The Hershey Company
) is set to report second-quarter 2014 results on Jul 24, before
the market opens. Last quarter, the company delivered a negative
earnings surprise of 0.86%.
Let's see how things are shaping up for this announcement.
Factors to Consider this Quarter
Last week, the chocolate giant announced that it expects the
fiscal 2014 results to be at the lower end of its previous target.
Rising costs of Hershey's key ingredients like dairy, nuts, cocoa
and sugar are expected to dent its margins which prompted the
guidance cut. The costs of other inputs - packaging, fuel,
utilities and transportation - are also rising.
The maker of Reese's, Kit Kat and Ice Breakers raised wholesale
prices by approximately 8%, effective Jul 15, across its instant
consumable, multi-pack, packaged candy and grocery lines. However,
management does not expect the price hike to have any material
positive impact on 2014 results. According to Hershey, most of the
benefit from price increases will not materialize until the
Halloween buying season in 2015.
However, in anticipation of volume elasticity due to price
rises, management lowered its 2014 top-line expectations. Moreover,
2014 gross margins are expected to decline slightly from the
year-ago levels due to greater-than-anticipated commodity cost
Management also released unimpressive preliminary numbers for
the second quarter. For the second quarter, management expects net
sales to increase around 4.5%, including currency headwind of
approximately 0.75 point. Adjusted earnings per share are expected
in the range of 75 to 77 cents.
Our proven model does not conclusively show that Hershey is
likely to beat earnings this quarter. That is because a stock needs
to have both a positive
and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the
case here, as you will see below.
Zero Zacks ESP:
The Earnings ESP is 0.00%.
Hershey has a 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 consumer staples sector that have both a
positive Earnings ESP and a favorable Zacks Rank are:
The J.M. Smucker Co.
) with Earnings ESP of +1.46% and a Zacks Rank #3 (Hold).
Dr Pepper Snapple Group, Inc.
) with an Earnings ESP of +3.30% and a Zacks Rank #3.
Energizer Holdings, Inc.
), with Earnings ESP of +1.29% and a Zacks Rank #3.
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HERSHEY CO/THE (HSY): Free Stock Analysis
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