How Is Hershey Poised for the 2H; Will Sales Improve? - Analyst Blog

By Zacks Equity Research,

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On Sep 2, we issued an updated research report on The Hershey Company ( HSY ).

Hershey's second-quarter adjusted earnings of 76 cents per share, reported in July, were in line with the Zacks Consensus Estimate and also within the preliminary range released a week before. Earnings grew 5.6% from the prior-year quarter as lower advertising costs made up for weak gross margins and lower-than-expected sales in the U.S.

Increasing competition from competing snacking categories, less consumer shopping trips and consumer weakness hurt U.S. sales. Competition for Hershey's has become tougher than it was over the past few years.

Hershey's first half top-line performance was below expectations due to abnormal shopping patterns, increased competition in the confectionery category, continued challenging macro environment and softer international growth.

Moreover, the dramatic increase in dairy costs this year has severely hurt Hershey's gross margins in the first half of the year. The overall cost environment for food commodities is expected to be under pressure in 2014/2015 due to imbalance in domestic and worldwide agricultural supply and demand, and other macroeconomic factors. In response to the rising commodity costs, management raised wholesale prices by approximately 8% across its instant consumable, multi-pack, packaged candy and grocery lines, effective from Jul 15.

Management lacks visibility on further dairy cost rise in 2014, forcing it to lower gross margin expectations twice this year. In fact, management now expects its fiscal 2014 results to be at the lower end of its long-term targets due to greater-than-anticipated commodity cost headwinds.

However, management expects sales to pick up in the second half on the back of solid seasonal growth, new product launches and greater levels of merchandising, programming and innovation. Moreover, the latest price increase is notable and should boost sales and profits in 2015.

Overall, Hershey's strong brand positioning, strategic marketing investments in core brands, disciplined innovation and consumer capabilities make it attractive.

Other Stocks to Consider

Hershey carries a Zacks Rank #4 (Sell). Better-ranked food stocks include ConAgra Foods, Inc. ( CAG ), J&J Snack Foods Corp. ( JJSF ) and The Hain Celestial Group, Inc. ( HAIN ). All the three stocks carry a Zacks Rank #2 (Buy).

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HERSHEY CO/THE (HSY): Free Stock Analysis Report

HAIN CELESTIAL (HAIN): Free Stock Analysis Report

CONAGRA FOODS (CAG): Free Stock Analysis Report

J&J SNACK FOODS (JJSF): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: HSY , HAIN , CAG , JJSF

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