2014 started on a soft note with concerns over higher gas prices, delayed income tax refunds, and higher payroll taxes. In addition, difficult operating conditions in Europe, and a slowdown in some Asian countries, including China, also weighed on the outlook of consumer staples sector. The sector participants witnessed sluggish growth in the developed markets, while there seemed to be little hope in the emerging markets due to changing pricing policies and an unfavorable currency environment.
However, following an improvement in weather conditions in the second quarter and a better job scenario, the sector is showing signs of growth. Despite macroeconomic challenges, the outlook for the U.S. economy appears promising with the recent bullishness in both the jobs and housing markets.
Thus, it may be a good idea to look at some companies in the consumer staples sector that have the potential to beat earnings in their upcoming releases. These stocks remain well positioned in today's market environment, and could see improved guidance as a result of the aforementioned trends.
The Way to Pick Right Stocks
Obviously, there are quite a few companies in the consumer space, so it may be difficult to pick the right stock for your portfolio. One way to narrow down the list of choices is by looking at stocks with a favorable Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold), and a positive Earnings ESP .
Earnings ESP is our proprietary methodology to determine which stocks have the best chance to surprise in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of positive earnings surprise is as high as 70%.
Here are four consumer staple stocks currently equipped with the right combination of elements to post an earnings beat:
Keurig Green Mountain Inc. ( GMCR )
Based in Waterbury, VT, this company is a provider and wholesale distributer of premium coffee. The company offers coffee, tea as well as other beverages like hot apple cider, cocoa and other dairy-based beverages.
The company has been posting better-than-expected results in the last four quarters, with an average surprise of 11.74% on the back of solid top-line improvement, enhanced operational efficiencies and several strategic alliances in the single-serve brewing category. Analysts have been moving their estimates higher for the company lately, suggesting that good things could be in the cards.
Keurig Green Mountain currently has a Zacks Rank #3 along with an ESP of +2.30%. It is expected to report earnings on Aug 6.
Treehouse Foods Inc. ( THS )
Based in Oak Brook, IL, this company is a food manufacturer servicing primarily the retail grocery and foodservice distribution channels. The company is one of the largest manufacturer of pickles and non-dairy powdered creamer in the United States, and the largest manufacturer of private label salad dressings, powdered drink mixes, and instant hot cereals in the United States and Canada, based on sales volume.
Estimates have largely been moving higher of late, especially for full year 2014 and 2015. Treehouse expects acquisitions to be the prime driver of sales and expects these to contribute over 14% of the sales increase in the upcoming quarter. In addition, the company expects a positive volume/mix of over 5% for the quarter, offsetting a 1% decline due to foreign exchange headwinds.
Treehouse has a Zacks Rank #1 while it has an ESP of +1.21%. The company is scheduled to report earnings on Aug 7.
The J. M. Smucker Company ( SJM )
Smucker is an Orrville, OH-based leading marketer and manufacturer of fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk, and natural foods products in North America. The food manufacturer has been bearing the brunt of lower price realization since fiscal 2013 (ending April) in response to lower input (green coffee) costs, largely in retail and foodservice coffee segment.
With the recent rise in green coffee costs, the company expects to realize higher prices from consumers, which will make up for the volume declines due to higher input costs. Smucker has also provided a favorable view for fiscal 2015 to reflect the rise in coffee costs.
Smucker has a Zacks Rank #3 while it has an ESP of +1.46%. The firm will report earnings on Aug 20.
Colgate-Palmolive Co. ( CL )
This NY-based company is a global dealer in consumer goods and sells its products in over 200 countries and territories around the world.
The company expects to remain on track with its global restructuring program throughout 2014. Further, the company's increased focus on funding-the-growth programs and strategic worldwide pricing endeavors should help boost its bottom line.
Colgate-Palmolive has a Zacks Rank #2 (Buy) while it has an ESP of +1.37%. The firm will report its earnings on Jul 31.
Thanks to the positive trends, consumer confidence has increased significantly in the consumer sector. Thus, investing in these companies, which have an earnings beat potential, should yield strong returns for your portfolio in the short term.
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