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Are These 4 Beverage Stocks Poised to Hit Q1 Earnings Targets?

The first-quarter reports of companies in the Beverage industry, mainly comprising the alcohol and soft drink variants, are likely to reflect their abilities to navigate through the changing consumer preferences, global economic shifts and supply-chain challenges. Notably, the beverage industry participants have made strides to keep up with the changing consumer choices by optimizing their portfolios, focusing on core brands, investments in innovation and expansion into adjacent categories.

Consumers have been becoming more health-conscious, driving a shift toward beverages with natural ingredients, lower sugar content and functional benefits, while staying excited for varied flavors and better taste experiences. Within the soft drink space, the plant-based and functional beverage categories have gained significant traction, as consumers seek alternatives to traditional soft drinks. Then again, alcohol companies have been witnessing increased demand for premium and high-end products, as well as a shift toward craft spirits with low or no alcohol content.

Consequently, we believe that the earnings reports of beverage companies will reflect the success of their investments in bringing relevant and innovative products to market.

Additionally, beverage companies are expected to have reaped the benefits of digital and technology-driven investments based on the shifting consumer preference for online shopping. Companies in the industry have been accelerating investments to build strong digital capabilities by piloting numerous digital-enabled fulfillment options. They have been expanding direct-to-consumer channels, loyalty programs and personalized marketing strategies to stay competitive in the digital landscape. We expect the gains from investments in e-commerce and online platforms to get reflected in the top lines of the beverage companies in the to-be-reported quarter.

However, players in the beverage space have been witnessing continued cost pressures from the inflationary environment, particularly higher transportation expenses and elevated commodity costs. The industry players have been experiencing elevated ingredient and other input costs. Fluctuating prices of raw materials, such as grains and fruits, have been key deterrents. Additionally, the companies have been seeing increased packaging costs due to the rise in steel and aluminum costs. Also, higher advertising and promotional expenses, as well as SG&A costs, have been pulling down the margins of beverage companies. Nonetheless, beverage players’ focus on cost-saving and efficient pricing actions are expected to have helped cushion margin pressures in the to-be-reported quarter.

In all, we have mixed views about the earnings outcomes of companies in the beverage industry, which belongs to the Zacks Consumer Staples sector. Notably, the sector is currently ranked among the bottom 25% of the 16 Zacks sectors.

Per the latest Zacks Earnings Trends, the Consumer Staples sector’s first-quarter 2023 earnings are expected to decline 2.2% year over year, with revenues advancing 2.6%.

That said, let us take a look at four Beverage stocks, which are scheduled to report results this week. Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

PepsiCo Inc. PEP has been benefiting from strength and resilience in its diversified beverage and convenient food portfolios, modernized supply chain, improved digital capabilities, flexible go-to-market distribution systems and robust consumer demand trends. PEP’s first-quarter results are expected to reflect gains from improved pricing across all segments. The bottom line is likely to reflect the continued benefits of the mitigation of inflationary pressures through cost-management and revenue-management initiatives.

However, PepsiCo’s first-quarter gross margin is expected to have been partly negated by inflationary labor, transportation and commodity costs. Increased advertising and marketing expenses, along with additional investments to build digital capabilities and integrate purpose throughout the company, are likely to have led to a rise in SG&A expenses in the to-be-reported quarter.

Our proven model conclusively predicts an earnings beat for PepsiCo this time around. The company has a Zacks Rank #3 and an Earnings ESP of +0.50% at present. (Read More: Here's Why PepsiCo Looks Poised for Earnings Beat in Q1)

You can see the complete list of today’s Zacks #1 Rank stocks here.

PepsiCo, Inc. Price and EPS Surprise

 

PepsiCo, Inc. Price and EPS Surprise
PepsiCo, Inc. Price and EPS Surprise

PepsiCo, Inc. price-eps-surprise | PepsiCo, Inc. Quote

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The Boston Beer Company Inc. SAM has been witnessing positive trends, driven by the progress of its Beyond Beer strategy, the premiumization of the beer industry and robust trends for its twisted tea brand. The company’s continued focus on pricing, product innovation, growth of non-beer categories and brand development is likely to have boosted its operational performance and position in the market.

On the operational front, Boston Beer has been benefiting from strong price realization and procurement savings, which more than offset increased inflationary costs. This has been a boon to the gross margin. Additionally, a decline in advertising, promotional and selling expenses on lower freight to distributors due to reduced rates and volumes is likely to have boosted the bottom line in the first quarter.

However, declines in shipments and depletions, as well as continued challenges in the hard seltzer category, have been weighing on the company’s top-line performance. Boston Beer has been witnessing a slowdown in the hard seltzer category and the demand for the Truly brand in recent quarters. The slowing hard seltzer trends have been partly hurting the company’s depletions. Soft performances of Truly Hard Seltzer, Angry Orchard, Samuel Adams and Hard Mountain Dew have been hurting shipments.

Our proven model does not conclusively predict an earnings beat for Boston Beer this time around. The company has a Zacks Rank #5 (Sell) and an Earnings ESP of +66.45%. (Read More: Can Boston Beer Beat on Q1 Earnings Despite Cost Woes?)

The Boston Beer Company, Inc. Price and EPS Surprise

 

The Boston Beer Company, Inc. Price and EPS Surprise
The Boston Beer Company, Inc. Price and EPS Surprise

The Boston Beer Company, Inc. price-eps-surprise | The Boston Beer Company, Inc. Quote

Keurig Dr Pepper Inc. KDP focuses on continued brand strength, significant pricing actions, solid performance in its cold beverages and strong market share gains are likely to have aided its first-quarter performance. In recent quarters, most of Keurig’s sales growth across categories and improvement in organic sales have been pricing-driven. The company has also been confident about delivering sustained organic growth in the to-be-reported quarter.

KDP has been gaining traction in the Refreshment Beverage segment for quite some time now. Higher net price realization and a rise in volume/mix have been the key contributors to the segment’s growth. However, pressures related to input cost inflation, rising transportation costs and supply-chain disruptions are likely to have dented the quarterly performance. This, along with the adverse impacts of higher marketing investment, is expected to have marred the performance. The company has also been witnessing sluggishness in its Coffee segment for a while now.

Our proven model does not conclusively predict an earnings beat for Keurig this time around. The company has a Zacks Rank #3 and an Earnings ESP of -1.30%. (Read More: Keurig Dr Pepper's Q1 Earnings Coming Up: What's in Store?)

Keurig Dr Pepper, Inc Price and EPS Surprise

 

Keurig Dr Pepper, Inc Price and EPS Surprise
Keurig Dr Pepper, Inc Price and EPS Surprise

Keurig Dr Pepper, Inc price-eps-surprise | Keurig Dr Pepper, Inc Quote

Fomento Economico Mexicano FMX, alias FEMSA, has been witnessing solid growth trends across all business units, owing to effective strategies and strong market demand. The company’s efforts to expand in the U.S. specialized distribution segment bode well. FMX's digital initiatives, business expansion endeavors and continued strength in OXXO Mexico and OXXO Gas are also expected to have boosted its top line in first-quarter 2024. Moreover, it has been displaying solid financial flexibility.

However, FEMSA has been witnessing weak operating margins for a while now, driven by margin contractions at the Coca-Cola FEMSA, Proximity Americas and Health divisions. The continuation of these trends is likely to have hurt FEMSA’s operating margins in the to-be-reported quarter.

Fomento Economico Mexicano S.A.B. de C.V. Price and EPS Surprise

 

Fomento Economico Mexicano S.A.B. de C.V. Price and EPS Surprise
Fomento Economico Mexicano S.A.B. de C.V. Price and EPS Surprise

Fomento Economico Mexicano S.A.B. de C.V. price-eps-surprise | Fomento Economico Mexicano S.A.B. de C.V. Quote

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Fomento Economico Mexicano S.A.B. de C.V. (FMX) : Free Stock Analysis Report

PepsiCo, Inc. (PEP) : Free Stock Analysis Report

The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report

Keurig Dr Pepper, Inc (KDP) : Free Stock Analysis Report

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