Hershey Earnings Preview: Solid EPS and Revenue Growth Expected

Hershey HSY, the iconic chocolate maker, is scheduled to report second-quarter 2012 results Thursday, July 26, before the U.S. markets open. Investors are hoping it can build on four-straight quarters of revenue increases. Expectations Analysts on average predict that Hershey will report per-share earnings of $0.61 for the three months that ended in June, which included the Easter and Mother's Day holidays. Revenue is projected to total about $1.4 billion. In the same period last year, the company reported $0.56 per share and $1.3 billion in revenue. The earnings per share (EPS) estimate has not changed in the past 60 days, and Hershey has not fallen short of consensus EPS estimates in more than ten quarters. The positives surprise in the first quarter was 15 cents per share, or 18.5 percent higher than analysts expected. The company attributed its strong first-quarter results in part to price increases. Hershey also raised its full-year outlook for both sales and earnings, along with announcing some product launches for the second-quarter. Shares jumped to a multiyear high following the report. Looking ahead to the current quarter, the forecast calls for sequential and year-over-year growth of both EPS and revenue. So far, analysts expect full-year per-share earnings growth of about 12 percent, and revenue to be more than 8 percent higher than in the previous year. The Company The Hershey Company manufactures, markets and distributes various chocolate and confectionery products, pantry items, refreshment products and food additives worldwide. Products include Hershey Bars and Kisses, Reese's Peanut Butter Cups, Twizzlers, KitKats and more. Hershey is an S&P 500 component with a market capitalization of more than $15.5 billion and is headquartered in Hershey, Pa. Competitors include Kraft Foods KFT (which owns chocolate-making rival Cadbury), privately-held Mars, Nestle and Tootsie Roll TR. Kraft is expected to report modest EPS and sales growth in early August. Tootsie Roll also reports in early August. During the three months that ended in June, Hershey launched a program to restore cocoa growing in southern Mexico, appointed a new general counsel, launched its Simple Pleasures line of chocolates and announced its strategy for continued growth and long-term sales targets. Performance Hershey's long-term EPS growth forecast is about 8.5 percent. The company's price-to-earnings (P/E) ratio is higher than the industry average, but so is its operating margin. The return on equity is a healthy 76 percent, much higher than that of Kraft Foods. Hershey has a dividend yield near 2 percent. Of analysts surveyed by Thomson/First Call, only seven out of 17 recommend buying shares. Their mean price target, (a sign of where they think the share price will go), is only about a dollar higher than the current share price. The stock has pulled back about 3 percent from a recent multiyear high of $72.97. The share price is more than 15 percent higher year-to-date and above the 50-day 200-day moving averages. Over the past six months, the stock has outperformed Kraft Foods and the broader markets.