The Kraft Heinz Company KHC , TreeHouse Foods, Inc. THS and Ingredion Incorporated INGR fall under the Zacks Food - Miscellaneous industry, which, in turn, is part of the broader Consumer Staples sector. Talking of consumer staples, the space largely includes essentials used in daily lives, which makes it a defensive zone.
Markedly, the sector appears to be in a decent shape this earnings season, reflected by the Earnings Preview
as of Oct 26. A glimpse of the sector's performance reveals that nearly 27.6% of the S&P 500 companies in the sector have already reported quarterly numbers, out of which 75% delivered earnings beat and 62.5% trumped sales estimates. Moreover, earnings grew 5.9%, while revenues were up 1.8%. For this earnings season, the consumer staples sector is expected to post earnings growth of 5% on a 1.1% rise in revenues.
On that note, let's take a sneak peek into how the food industry, which forms a vital part of the consumer staples space, is positioned for the to-be-reported quarter. Is the Food Space in Good Shape?
Quite a few food companies have been witnessing input cost inflation, which along with persistently rising freight expenses are acute concerns. To top these, supply-chain hurdles and rising competition have been marring the performance of many players in the Food - Miscellaneous industry, which is currently ranked among the bottom 21% of more than 250 Zacks industries. Nevertheless, we expect these companies' strategic endeavors like prudent acquisitions, impactful promotional skills and innovations to offer some respite. Additionally, cost-saving and restructuring initiatives should help them combat high input and logistics expenses.
All said, let's delve deep into what's in store for Kraft Heinz, TreeHouse Foods and Ingredion Incorporated, which are slated to report third-quarter 2018 earnings on Nov 1.Well,our proven model shows that for a stock to beat bottom-line estimates, it needs to have a positive Earnings ESP
and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter
. Here's What You Must Note About Kraft Heinz
Kraft Heinz's U.S. segment sales have been declining for more than a year, with lower cheese shipments being a persistent headwind in many quarters. Sales in the region dipped close to 2% year over year in the last reported quarter due to reduced volume/mix stemming from lower shipments of nuts, frozen items and cheese. We note that the U.S. segment accounts for a major portion of Kraft Heinz's revenues. Hence, any sluggishness in the performance of this segment is most likely to affect the company's top line in the third quarter. In fact, Kraft Heinz has been witnessing soft sales in Canada as well. Apart from this, the company is battling escalated input costs. Unfortunately, third-quarter adjusted EBITDA is expected to decline at a greater rate compared with the decline in the first half of 2018. Management expects cost inflation, mainly freight, to put pressure on EBITDA.
Nevertheless, Kraft Heinz is on track with several initiatives to drive savings and optimize operations. These include efforts such as zero-based budgeting and modernization along with capability building within the manufacturing footprint and building a performance driven culture in the company. Further, the company has various innovation initiatives planned in the foodservice space to fuel additional growth across all regions. Also, the company is making innovation efforts in the e-commerce channel, which witnessed more than 75% growth in the second quarter, in the United States. (Read More: Kraft Heinz Q3 Earnings: Weak U.S Segment a Worry
Notably, Kraft Heinz's Earnings ESP of +1.86% combined with a Zacks Rank #3 makes us reasonably confident regarding an earnings beat.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Kraft Heinz Company Price and EPS Surprise
The Kraft Heinz Company Price and EPS Surprise | The Kraft Heinz Company Quote
TreeHouse Foods: Can Strategies Offset Cost Woes?
Additionally, higher freight and commodity costs negatively impacted TreeHouse Foods' direct operating income (DOI) margins that declined across all segments, except Condiments, in the last reported quarter. Freight and commodity costs hurt TreeHouse Foods' gross and EBITDA margins as well. Unfortunately, freight and commodity cost headwinds are expected to linger in 2018, which is a threat for the impending quarter as well. Also, TreeHouse Foods has been witnessing a year-over-year decline in both top and bottom lines for five straight quarters now. Revenues in the second quarter of 2018 were mainly marred by the divestiture of SIF business and SKU rationalization. Also, sales were impacted by adverse volume/mix. Unfortunately, the company anticipates the SKU rationalization efforts and soft volumes across most of its divisions to negatively impact top-line growth in the third quarter.
Nonetheless, TreeHouse Foods is on track with its TreeHouse 2020 strategic plan that has been designed to restructure and realign the business as a whole. Apart from cost savings, the initiative is expected to manage the company's portfolio, and optimize production and supply chain. We expect this strategy along with the company's Structure to Win program to help it battle cost-related worries. Further, focus on acquisitions, and healthy and organic products should provide some cushion to TreeHouse Foods. (Read More: Will Soft Volumes Hurt TreeHouse Foods' Q3 Earnings? )
Although TreeHouse Foods has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.
TreeHouse Foods, Inc. Price and EPS Surprise
TreeHouse Foods, Inc. Price and EPS Surprise | TreeHouse Foods, Inc. Quote
What's in the Cards for Ingredion Incorporated?
This Westchester, Illinois-based provider of nutrition ingredients, sweeteners, biomaterials and starches has a mixed record of earnings surprises in the trailing four quarters. For the quarter under review, the Zacks Consensus Estimate for earnings is pegged at $1.70, which has witnessed a sharp downtrend over the past 30 days. Also, it reflects a decline from $2.21 per share reported in the year-ago quarter.
Further, the consensus mark for revenues stands at $1,486 million compared with $1485 million recorded in the same period last year. Well, Ingredion Incorporated has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell), which shows that the company is unlikely to beat earnings estimates this time around. In fact, we caution against Zacks Rank #4 (Sell) or 5 stocks going into earnings announcement.
Ingredion Incorporated Price and EPS Surprise
Ingredion Incorporated Price and EPS Surprise | Ingredion Incorporated Quote
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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 Ingredion Incorporated (INGR): Free Stock Analysis Report The Kraft Heinz Company (KHC): Free Stock Analysis Report TreeHouse Foods, Inc. (THS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research