ConAgra Foods, Inc. CAG is scheduled to report second-quarter fiscal 2016 results before the opening bell on Dec 22, 2015. Over the last four quarters, the company has generated a positive average surprise of 6.68%, beating the estimates on two out of four occasions. Let’s see how things are shaping up prior to this announcement.
Factors to Influence Q2 Results
ConAgra is trying to improve its financials on the back of greater simplification of its portfolio, product innovations and efficient marketing strategies. The company also attempts to improve its margins with the help of various cost-saving programs. Apart from reduction in expenses, increased productivity and favorable volume and price mix have been driving improvement in operating profit. These positives would likely support the company’s margins in the quarter under review as well.
Moreover, we believe that successful spin-off of the company’s Private Brands segment would aid its revenues and margins, going forward. This is because the segmental performance was persistently deteriorating due to lower production of certain items such as cereal, snacks, in-store bakery, pasta and condiments, thus weighing on the company’s aggregate revenue figures. Also, the acquisition of All Natural Foods will likely help improve ConAgra’s top-line results by tapping the growing demand for frozen foods.
Based on the existing market conditions, ConAgra anticipates earnings for the to-be-reported quarter to stand flat with the year-ago value.
Earnings Whispers
Our proven model conclusively states that ConAgra is likely to beat earnings 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. That is the case here as we will see below.
Zacks ESP: ConAgra currently has an Earnings ESP of +5.09%. This is because the Zacks Consensus Estimate of 59 cents stands below the Most Accurate estimate of 62 cents.
Zacks Rank: ConAgra’s Zacks Rank #2, when combined with a +5.09% ESP, predicts an earnings beat.
Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some other companies that too have the right combination of elements to post an earnings beat this quarter:
Royal Caribbean Cruises Ltd. RCL, with an Earnings ESP of +2.17% and a Zacks Rank #2.
Wyndham Worldwide Corporation WYN, with an Earnings ESP of +1.01% and a Zacks Rank #2.
MCBC Holdings Inc. MCFT, with an Earnings ESP of +18.52% and a Zacks Rank #3.
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