Can Kraft Heinz (KHC) Spring a Surprise in Q4 Earnings?

The Kraft Heinz CompanyKHC is scheduled to report fourth-quarter 2016 numbers on Feb 15, after the closing bell.

Last quarter, the company posted a positive earnings surprise of 9.21%.

The packaged food manufacturer delivered positive earnings surprises in all of the past four quarters, the average surprise being 13.88%.

Let's see how things are shaping up for this announcement.

Factors at Play

The company has been witnessing top-line weakness over the past several quarters. Soft spending by U.S. shoppers along with rapid change in consumer preferences and behavior are hurting the company's categories. Kraft Heinz, like many other U.S. food producers, has been struggling due to the shift in consumer preference toward natural and organic ingredients over packaged and processed food.

Organic sales declined 0.1% in the first nine months of 2016 as well. Management noted that consumption trends in a number of categories remained weak in an increasingly competitive retail environment. Organic sales declined in two of the biggest segments in the first nine months of 2016 - 1% in the U.S. and 4.6% in Europe. The company is expected to follow the trend in the to-be-reported quarter as well.

That said, this Pittsburgh, PA-based packaged food company's cost savings initiatives have boosted margins, mainly in the developed markets of the U.S. and Europe. A portion of its savings is also being re-invested in innovation, brand building and marketing to stimulate top-line growth. The company's adjusted EBITDA rose 21.7% year over year in the third quarter, backed by cost savings from restructuring activities/integration program.

For the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 87 cents, reflecting a significant 40.1% year-over-year increase. Meanwhile, our estimate for revenues is $6.77 billion, implying a 5% decline.

Earnings Whispers

Our proven model does not conclusively show that Kraft Heinz will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 87 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Kraft Heinz's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a positive earnings surprise. You can see the complete list of today's Zacks #1 Rank stocks here .

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The Kraft Heinz Company Price and EPS Surprise

The Kraft Heinz Company Price and EPS Surprise | The Kraft Heinz Company Quote

Peer Releases

Mondelez International, Inc. MDLZ reported fourth-quarter 2016 results wherein earnings and revenues missed the Zacks Consensus Estimate. The underperformance was mainly due to a stronger dollar that impacted sales value outside the U.S.

The Hershey Company's HSYfourth-quarter 2016 earnings beat the Zacks Consensus Estimate while sales missed the same. Earnings benefited from higher sales in North America. Hershey's fourth-quarter adjusted earnings per share of $1.17 also beat the year-ago profit of $1.08 by 8.3%.

J&J Snack Foods Corp. JJSF , a leading snack food provider, reported first-quarter fiscal 2017 earnings of 72 cents per share, surpassing the Zacks Consensus Estimate of 64 cents by 12.5%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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