Hershey reported dismal third-quarter 2014 results following a weak
first-half performance. Third-quarter adjusted earnings of $1.05
per share missed the Zacks Consensus Estimate by almost 3%.
Earnings grew 1% year over year as lower-than-expected brand
building and advertising costs made up for softer-than-expected
international sales and weak gross margins. The dramatic increase
in dairy costs this year has severely hurt Hershey's gross margins.
Moreover, the company cut the 2014 earnings and revenue outlook due
to weak year-to-date results, softer-than-expected international
sales growth and commodity costs volatility. However, the
significant price hike in Jul 2014, coupled with increased
advertising support, should boost sales and profits in 2015.
Moreover, Hershey's strong brand positioning, strategic marketing
investments in core brands, disciplined innovation and consumer
capabilities make it attractive. We, thus, have a Neutral
recommendation on the stock.
Founded in 1893 and based in Hershey, PA, The Hershey Company
(HSY), is the largest chocolate manufacturer in North America as
well as a global leader in sugar confectionery. In addition,
Hershey manufactures pantry baking ingredients, toppings and
beverages and gum and mint refreshment products.
Hershey is well known for chocolate products under the
Hershey's, Reese's and Kisses brands, as well as non-chocolate
confectioneries, such as Jolly Rancher candy, Ice Breakers mints
and chewing gum, Breath Savers mints and Bubble Yum bubble gum.
The two operating segments of the company comprise geographic
regions North America and International. The company's two
strategic units are the chocolate business unit and the sweets and
refreshment business unit.
The company manufactures and markets several products through
licensing agreements with Cadbury Ireland (York, Peter Paul Almond
Joy and Peter Paul Mounds), Cadbury U.K. (Cadbury and Caramello)
and Nestle (Kit-Kat and Rolo).
In Jan 2012, the company acquired British Columbia-based private
confectionary company, Brookside Foods Ltd., which has improved the
performance of its North American business.
The Hershey Company (HSY): Read the Full Research
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