We expect chocolate giant, The Hershey Company (HSY - Analyst Report) , to beat expectations when it reports fourth-quarter and full-year 2013 results on Jan 30. Last quarter, it delivered a positive earnings surprise of 2.97%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Hershey is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 2.35%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #2 (Buy): Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Hershey’s Zacks Rank #2 and +2.35% ESP makes us confident about a positive earnings beat.
What is Driving the Better-Than-Expected Earnings?
Despite being slightly soft in the third quarter, sales are expected to pick up in the fourth gaining from the peak holiday season. Core brand volume growth, innovation, heavy season specific advertising/promotion and merchandising and continued momentum in the international markets are expected to boost the top line.
In the fourth quarter, the company has carried out solid in-store merchandising and programming across all channels to capitalize on the Halloween and holiday season. Early shipping of some new products in Dec 2013, which were scheduled for 2014, is also expected to boost sales. In the international markets, the company expects to see a sequential improvement in the fourth quarter driven by product launches, core brand growth and solid seasonal plans.
However, both advertising and selling/marketing expenses are expected to increase meaningfully in the fourth quarter which can pressurize margins.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
ConAgra Foods, Inc. (CAG - Analyst Report) , withEarnings ESP of +1.54% and a Zacks Rank #2.
Mondelez International, Inc. (MDLZ - Analyst Report) , Earnings ESP of +2.27% and a Zacks Rank #2.
ColumbiaSports Inc. (COLM - Analyst Report) , with Earnings ESP of +5.62% and a Zacks Rank #2.