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Can Hershey (HSY) Spring a Surprise this Earnings Season?
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The Hershey Company (HSY - Free Report) is slated to report fourth-quarter 2016 results on Feb 3, before the opening bell. Last quarter, the company posted a positive earnings surprise of 9.32%.
The chocolate maker surpassed earnings estimates in all of the last four quarters, the average surprise being 6.48%.
Let’s see how things are shaping up prior to this announcement.
Factors to Consider
Hershey’s sales have been weak since 2014 due to lackluster category trends, increased competition from the broader snacking category and soft international growth. The top-line weakness continued in 2016 with sales declining 0.1% in the first nine months of the year due to persistently weak demand in China.
In order to counter the tepid sales, management has optimized its North American manufacturing footprint, added manufacturing capabilities in international markets, increased supply chain productivity, invested in cost saving projects and improved the sales mix significantly under its continuous improvement and productivity (“CIP”) program. In 2016, the company expects to achieve combined (CIP and business productivity initiative) savings of around $135 million.
The company expects to see improvement in the marketplace results with profitable U.S. market, driven by innovation and larger in-store merchandising and trade support. Hershey believes its candy, mint and gum (“CMG”) is an attractive category capable of solid growth over the long term when supported with the right mix of customer and consumer marketing. Hence, the company intends to make required investments to drive growth and market share.
It also expects its CMG category to improve sequentially in the fourth quarter. The launch of Cookie Layer Crunch may add 100–200 basis points to the quarterly sales.
However, the company expects to incur higher advertising and related consumer marketing expense in the to-be-reported quarter. Hershey expects its gross margin in 2016 to contract slightly compared to the previous year.
For the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $1.08, reflecting a decrease of 0.2% year over year, while the consensus for revenues is at $1.99 billion, implying 4.4% year-over-year growth.
Earnings Whisper
Our proven model does not conclusively show that Hershey is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below:
Zacks ESP: Hershey’s Earnings ESP is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.08. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Hershey’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Here are some companies in the broader consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
The Clorox Company (CLX - Free Report) has an Earnings ESP of +0.82% and a Zacks Rank #3. The company is expected to report quarterly results on Feb 3.
Sanderson Farms, Inc. has an Earnings ESP of +4.48% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Feb 23.
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Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
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Can Hershey (HSY) Spring a Surprise this Earnings Season?
The Hershey Company (HSY - Free Report) is slated to report fourth-quarter 2016 results on Feb 3, before the opening bell. Last quarter, the company posted a positive earnings surprise of 9.32%.
The chocolate maker surpassed earnings estimates in all of the last four quarters, the average surprise being 6.48%.
Let’s see how things are shaping up prior to this announcement.
Factors to Consider
Hershey’s sales have been weak since 2014 due to lackluster category trends, increased competition from the broader snacking category and soft international growth. The top-line weakness continued in 2016 with sales declining 0.1% in the first nine months of the year due to persistently weak demand in China.
In order to counter the tepid sales, management has optimized its North American manufacturing footprint, added manufacturing capabilities in international markets, increased supply chain productivity, invested in cost saving projects and improved the sales mix significantly under its continuous improvement and productivity (“CIP”) program. In 2016, the company expects to achieve combined (CIP and business productivity initiative) savings of around $135 million.
The company expects to see improvement in the marketplace results with profitable U.S. market, driven by innovation and larger in-store merchandising and trade support. Hershey believes its candy, mint and gum (“CMG”) is an attractive category capable of solid growth over the long term when supported with the right mix of customer and consumer marketing. Hence, the company intends to make required investments to drive growth and market share.
It also expects its CMG category to improve sequentially in the fourth quarter. The launch of Cookie Layer Crunch may add 100–200 basis points to the quarterly sales.
However, the company expects to incur higher advertising and related consumer marketing expense in the to-be-reported quarter. Hershey expects its gross margin in 2016 to contract slightly compared to the previous year.
For the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $1.08, reflecting a decrease of 0.2% year over year, while the consensus for revenues is at $1.99 billion, implying 4.4% year-over-year growth.
Earnings Whisper
Our proven model does not conclusively show that Hershey is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below:
Zacks ESP: Hershey’s Earnings ESP is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.08. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Hershey’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Hershey Company (The) Price and EPS Surprise
Hershey Company (The) Price and EPS Surprise | Hershey Company (The) Quote
Stocks to Consider
Here are some companies in the broader consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
The Clorox Company (CLX - Free Report) has an Earnings ESP of +0.82% and a Zacks Rank #3. The company is expected to report quarterly results on Feb 3.
Coty Inc. (COTY - Free Report) , slated to report its quarterly numbers on Feb 2, has an Earnings ESP of +5.56% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sanderson Farms, Inc. has an Earnings ESP of +4.48% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Feb 23.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>