All posts from Zacks
Zacks in Our Research. Your Success.,

Beverage Stocks' Earnings Roster for Oct 26: BUD, ABEV & SAM

We have seen an encouraging picture of the third-quarter earnings season so far. Of the notable factors influencing the releases, rising momentum on the revenue front is noteworthy. The above-average proportion of positive earnings surprises has also been maintained in the quarter and the estimate revision trend for the December quarter is pretty favorable.

Per the Earnings Preview dated Oct 20, nearly 87 of the S&P 500 members have already reported their results. Out of these companies, approximately 71.3% delivered positive earnings surprises, while 70.1% beat top-line expectations. Notably, earnings for these companies have advanced 9.4% from the same period last year, with revenues up 7.3%.

For Q3 as a whole, total third-quarter earnings for the S&P 500 index are projected to rise 2.6% year over year on 5% growth in revenues.

A Look at Consumer Staples Sector

Beverage stocks form a part of the Consumer Staples sector. Notably, the sector has been on a growth trajectory since the start of the year, supported by buoyant economy and improving consumer confidence despite a competitive landscape and geopolitical turmoil.

In fact, we note that the performance of the index depends upon all 16 Zacks sectors, out of which nine sectors are expected to witness an earnings decline in the third quarter. However, the Consumer Staples sector is likely to witness 1.8% growth for both earnings and revenues. Also, a Zacks Sector Rank of #5 (out of 16), places it at the top 31% of the Zacks classified sectors. Evidently, the sector has gained 8.6% year to date, below than the S&P 500’s growth of 14.4%.  

Coming to the Zacks Alcoholic Beverages industry, it is currently placed at the top 39% (100 out of 256) of the Zacks classified industries. In fact, the industry seems to be gaining from increasing demand for flavored products and higher-priced tequilas, albeit the negative promotions on the evils of drinking. Markedly, the industry gained 24.2% on a year-to-date basis.

Alcoholic Beverage Stocks Reporting on Oct 26

That said, let’s see what awaits these alcoholic beverages stocks that are likely to report third-quarter 2017 earnings on Oct 26.

Our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Anheuser-Busch InBev SA/NV BUD looks good on the back of its robust brand portfolio, solid geographical reach and focus on business expansion. Also, the company keeps introducing near beer alternatives along with no- and low-alcohol beers to resonate with the changing consumer demand. Further, the buyout of SABMiller, which augmented its presence in the brewing space, bodes well. We expect AB InBev to benefit from its constant expansion in the craft beer space in the near term, given the rising demand for this beer category.

However, the company has witnessed sixth consecutive negative earnings surprise in second-quarter 2017, wherein the bottom line also fell year over year. This resulted from persistent weakness in Brazil, negative impact of mark-to-market adjustment and increased finance costs. In fact, management stated that the Brazilian economy is recuperating at a slow rate. Meanwhile, it continues to expect witnessing higher cost of sales due to the lingering currency woes and growth of premium brands. Furthermore, management expects a more volatile scenario in some of its core regions. (Read More: AB InBev Q3 Earnings to Reflect the SABMiller Effect)

Anheuser-Busch Inbev SA Price, Consensus and EPS Surprise

Anheuser-Busch Inbev SA Price, Consensus and EPS Surprise | Anheuser-Busch Inbev SA Quote

Our proven model does not conclusively show that AB InBev is likely to beat earnings estimates this quarter. This is because the company has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.50. While the company’s Zacks Rank #3 increases the predictive power of earnings, we need to have a positive ESP to be confident of a beat. Analysts polled by Zacks expect AB InBev to register a significant improvement in the top and bottom lines during the third quarter.

Let’s take a sneak peek at Ambev S.A. ABEV, which produces, distributes and sells beer, as well as other non-alcoholic beverages and food in the Americas. We note that the company has a murky sales surprise history as it has lagged the Zacks Consensus Estimate for the last four quarters. However, the consensus mark for revenue in the quarter under review is expected to be $3,618 million, up 12.1% year over year.

Also, the company has been witnessing rise in revenues on a year-over-year basis, mainly driven by growth in all its international operation, including Latin America South, Central America and the Caribbean as well as Canada. However, Ambev witnessed declining revenues in Brazil in the last reported quarter. Further, the Brazilian economy remains challenging for the beer industry in the near term as it is recovering at a slow rate.

Ambev S.A. Price, Consensus and EPS Surprise

Ambev S.A. Price, Consensus and EPS Surprise | Ambev S.A. Quote

In fact, the company has delivered in-line earnings for the trailing four quarters now. Ambev has an Earnings ESP of 0.00% with both the Most Accurate estimate and the Zacks Consensus Estimate pegged at 6 cents. Though the company has a Zacks Rank #3, an ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lastly, The Boston Beer Company, Inc. SAM, the leading craft brewer in the United States seems to be gaining from its three point growth plan focused on revival of Samuel Adams and Angry Orchard brands, cost saving initiatives and long-term innovation. Also, its focus on pricing, product innovation and brand development are likely to boost its operational performance and market position. Moreover, the company’s brand-building efforts and initiatives to add new products remain key revenue drivers.

However, depletion trends have been a cause of worry for Boston Beer for quite some time now. Well this kindles hope at one end, soft trends in the craft beer and cider categories raises concern on the other. Further, challenges related to a competitive retail backdrop, can’t be ignored. (Read More: Boston Beer Q3 Earnings Likely to Decline: Here's Why)

Notably, the company’s earnings have outpaced the Zacks Consensus Estimate for last three quarters now, with a trailing four-quarter average beat of 50%. However, our model does not conclusively show that Boston Beer is likely to beat estimates in the quarter. The company has an Earnings ESP of 0.00% with both the Most Accurate estimate and the Zacks Consensus Estimate pegged at $1.84. This estimate shows a significant decline of roughly 26% from the year-ago period. While the company’s Zacks Rank #3 increases the predictive power of earnings, we need to have a positive ESP to be confident of a beat. Also, analysts polled by Zacks expect revenues of $259.1 million for the quarter, down more than 4% on a year-over-year basis.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>

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
Anheuser-Busch Inbev SA (BUD): Free Stock Analysis Report
Boston Beer Company, Inc. (The) (SAM): Free Stock Analysis Report
Ambev S.A. (ABEV): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research