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The Hershey Company (HSY - Analyst Report) reaffirmed its full-year 2013 guidance and long- term targets for revenue and adjusted earnings per share at the 2013 Consumer Analyst Group of Europe (CAGE) conference held in London.  

2013 Earnings Outlook

The company maintained its outlook for net sales growth in the range of 5%–7%. Volume growth in core brands in the U.S. and internationally, driven by the increased investments in advertising and go-to-market capabilities; increased innovation in the form of Kit Kat Minis, Twizzlers Bites, Jolly Ranchers Bites, Kisses Deluxe, Hershey's Mais and others; and introduction of Brookside brand products in core retail channels in the U.S. are expected to help Hershey achieve its sales targets. The company also plans to expand its season’s business in 2013.

Gross margins are expected to expand in 2013 by 180–200 basis points, driven by input cost deflation, productivity gains and cost savings.

The company maintained its adjusted earnings guidance in a range of $3.56–$3.63, despite planned increases in advertising and marketing costs. The adjusted earnings guidance represents 10%–12% year- over-year growth.   

Higher investments in core brand marketing, regular product innovation, productivity improvement and commodity cost deflation are expected to help Hershey achieve its earnings targets despite a challenging macroeconomic environment.  

Long-Term Outlook  

The company discussed several initiatives to drive growth over the long term.

The company is bullish about its North America business and intends to make further investments and expand its presence in the region in order to drive growth. The company intends to continue focusing on its core brands in the U.S.

Hershey is also keen on expanding its geographic footprint. The company intends to drive its top-line growth further by focusing on emerging countries with strong GDP and increasing consumer spending power. Hershey intends to expand its five core brands of Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher and Ice Breakers in these markets.

The company believes that net sales outside the U.S. and Canada will increase 15% to 20% in 2013, higher than 12% in 2012, driven largely by innovation and increased advertising investments for both core brands as well as new products. By the end of 2014, the company intends to achieve $1 billion in net sales in markets outside the U.S. and Canada. Over the long term, Hershey’s expects to expand its international revenues from 10% to 25% of net sales.

Given the company’s robust liquidity position, Hershey is investing in marketing in order to drive revenue increase. In fact, advertising is the most important component of brand building. The company expects its advertising to be the same or double its net sales growth. The company’s brand investments give it a competitive advantage and are one of the principal reasons behind the company witnessing better volume elasticity versus its peers.

The company reaffirmed its long-term outlook. Over the long term, Hershey expects its organic sales to grow 5–7% and adjusted earnings per share to increase 8–10%. The company aspires to achieve $10 billion in net sales by the end of 2017 on the back of strong organic growth and business development. 

Hershey expects to generate operating cash flow, averaging $900 million to $1 billion annually. In addition, the company is targeting 50% dividend payout ratio. Capital spending is expected to be slightly below 4% over the next several years, on an average.  

Hershey currently carries a Zacks Rank #3 (Hold).   

Other companies in the sector that warrant investor attention include Flowers Foods, Inc. (FLO - Snapshot Report), J&J Snack Foods Corp. (JJSF - Snapshot Report) and ConAgra Foods, Inc. (CAG - Analyst Report). While Flowers Foods and J&J carry a Zacks Rank #1 (Strong Buy), ConAgra carries a Zacks Rank #2 (Buy).

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