The Hershey Company (HSY): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
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 its 2014 earnings and revenue outlook due to weak year-to-date results, softer-than-previously-expected international sales growth and commodity costs volatility. Shares declined almost 6% in pre-market trading . However, the July 2014 price increase is notable and 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.

Overview:

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 is expected to significantly boost its North American business.


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



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