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Earnings Preview: Hershey

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We expect chocolate maker, The Hershey Company (HSY - Free Report) to beat expectations when it reports fourth quarter and full year 2012 results on Jan 31 before the market opens.

Why a Likely Positive Surprise?

Our proven model shows that Hershey’s is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Hershey’s currently has an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +1.33%.

Zacks #3 Rank (Neutral): Note that stocks with Zacks Ranks of #1, #2 and #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. Hershey’s currently carries a Zacks Rank # 3 (Hold).

The combination of the stock’s Zacks Rank #3 (Hold) and +1.33% ESP makes us confident of a positive earnings beat on Jan 31.

What is Driving the Better Than Expected Earnings?

Holiday-driven spending, lower cost inflation, better pricing, improving volumes and strong productivity are expected to lead to a positive earnings surprise in the upcoming quarter.

Hershey has outperformed in all the quarters of 2012 and has raised its guidance thrice in 2012, highlighting its attractive earnings potential. Over the past 10 quarters, the company has beaten estimates in 6 while it matched in 4. The outlook for 2013 is also encouraging, especially the expectation of no cost inflation in the year.

Other Stocks to Consider

Hershey’s is not the only bullish firm this earnings season. We also see likely earnings beats coming from the following peers in the consumer staples industry:

Flowers Foods, Inc. (FLO - Free Report) : Earnings ESP of +4.00% and Zacks Rank #1 (Strong Buy).

ConAgra Foods, Inc. (CAG - Free Report) : Earnings ESP of +3.64% and Zacks Rank #2 (Buy).

Cal-Maine Foods, Inc. (CALM - Free Report) : Earnings ESP of +1.74% and Zacks Rank #3 (Hold).

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