Deutsche Bank Previews Large Food Companies 3Q Earnings

Deutsche Bank issued 3Q 2014 earnings previews for large food companies Friday.

Analysts led by Eric Katzman noted that Kraft Foods Group Inc. KRFT and Kellogg Company K are facing a challenging environment while The Hershey Company HSY received positive comments from the firm.

Kraft has largely traded largely sideways for the past three months, down 2.9 percent since July 25.  Kellogg has seen similar range-bound performance, and was down 5.6 percent since late July.  Hershey is the only one up since July 25, having posted a gain of 1.85 percent.

Below are estimates from the Deutsche Bank preview reports along with ratings and price targets.

The Hershey Company - Buy, $108 price target
Reports:  Wednesday, October 29, 8:30 am EST

Estimated EPS of $1.09, $0.01 above consensus, while noting some investor pessimism around 3Q results. We model +5-6 percent sales (vol-driven) to $1.96 billion and +6 percent EBIT growth to $399 million.

We expect the focus to be on U.S. consumer / competitive reaction to pricing, new product results, and key intl markets (China, Mexico, Brazil). We look for an update on input costs incl. cocoa (supply concerns) and dairy. Lastly, investors are likely to want an update on the CFO search and initial Shanghai Golden Monkey integration.

Kraft Foods Group - Hold, $59 price target
Reports:  Wednesday, October 29.

Estimated EPS (excl. all items incl. mark-to-market and restructuring charges) of $0.77 vs. $0.70 year-ago. We now look for sales +2 percent ($4.5 billion) with EBIT up 12 percent to $822 million.

With evidence the U.S. food industry remains challenged, we expect the focus to be on volume, elasticity and promo efficiency. We look for questions around input costs vs. productivity programs. Lastly, investors will likely look for guidance on industry trends and question how or if (after several years) Kraft is rebuilding brand equity.

Kellogg Company - Hold, $63 price target
Reports: Thursday, October 30

Estimated EPS of $0.93 vs. cons. of $0.92. We expect flat sales (+1 percent price/mix, -1-2 percent vol, +0-1 percent FX) of $3.7 billion with EBIT down 3 percent to $527 million.

We expect a focus on the top line given greater industry-wide promo spend vs. weak volume. Nielsen data suggests continued weakness in Kellogg’s key categories / share (cereal, snack bars, crackers). We anticipate questions on Project K savings and reinvestment projects. Finally we look for an updated outlook on 2014-2015 input costs.