On Jun 12, we issued an updated research report on
The Hershey Company
On Apr 24, Hershey announced lower-than-expected first-quarter
2014 results as sales softened and input costs increased. Hershey
missed the Zacks Consensus Estimate for both earnings and revenues
- possibly one of the softest results in the company's history.
First-quarter adjusted earnings of $1.15 per share grew 5.5%
from the prior-year quarter as lower brand building and advertising
costs made up for a weaker top-line performance. Despite increasing
2.4% from the prior-year quarter, revenues were lower than
management's expectations. Declines in Latin America and
inconsistent U.S. retail trends hurt the top line during the
quarter. Tough year-ago comparisons which included strong
distribution gains by Brookside, a late Easter and timing of
innovation also hurt sales.
Though management maintained the top- and bottom-line guidance
for 2014, it lowered gross margin expectations in anticipation of
higher dairy costs.
The weak top-line performance in the first quarter raised
concern among a group of analysts. This group questioned whether
the soft revenues seen in the first quarter was just a one-time
miss or an indication for further top-line weakness due to growing
competitive pressure. However, another group of firms believe that
Hershey's sales should recover through the remaining of 2014 on the
back of improving consumer trends, several product launches (in
both the U.S. and international markets) and greater levels of
advertising and consumer marketing.
However, 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. Dairy costs have started increasing
significantly in the past few months. Management lacks visibility
on further dairy cost rise in 2014, forcing it to lower gross
margin expectations for the year. We believe rising dairy costs
could prove to be a major headwind for the company in the next few
Other Stocks to Consider
Hershey carries a Zacks Rank #3 (Hold). Better-ranked
food/beverage stocks include
The WhiteWave Foods Company
B&G Foods, Inc.
The Hain Celestial Group, Inc.
). All the three stocks carry a Zacks Rank #2 (Buy).
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HERSHEY CO/THE (HSY): Free Stock Analysis
HAIN CELESTIAL (HAIN): Free Stock Analysis
B&G FOODS CL-A (BGS): Free Stock Analysis
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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