Here at the Fool, we love our seasons: football season, flip-flop season, and our favorite, earnings season. It's that wonderful time of year when we get to celebrate those picks that outperformed and be humbled by those that didn't.
Each quarter we get to arm ourselves with a new set of expectations and estimates to better judge the economic landscape. We don't always nail our bets, but taking the initiative to learn about the expectations for a given sector will place investors well ahead of many of their peers. Woody Allen put it best when he observed that "80% of success is showing up."
With that in mind, here's what you can expect to see out of some of the biggest consumer-goods companies this earnings season just by showing up and staying engaged.
Source: S&P Capital IQ.
Consumer-goods companies tend to show remarkable resilience in tough times. In fact, historical performance shows that during the depths of the financial crisis, this sector hardly registered the news, falling only 16% from its 2008 high. This poise isn't without consequence, though, as these behemoths tend to lose out on big market runups. From its 2009 lows until today, this sector has underperformed the S&P by almost 17%.
Big isn't boring
Being stable doesn't necessarily equate to lack of excitement, though. There's a lot going on in this industry, including shifting commodities costs and division spinoffs. Here are some of the earnings you can expect from your favorite household names.
|Coca-Cola (NYS: KO)||Oct. 18||1.02||0.92||10.9%|
|Dr Pepper Snapple (NYS: DPS)||Oct. 26||0.7||0.6||16.7%|
|Kraft Foods (NYS: KFT)||Nov. 2||0.55||0.47||17%|
|Kellogg (NYS: K)||Nov. 3||0.89||0.9||(1.1)%|
|Hain Celestial Group (NAS: HAIN)||Nov. 4||0.29||0.25||16%|
|Hansen Natural (NAS: HANS)||Nov. 4||0.88||0.72||22.2%|
|National Beverages (NAS: FIZZ)||Dec. 12||N/A**||0.26||N/A|
|General Mills (NYS: GIS)||Dec. 18||0.79||0.76||3.9%|
|ConAgra Foods (NYS: CAG)||Dec. 22||0.43||0.45||(4.4)%|
*Dates from S&P Capital IQ. Earnings from Yahoo! Finance.
** There are currently no estimates for National Beverages
Generally, analysts are expecting better earnings from this time last year -- and for good reason: PepsiCo (NYS: PEP) recently kicked off the food and beverage earnings season with an impressive showing. Revenue was up 13%, emerging markets looked strong, and the company successfully combated higher commodity costs by passing expenses on to consumers. Will these other companies be able to keep pace? Here are a few areas you can home in on this earnings season to see for yourself.
- International: PepsiCo put up big numbers in emerging markets. Snack volume was up 31% in China and 26% in India, and beverage volume rose 16% in Turkey. And Pepsi isn't the only company seeing dollar signs outside the United States. Kraft recently announced its decision to split into two companies, with one focusing on global snacks and the other on North American grocery. Kraft's global snack division will be looking to emerging markets, where the company currently generates more than 40% of its revenue.
- Commodities: PepsiCo looks to have successfully bucked the commodities specter, which has recently been threatening food and beverage margins. The most recent quarter saw an easing from food-price highs in April, but overall prices still remain high for these companies. I would look at companies that were able to able to mimic PepsiCo's success and grow under these conditions. The ability to do so suggests high pricing power, perhaps through cost-cutting or extreme brand loyalty. No matter which of these traits a company exhibits, it spells good news for investors.
- Volume or unit growth: It's not enough to look at whether a company grew when faced with high commodity prices. Investors need to be cognizant of the type of growth. When we're talking about food and beverage companies, it's volume or unit growth that matters. Being able to sell more cases of a product is a better indication of growth than raising prices is. PepsiCo was able to grow volume and prices in many of its beverage and snack divisions this past quarter.
Foolish final words
By showing that is was possible to grow its business in tough times, PepsiCo made set the bar high for industry peers. To gauge how well these other players perform, I'd compare them with PepsiCo across three categories: performance abroad, ability to manage commodities costs, and ability to grow volume. If they do well, they may have earned a spot in your portfolio. If there is one company in particular you'd like to follow, be sure to add it to your Motley Fool Watchlist, a free service that will keep you updated with all of our best news, coverage, and analysis. You can set it up now -- it's free!
At the time this article was published Austin Smith owns no shares of any company mentioned here. The Motley Fool owns shares of Coca-Cola and PepsiCo. Motley Fool newsletter services have recommended buying shares of Hansen Natural, Kellogg, PepsiCo, and Coca-Cola, as well as creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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