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Earnings Preview: Hershey

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Chocolate maker, The Hershey Company (HSY - Free Report) is all set to unveil its first quarter 2012 results on April 24, 2012, before the start of trading. The Zacks Consensus Estimate for the first quarter is 81 cents (estimated year-over-year improvement of 12.5%) on revenues of $1.65 billion (year-over-year increase of 5.9%).

Fourth Quarter and Full Year 2011 Recap

Hershey posted fourth quarter 2011 adjusted earnings of 70 cents per share, in line with the Zacks Consensus Estimate. However, it surpassed the prior-year adjusted earnings by 14.8%. Hershey’s net sales of $1.56 billion rose 5.7% from the prior-year quarter, buoyed by new product introductions in the U.S. and international markets, along with seasonal volume gains. Quarterly sales surpassed the Zacks Consensus Revenue Estimate of $1.556 billion.

The company posted adjusted fiscal 2011 earnings of $2.82 per share, up 10.6% from the previous year. Full-year earnings per share were also in line with the Zacks Consensus Estimate. Consolidated net sales were $6.1 billion in fiscal 2011, up 7.2% from the prior year. Fiscal 2012 sales were in line with the Zacks Consensus Estimate.

Agreement of Estimate Revisions

Over the past 7 days, 1 of 10 analysts covering Hershey has revised the earnings estimate for the first quarter of 2012. The revision has been made in the downward direction. Earnings estimates for fiscal 2012 have also been cut by just 1 of the 11 analysts covering the stock over the last 7 days with no upward movement. Over the last 30 days, 2 analysts have reduced their estimates for fiscal 2012.

The food industry is currently suffering from rising input costs and volume growth concerns which are offsetting the benefits from increased pricing. Though the analysts expect top-line growth to remain healthy, rising costs could undo most of the gains, imposing pressure on earnings.

Magnitude of Estimate Revisions

Given the limited estimate revisions, the consensus estimate for the first quarter of fiscal 2012 has remained static over the last 7 as well as 30 days at 81 cents. Similarly, the consensus earnings estimate has remained constant at $3.13 over the last 7 as well as 30 days for fiscal 2012.

Surprise History

Hershey has surpassed earnings estimates in two of the last four quarters while meeting the consensus in the last two. It recorded a maximum positive surprise of 2.86% in the first quarter of 2011. On an average, the earnings surprise was a positive 2.34% in the trailing four quarters.

Our Recommendation

We currently have a Neutral recommendation on The Hershey Company. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).

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