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Will Pickle Business Dampen Pinnacle Foods (PF) Q2 Earnings?

Pinnacle Foods Inc. PF is set to report second-quarter 2017 results before the opening bell on Jul 27. The question lingering in investors’ minds is, whether this branded food manufacturer will be able to maintain its positive earnings surprise streak in the to-be-reported quarter. We note that the company has outpaced the Zacks Consensus Estimate in three out of the trailing four quarters, with an average of 3.9%.

Pinnacle Foods forms part of the Consumer Staples sector. Per the latest Earnings Preview, we note that the above mentioned sector’s earnings growth looks decent. While total earnings for the sector are estimated to grow 3.1%, revenues are projected to improve 1.2%.

Let’s delve deeper how things are shaping up for this announcement.

Which Way are Estimates Treading?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company right before the earnings release. The current Zacks Consensus Estimate for the quarter under review has declined by a cent over the last 30 days and is currently pegged at 52 cents. However, it is up 23.5% from 42 cents delivered in the year-ago quarter. Analysts polled by Zacks expect revenues of $765.9 million, up 1.3% from the prior-year period. The stock also carries a VGM Score of ‘‘C’’, which makes it unfavorable for investors.

Pinnacle Foods, Inc. Price, Consensus and EPS Surprise


Pinnacle Foods, Inc. Price, Consensus and EPS Surprise | Pinnacle Foods, Inc. Quote

What the Zacks Model Unveils?

Our proven model does not conclusively show that Pinnacle Foods is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Pinnacle Foods has an Earnings ESP of -1.92%, as the Most Accurate Estimate of 51 cents is below the Zacks Consensus Estimate of 52 cents. A negative ESP makes it unlikely to beat earnings estimates. Further, it carries a Zacks Rank #4 (Sell). It is to be noted that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Influencing the Quarter

Shares of Pinnacle Foods have moved up 3.8% in the last three months against the industry’s decline of 4.7%. The company’s strong portfolio, robust acquisitions and productivity efficiency remain the strengths of the company. However, the stock has been pressurized lately, majorly due to shunned merger speculations with Conagra Brands, Inc. CAG. If market sources were to be believed, talks of possible acquisition of Pinnacle Foods by Conagra Brands, which began on May 31, were shunned within a few days due to price disagreement between both parties.

We also observed that sluggish Specialty segment and Pickle business along with increased expenses have also impacted the company’s performance negatively.

The company has witnessed sluggish net sales and adjusted EBIT for the Specialty segment over the last three quarters, despite solid growth in the Snacks business. Due to a highly competitive and bidding environment for the already low-margin USDA stew business, the company continues to expect Specialty to remain challenged through 2017.

Pinnacle Foods is facing sluggishness in its Pickle business due to continued category weakness and a heightened competitive environment over the last few months. Competition has increased in the form of pricing and innovation, which has put pressure on Vlasic pickles. Though innovation and in-store support for the brand is expected to be rolled out in second-quarter 2017 and is likely to strengthen trends in the second half of the year, we believe the turnaround might take some time.

Regular innovations and related introductory costs have also increased the company’s expenses. Higher expenses were also caused by the enhanced overhead structure of the Boulder Brands business. Increased investment in consumer marketing and input cost inflation also adds to the expenses. We continue to anticipate inflation to adversely impact the company’s profits in the near-term.

Still Interested in Consumer Staples Stocks? Check These

Here are some companies in the Consumer Staples sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Tyson Foods, Inc. TSN has an Earnings ESP of +1.64% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Clorox Company CLX has an Earnings ESP of +0.67% and a Zacks Rank #2.

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