SUPERVALU Inc. SVU is set to report third quarter fiscal 2016 results on Jan 13. Last quarter, the company posted a negative earnings surprise of 7.14%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
We are encouraged by SUPERVALU’s sales and margin initiatives, which have helped it to counter persistent weakness and deliver solid results in the past few quarters. The company’s recent focus on retail business expansion is also encouraging.
However, the company’s performance has been mixed as all the business segments have not generated profits equally, per media reports. While the Save-A-Lot division has been performing well over the past two years, the retail food segment and the independent business have been sluggish.
The company is also struggling with its cost management efforts. In fact, in order to increase operating efficiency, Supervalu has resorted to ‘single sourcing’ in its independent business. Under this system, the company is supplying goods to retailers who source their products only from Supervalu.
SUPERVALU’s fair price promotion strategy (started in fiscal 2013) has been successful in reducing prices to competitive level, but it has put margins under pressure.
In addition, SUPERVALU is currently facing intense deflation in the grocery sector and difficulties in the pharmacy sector, which management apprehends will continue for the rest of the year. These factors are expected to affect the company’s top line in the to-be-reported quarter.
Earnings Whispers
Our proven model does not conclusively show that SUPERVALU is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to surpass earnings estimates. However, that is not the case here due to the following factors:
Zacks ESP: ESP for SUPERVALU is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 16 cents.
Zacks Rank: SUPERVALU has a Zacks Rank #4 (Sell). 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 momentum.
Stocks to Consider
Here are some other companies that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Flower Foods Inc. FLO, with an Earnings ESP of +4.76% and a Zacks Rank #3.
Treehouse Foods, Inc. THS, with an Earnings ESP of +1.05% and a Zacks Rank #3.
Ingredion Inc. INGR, with an Earnings ESP of +0.72% and a Zacks Rank #3.
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