staples companies increased 2.9%, while revenues declined 2.6%.

Some of the key players in the sector – General Mills Inc. GIS, The Hershey Company HSY – have already released their quarterly numbers. Hershey beat the Zacks Consensus Estimate for earnings and revenues in second-quarter 2017 by 19.8% and 0.7%, respectively. General Mills’ cost-saving initiatives have helped it come up with better-than-expected fourth-quarter fiscal 2017 results along with solid adjusted operating profit margin expansion. Total revenue however declined 3% year over year owing to lower organic sales.

The Food industry, within the Consumer Staples sector, has been performing dismally for quite some time now. Major U.S. food companies are striving to retain market share as easy-to-prepare and ready-to-eat convenience food items are gradually losing ground. A shift in consumer preference toward healthier options and a higher level of price consciousness are hurting the industry, making it hard for legacy brands to boost sales. Nonetheless, effective promotional strategies, introduction of nutritious products, cost-saving and restructuring initiatives might prove beneficial for the food industry at large.

Given this backdrop, let’s try to determine how these players – Kellogg Company K. The Kraft Heinz Company KHC and Treehouse Foods, Inc. THS – are placed ahead of their second-quarter earnings releases on Aug 3.

Kellogg Company, the world's leading producer of cereal and convenience foods, posted a positive earnings surprise of 4.9% in the last quarter. The company surpassed estimates in all of the past four quarters at an average of 6.16%.

Currently, the company has an Earnings ESP of +2.17% as the Most Accurate estimate stands at 94 cents while the Zacks Consensus Estimate is pegged at 92 cents. Also, the stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our proven model shows that Kellogg is likely to beat earnings this quarter. According to our model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 (Hold) to beat earnings.

Kellogg Company Price and EPS Surprise

 

For the second quarter, the Zacks Consensus Estimate for earnings is pegged at 92 cents, up 1.6% year over year. Meanwhile, the consensus estimate for revenues is at $3.15 billion, reflecting a 3.5% decrease. (read more: Kellogg Company Q2 Earnings: Is a Beat in the Cards?)

Kraft Heinz, the fifth-largest food and beverage company in the world, posted a negative earnings surprise of 1.2% in the last quarter. The company has a positive average surprise of 8.09% for the trailing four quarters, beating estimates thrice.

For the second quarter, the company has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +1.04% (Most Accurate estimate is 97 cents while the Zacks Consensus Estimate is 96 cents). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Kraft Heinz Company Price and EPS Surprise

 

The Zacks Consensus Estimate for second-quarter earnings is pegged at 96 cents, up 13.1% year over year. Meanwhile, the consensus estimate for revenues is $6.70 billion, reflecting a 1.3% decrease. (read more: Will Cost Cut Help Kraft Heinz Beat in Q2 Earnings?)

Treehouse Foods, a food manufacturer, primarily serving the retail grocery and foodservice channels, posted a negative earnings surprise of 6.2% in the last quarter. Also, the company missed the Zacks Consensus Estimate by an average of 2.42% in the trailing four quarters.

Treehouse Foods has an Earnings ESP of +2.04% as the Most Accurate estimate stands at 50 cents, higher than the Zacks Consensus Estimate of 49 cents. However, the company carries a Zacks Rank #4 (Sell).

Treehouse Foods, Inc. Price and EPS Surprise

 

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

In an effort to achieve growth, the company continues with its Private Brands’ integration and revised organizational structure to focus more on organic foods. However, these initiatives are yet to yield positive results. The company incurred higher spending with regard to its business structure realignment. Unfavorable pricing, inflationary pressure, higher operating expenses also added to the concerns. Such challenges have led the company to issue a soft guidance for the second quarter, which in terms of earnings, is anticipated to be the lowest in 2017.

The Zacks Consensus Estimate for second-quarter earnings per share is pegged at 49 cents, depicting a year-over-year decline of 9.9%. Further, the analysts polled by Zacks expect revenues of $1.54 million for the said quarter, almost in line with the year-ago sales figure.

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Hershey Company (The) (HSY): Free Stock Analysis Report
 
General Mills, Inc. (GIS): Free Stock Analysis Report
 
Kellogg Company (K): Free Stock Analysis Report
 
Treehouse Foods, Inc. (THS): Free Stock Analysis Report
 
The Kraft Heinz Company (KHC): Free Stock Analysis Report
 
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