On Dec 3, we maintained a Neutral recommendation on
The Hershey Company
) following mixed third-quarter results announced on Oct 24.
Why the Neutral Recommendation?
The chocolate giant's third-quarter 2013 adjusted earnings of
$1.04 per share beat the Zacks Consensus Estimate of $1.01 by
2.9%. Earnings also rose 19.5% from the prior-year quarter as
solid margins, lower selling and marketing costs and taxes made
up for the relatively softer revenue performance in the
Revenues increased 6.1%, due to sales volume gains. Volumes
grew due to market share gains of core brands and new product
launches in both the U.S. and international markets. Sales,
however, missed the Zacks Consensus Estimate of $1.88
Though the third-quarter revenues were slightly soft,
management expects sales to pick up in the fourth quarter as
confectionery sales peak in the upcoming holiday season.
Management aims to achieve the target on the back of core
brand volume growth, innovation, heavy season specific
advertising/promotion and merchandising, along with continued
momentum in the international markets. However, both advertising
and selling/marketing expenses are expected to increase
significantly in the fourth quarter, which can put margins under
Overall, Hershey's strong brand positioning, strategic
marketing investments in core brands as well as disciplined
innovation and consumer capabilities make it attractive.
However, more than 80% of the company's business is generated
in the U.S. Markets outside the U.S. have accounted for only
14%-16% of the company's net sales between 2010 and 2012. Though
the company is increasing investments in overseas markets,
particularly in Mexico, Brazil, India and China, competitors like
Mondelez International Inc.
) already have a strong presence outside North America. We would
remain on the sidelines until we see some meaningful progress and
substantial profitability from these international expansion
Other Stocks to Consider
Hershey carries a Zacks Rank #3 (Hold). Other better-ranked
food companies are
Pinnacle Foods Inc.
Omega Protein Corporation
). While Omega Protein sports a Zacks Rank #1 (Strong Buy),
Pinnacle Foods carries a Zacks Rank #2 (Buy).
HERSHEY CO/THE (HSY): Free Stock Analysis
MONDELEZ INTL (MDLZ): Free Stock Analysis
OMEGA PROTEIN (OME): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
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