Will Susser Holdings (SUSS) Miss Q2 Earnings Estimates? - Analyst Blog

Texas-based Susser Holdings Corporation (SUSS) is set to report second-quarter 2014 results before the opening bell on Aug 8. Last quarter, this gasoline retailer posted a negative earnings surprise of 550.00%.

Susser Holdings has more than 600 Stripes and Sac-N-Pac retail stations selling gasoline, diesel fuel and convenience store items across Texas, New Mexico and Oklahoma. The company also provides restaurant services at more than 400 of its Stripes locations, mainly under its Laredo Taco brand. Additionally, Susser Holdings is also a majority owner in Susser Petroleum Partners L.P. (SUSP), one of the largest wholesale fuel distributors in Texas.

Let's see how things are shaping up prior to the announcement.

Factors to Consider

On Jul 15, Susser Holdings announced preliminary second quarter results, wherein it expects same-store merchandise sales growth of approximately 4% driven by the Easter holiday. Last year, growth was 2.2%, which did not include Easter sales.

The company expects volume decline at retail average per-store by approximately 0.4% for the second quarter in comparison to growth of 5.5% in the year-ago quarter. Excluding the Sac-N-Pac stores acquired in January, retail average per-store fuel volumes grew 2% year over year but was still sluggish than the year-ago growth.

Susser Holdings opened five new Stripes convenience stores and acquired two stores during the second quarter of 2014.

We note that the company is struggling with higher cost structure due to labor inefficiencies related to ramping up of new Stripes stores; extra labor and travel costs for new store managers and area managers; and higher health care costs. The Affordable Health Care Act has added about $3 million to $4 million annually to the company's health care costs. This has led to soft earnings results in the past few quarters. In fact, the company has posted negative surprise in three out of the last four quarters.

In April, Susser Holdings agreed to get acquired by natural gas transportation and storage partnership Energy Transfer Partners L.P. (ETP) for about $1.8 billion in cash and stock. The transaction is expected to conclude in the third quarter following which Energy Transfer will get the general partner interest and the incentive distribution rights in Susser Petroleum Partners and 50.2% of its common units, plus Susser Holdings' retail operations. Energy Transfer anticipates more than $70 million in annual savings and foresees the possibility of additional savings (read more: Energy Transfer to Snap Up Susser Holdings for $1.8B). On Aug 28, stockholders of Susser Holdings will vote on the proposed merger agreement.

Earnings Whispers?

Our proven model does not conclusively show that Susser Holdings 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, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: The ESP for Susser Holdings is -11.34% as the Zacks Consensus Estimate of 97 cents is higher than the Most Accurate estimate of 86 cents per share.

Zacks Rank #4 (Sell): We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Papa John's International Inc. (PZZA), with an Earnings ESP of +2.70% and a Zacks Rank #2 (Buy). 

Supervalu Inc (SVU), with an Earnings ESP of +9.09% and a Zacks Rank #2.