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Hershey Keeps '15 View, Will Use Simpler Ingredients - Analyst Blog

Zacks Equity Research
Updated

The Hershey Company (HSY), on Wednesday, reiterated the 2015 outlook during a presentation at the Consumer Analyst Group of New York (CAGNY) conference.

At the conference, the chocolate giant also declared a $250M share repurchase agreement and announced plans to use simpler ingredients in its products to cater to the growing consumer demand for more natural and locally sourced products.

2015 Outlook Retained

2015 net sales growth guidance was maintained in the range of 5.5% to 7.5%. However, we would like to remind investors that Hershey had lowered the sales guidance at the fourth-quarter conference call from the 7% to 9% range to account for the greater-than-expected currency headwinds.

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The guidance includes a negative impact of 1 percentage point (pp) from currency and a positive contribution from acquisitions of around 2.5 pp.

Gross margins are expected to increase 135 to 145 basis points in 2015 gaining from price increases announced last year, recent decline in input costs and productivity gains.

Management maintained adjusted earnings guidance in a range of $4.30–$4.38. The earnings guidance was also lowered from $4.37–$4.47 at the fourth-quarter conference call. The new guidance represents 8% to 10% growth. Acquisitions and divestitures are expected to dilute earnings by 3 to 5 cents per share.

New Share Buyback Program

Management announced the approval of a new share buyback program worth $250 million that will commence post the completion of the current program.

Simplicity in Ingredients

Hershey also announced plans to use simpler ingredients like locally produced milk, roasted California almonds, cocoa beans and sugar in its products. It will eventually shift to using simpler ingredients in its popular chocolate brands like Hershey’s Kisses, Milk Chocolates and Hershey’s Milk Chocolate Bars.

The company also plans to source its ingredients responsibly and provide information on the sourcing, manufacturing and labeling of its products on packaging as well as online.

Stocks to Consider

Hershey carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader food sector include SUPERVALU, Inc. (SVU), Sanderson Farms, Inc. (SAFM) and Flowers Foods, Inc. (FLO). While SUPERVALU and Sanderson Farms sport a Zacks Rank #1 (Strong Buy), Flowers Foods has a Zacks Rank #2 (Buy).


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