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Hershey (HSY) Q4 Earnings to Gain on Buyouts & Savings Plans

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The Hershey Company (HSY - Free Report) is set to come out with fourth-quarter 2018 results on Jan 31. The renowned chocolate provider has a mixed record of earnings surprises over the trailing four quarters. Let’s see how things are placed ahead of the upcoming quarterly results.

What to Expect?

The Zacks Consensus Estimate has remained stable in the past 30 days at $1.27, which reflects 23.3% growth from the year-ago quarter’s figure. However, the consensus mark for revenues is $2,014 million, reflecting a rise of 3.8% from the year-ago quarter.

Hershey Company (The) Price, Consensus and EPS Surprise

Factors Impacting Results

Amplify continues to be a driving factor for Hershey, which bodes well for its top line in the quarter to be reported. Notably, Hershey acquired Amplify — the maker of SkinnyPop and Tyrrell’s potato chips — in January 2018 to go beyond chocolate and gain a solid footing in the fast-growing market for healthy snacks. In fact, Hershey’s sales gained 3.7 points and 5.9 points during the third and the second quarters of 2018, respectively, from the acquisition of Amplify Snack Brands. Management earlier stated that it expects greater yields from this buyout in the forthcoming periods. Also, in September 2018, the company acquired Pirate Brands from B&G Foods (BGS - Free Report) to strengthen the snacking business.

Further, Hershey regularly brings innovation to its core brands to meet consumer demand and needs that are not addressed by its current portfolio. In this respect, Hershey's Gold and Reese's Outrageous, which were launched in 2018, have been doing well. We expect these factors to drive Hershey in the fourth quarter as well.

However, escalated freight and logistics expenses along with greater trade and packaging investments have been hurting Hershey’s gross margin and are threats to the company’s profitability. In fact, increased costs are posing as hurdles for many food companies like Pilgrim's Pride (PPC - Free Report) and Campbell Soup (CPB - Free Report) , among others.

Coming back to Hershey, the company focuses on optimizing its portfolio to deliver increased profitability. In this respect, the company’s SKU rationalizing efforts have been progressing well. In addition, the company is well on track with its Margin for Growth multi-year program. This is also intended to improve overall operating margin through supply-chain optimization, a streamlined operating model and reduced administrative expenses, with savings primarily being achieved in 2018 and 2019. These moves are anticipated to boost efficiency, leverage global shared services and common processes, and increase capacity utilization. Such efforts are expected to help Hershey offset cost-related hurdles, and aid its bottom line in the fourth quarter.

What the Zacks Model Unveils

Our proven model doesn’t show that Hershey is likely to beat bottom-line estimates this quarter.  For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Hershey carries a Zacks Rank #3, its Earnings ESP of -1.91% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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