Smithfield Foods Inc
) is set to report its fiscal third quarter 2013 results on Mar
7. Last quarter it posted a positive surprise of 38.64%. Let's
see how things are shaping up for this announcement.
Growth Factors this Past Quarter
Smithfield's focus on brand building investments and
innovation, restructuring initiatives, improved packaged meat
margins and strong export demand of fresh pork led to the second
quarter earnings beat. However, the company's earnings lagged the
prior-year figure due to sluggish sales and weak margins in the
hog production business. Also, lower meat and hog prices offset
the tailwinds from higher overall volumes. The company's
operating margin declined during the quarter due to rising costs
and lower sales.
Our proven model does not conclusively show that Smithfield is
likely to beat earnings this quarter. That is because a stock
needs to have both a positive Earnings ESP (Read:
Zacks Earnings ESP: A Better Method
)and a Zacks Rank #1, #2 or #3 for this to happen. That is not
the case here as you will see below.
Negative Zacks ESP:
That is because the Most Accurate Estimate stands at 50 cents,
while the Zacks Consensus Estimate is higher at 53 cents, which
results in an ESP of -5.66%.
Zacks Rank #2 (Buy):
Smithfield currently carries a Zacks Rank #2 (Buy), which when
combined with a negative ESP lowers the predictive power of ESP
and makes surprise prediction difficult. We caution against
stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into
the earnings announcement.
We believe that Smithfield's continued focus on brand building
investments and innovation, improving packaged meat margins,
driven by favorable product mix and increased marketing of its
core brands and production of healthier products is expected to
benefit earnings in the upcoming quarter.
Smithfield is increasing its focus on consumer convenience by
introducing more ready-to-eat foods. Moreover, its risk
management strategy is expected to help in limiting the impact of
rising grain costs. The restructuring of the pork segment is also
expected to increase pork production and outweigh the rising
prices of raw materials going ahead. In addition, the company
expects hog prices to normalize in the coming quarter, thereby
making the Hog Production segment profitable.
Other Stocks to Consider
Here are some other meat producing companies you may want to
consider as our model shows they have the right combination of
elements to post an earnings beat this quarter:
Tyson Foods Inc.
), Earnings ESP of +6.52% and Zacks Rank #1 (Strong Buy)
Pilgrim's Pride Corp
), Earnings ESP of +88.89% and Zacks Rank #2 (Buy)
Sanderson Farms Inc
), Earnings ESP of +86.67% and Zacks Rank #3 (Hold)
PILGRIMS PRIDE (PPC): Free Stock Analysis
SANDERSON FARMS (SAFM): Free Stock Analysis
SMITHFIELD FOOD (SFD): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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